Empresa Nacional del Petróleo

Transcription

1 OFFERING MEMORANDUM Empresa Nacional del Petróleo U.S.$500,000, % Notes due 2020 The notes will mature on August 10, Interest on the notes will be payable on February 10 and August 10 of each year, beginning on February 10, Upon the occurrence of a change of control event, you will have the right to require us to purchase all or a portion of your notes at a purchase price in cash equal to 100% of the principal amount of your notes plus accrued and unpaid interest, if any. The notes are not redeemable prior to maturity, except we may redeem the notes at our option in whole (but not in part), at any time, at 100% of the principal amount thereof plus accrued and unpaid interest, if the laws or regulations affecting taxes in the Republic of Chile change in certain respects. The notes will be our unsecured general obligations and will rank equally with all of our existing and future unsecured and unsubordinated indebtedness. Although we are 100% owned by the Republic of Chile, the Republic of Chile is not liable for our obligations under the notes. This offering memorandum contains additional information regarding the terms of the notes, including covenants and transfer restrictions. Price per note: % plus accrued interest, if any, from August 10, See Risk Factors beginning on page 14 of this offering memorandum for a discussion of certain risks you should consider in connection with an investment in the notes. The notes have not been registered under the U.S. Securities Act of 1933, as amended (the Securities Act), or the securities laws of any other jurisdiction. We are offering the notes only to qualified institutional buyers within the meaning of Rule 144A under the Securities Act, and in offshore transactions to persons other than U.S. persons as defined in Regulation S under the Securities Act. For a description of certain restrictions on transfer of the notes, see Transfer Restrictions. We applied to admit the notes to listing on the Official List of the Luxembourg Stock Exchange and to trading on the Euro MTF market of the Luxembourg Stock Exchange. This offering memorandum constitutes a prospectus for the purpose of the Luxembourg law dated July 10, 2005 on Prospectuses for Securities. Currently, there is no public market for the notes. Neither the U.S. Securities and Exchange Commission nor any U.S. state securities commission has approved or disapproved of these securities or determined if this offering memorandum is accurate or complete. Any representation to the contrary is a criminal offense. The notes may not be publicly offered or sold, directly or indirectly, in Chile, or to any resident of Chile. The notes will be ready for delivery in book-entry form through The Depository Trust Company on or about August 10, Global Coordinator BofA Merrill Lynch Joint Book-Running Managers BofA Merrill Lynch BBVA Securities BNP PARIBAS Scotia Capital The date of this offering memorandum is August 5, 2010

2 TABLE OF CONTENTS Page Notice to New Hampshire Residents... ii Enforceability of Civil Liabilities...iii Cautionary Statement Regarding Forward- Looking Statements...iii Presentation of Financial and Statistical Information... iv Summary... 1 Risk Factors Use of Proceeds Exchange Rate Information Exchange Controls Capitalization Selected Consolidated Financial and Other Information Page Management s Discussion and Analysis of Financial Condition and Results of Operations Business Regulatory Framework Management Related Party Transactions Description of the Notes Taxation Plan of Distribution Transfer Restrictions General Information Legal Matters Independent Auditors Index to the Consolidated Financial Statements...F-1 For the sale of the notes in the United States, we are relying upon an exemption from registration under the Securities Act, for an offer and sale of securities that do not involve a public offering. By purchasing notes, you will be deemed to have made certain acknowledgments, representations and agreements as set forth under Transfer Restrictions. We are not, and the initial purchasers are not, making an offer to sell the notes in any jurisdiction except where such an offer or sale is permitted. You should understand that you will be required to bear the financial risks of your investment for an indefinite period of time. We have submitted this offering memorandum solely to a limited number of qualified institutional buyers in the United States and to persons other than U.S. persons in offshore transactions so they can consider a purchase of the notes. We have not authorized the use of this offering memorandum for any other purpose. This offering memorandum may be distributed and its contents disclosed only to prospective investors to whom it is provided. By accepting delivery of this offering memorandum, you agree to these restrictions. See Transfer Restrictions. This offering memorandum is based on information provided by us and other sources that we believe to be reliable. The initial purchasers and we cannot assure you that such information provided to us is accurate or complete. This offering memorandum summarizes certain documents and other information and we refer you to them for a more complete understanding of what we discuss in this offering memorandum. In making an investment decision, you must rely on your own examination of Empresa Nacional del Petróleo (ENAP) and the terms of the offering and the notes, including the merits and risks involved. We are not making any representation to any purchaser regarding the legality of an investment in the notes by such purchaser under any legal investment or similar laws or regulations. You should not consider any information in this offering memorandum to be legal, business or tax advice. You should consult your own counsel, accountant, business advisor and tax advisor for legal, tax, business and financial advice regarding any investment in the notes. The notes may not be publicly offered or sold, directly or indirectly, in Chile, or to any resident of Chile. i

3 We are responsible for the information contained in this offering memorandum. We have not, and the initial purchasers have not, authorized any person to provide you with different information or to make any representation not contained in this offering memorandum, and we take no responsibility for any other information that others may give you. You should assume that the information contained in this offering memorandum is accurate only as of the date on the front cover of this offering memorandum. Our business, financial condition, results of operations and prospects may have changed since that date. You should contact the initial purchasers with any questions about this offering or if you require additional information to verify the information contained in this offering memorandum. We reserve the right to withdraw this offering of the notes at any time, and we and the initial purchasers reserve the right to reject any commitment to subscribe for the notes in whole or in part and to allot to any prospective investor less than the full amount of notes sought by that investor. The initial purchasers and certain related entities may acquire for their own account a portion of the notes. You must comply with all applicable laws and regulations in force in your jurisdiction and you must obtain any consent, approval or permission required by you for the purchase, offer or sale of the notes under the laws and regulations in force in your jurisdiction to which you are subject or in which you make such purchase, offer or sale, and neither we nor the initial purchasers will have any responsibility therefor. The contents of our website do not form part of this offering memorandum. NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES ANNOTATED, OR THE RSA, WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ii

4 ENFORCEABILITY OF CIVIL LIABILITIES We are a state-owned company organized under the laws of Chile. All of our directors and executive officers and certain experts named in this offering memorandum reside outside the United States (principally in Chile) and all or a substantial portion of our assets and the assets of such persons is located outside the United States. As a result, except as described below, it may not be possible to effect service of process within the United States on, or bring an action against, or enforce a foreign judgment against us or such persons in a U.S. court. In addition, Chilean courts may not enforce judgments against us rendered by a U.S. court as no treaty exists between the United States and Chile for the reciprocal enforcement of foreign judgments. There is also doubt as to the enforceability in Chilean courts of judgments of U.S. courts obtained in actions predicated upon the civil liability provisions of the U.S. federal securities laws. Chilean courts, however, have enforced judgments rendered in the United States based upon principles of comity and reciprocity, subject to the review in Chile of such judgment in order to ascertain whether certain basic principles of due process and public policy have been respected, without reviewing the merits of the case. Lastly, there is doubt as to the enforceability in original actions in Chilean courts of liabilities predicated solely upon U.S. federal securities laws. We will appoint the Chilean consul in New York City upon whom process may be served in any action arising out of or based upon the notes. See Description of the Notes. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This offering memorandum contains forward-looking statements. We may from time to time make forward-looking statements in our annual report, in prospectuses, press releases and other written materials and in oral statements made by our officers, directors or employees to analysts, institutional investors, representatives of the media and others. Examples of these forward-looking statements include: projections of net income (loss), capital expenditures, cash flow, debt service or other financial items, statements of our plans, objectives or goals, including those relating to anticipated trends, competition and regulation, statements about our future economic performance or that of Chile or other countries in which we operate or have investments, and statements of assumptions underlying these statements. Words such as believe, could, may, will, anticipate, plan, expect, intend, target, estimate, project, potential, predict, forecast, guideline, should and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying these statements. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in these forward-looking statements. These factors, some of which are discussed under Risk Factors, include economic and political conditions and government policies in Chile or elsewhere, prices for crude oil and refined products, inflation rates, exchange rates, regulatory developments, customer demand and competition. We caution you that the foregoing list of factors is not exclusive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements. iii

5 You are cautioned not to place undue reliance on these forward-looking statements, which reflect our views only as of the date they are made, and we do not undertake any obligation to update them or publicly to release the result of any revisions to these forward-looking statements in light of new information or future developments after the date of this offering memorandum. PRESENTATION OF FINANCIAL AND STATISTICAL INFORMATION Our consolidated financial statements for all periods prior to January 1, 2009, have been prepared in conformity with generally accepted accounting principles in Chile and the rules of the Superintendencia de Valores y Seguros (the Chilean Superintendency of Securities and Insurance or SVS), which we refer to as Chilean GAAP. In October 2006, the SVS adopted a rule that requires all companies with public securities in Chile to prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the International Accounting Standards Board (IASB) beginning in January We began the process of converting our accounting systems over to the IFRS system in May 2008 and our financial statements have been prepared in accordance with IFRS as of January 1, Our consolidated financial statements as of and for the years ended December 31, 2008 and December 31, 2009 and as of and for the three months ended March 31, 2009 and March 31, 2010, contained in this offering memorandum, have been prepared in accordance with IFRS. As of January 1, 2009, we are no longer preparing financial statements in accordance with Chilean GAAP. IFRS differs in certain significant respects from Chilean GAAP. See note four to our consolidated financial statements for the years ended December 31, 2008 and December 31, 2009 contained elsewhere in this offering memorandum for a description of the principal differences between Chilean GAAP and IFRS as they relate to us and our consolidated subsidiaries. During the third quarter of 2009, we recast the presentation of the statement of financial position from a liquidity to a current / non-current presentation, since the latter alternative is more widely accepted and understood by the market and also more frequently used by other oil and energy companies. This change was applied retroactively to all of our interim financial statements prepared under IFRS. Our consolidated financial statements and our financial data in this offering memorandum have been presented in U.S. dollars. Transactions executed in Chilean pesos, Unidades de Fomento (UF) or any foreign currency other than the U.S. dollar are recorded at the observed U.S. dollar exchange rate as of the date of the transaction. Assets and liabilities in currencies other than the U.S. dollar are translated into U.S. dollars according to the observed U.S. dollar exchange rate at year-end or period-end, as applicable. In this offering memorandum references to $, U.S.$, U.S. dollars and dollars are to United States dollars, references to pesos or Ch$ are to Chilean pesos, and references to UF are to Unidades de Fomento. The UF is an inflation-indexed Chilean peso-denominated unit that is linked to, and adjusted daily to reflect changes in, the previous month s Índice de Precios al Consumidor (Chilean Consumer Price Index or CPI) as determined by the Instituto Nacional de Estadísticas (National Bureau of Statistics or INE). As of March 31, 2010, UF1.00 was equivalent to U.S.$39.90 and Ch$20, Certain figures included in this offering memorandum and in our financial statements have been rounded for ease of presentation. Percentage figures included in this offering memorandum have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this offering memorandum may vary from those obtained by performing the same calculations using the figures in our financial statements. Certain other amounts that appear in this offering memorandum may not sum due to rounding. iv

6 Summary You should read the following summary together with the information set forth under the heading Risk Factors and in the financial statements and accompanying notes appearing elsewhere in this offering memorandum. All references to ENAP, we, us and words of similar effect refer to Empresa Nacional del Petróleo, and, unless the context requires otherwise, its consolidated subsidiaries. All figures presented in this summary and throughout this offering memorandum for periods on or after January 1, 2009, have been prepared in accordance with IFRS. All financial data presented in this offering memorandum for periods prior to January 1, 2009 have been prepared in accordance with Chilean GAAP, except for certain financial data as of December 31, 2008 and for the year ended December 31, 2008, which have been presented in accordance with IFRS to facilitate comparison to the financial data as of and for the year ended December 31, 2009, which have been prepared in accordance with IFRS. Our Company We are engaged in a broad range of petroleum-related activities, including the exploration, development and production of crude oil and natural gas, the transportation and storage of crude oil, refined petroleum products, liquefied petroleum gas (LPG) and natural gas, petroleum refining and the wholesale marketing of refined petroleum products, petroleum derivatives, LPG, crude oil and natural gas. Our principal source of revenue is the sale of refined petroleum products in Chile. We purchase from third parties virtually all of the crude oil we process. We organize our business into two independently operated business divisions: Exploration and Production, which conducts our upstream operations, and Refining and Logistics, which conducts our downstream operations. Our Refining and Logistics division makes substantially all of our consolidated sales to third parties and is responsible for purchases of crude oil from third parties. We are wholly owned and were created by the laws of the Republic of Chile. Pursuant to a recent ruling by the Contraloría General de la República (Office of the General Comptroller of the Republic), our relationship with the Chilean government is managed through the Ministerio de Energía (Ministry of Energy) and the Ministro de Energía (Minister of Energy) serves as the Chairman of our board of directors. We were the second largest Chilean state owned company in terms of revenues for the year ended December 31, We are the largest hydrocarbon producer and only refiner in Chile, and the Chilean market leader in the refined petroleum products market. We estimate that in 2009 we had a 75.8% share of the Chilean wholesale market for petroleum-based products and LPG. In 2009, we had total revenues of U.S.$7.1 billion, a gross margin of U.S.$278.0 million, income of U.S.$200.4 million and EBITDA of U.S.$431.2 million, and as of December 31, 2009, we had total assets of U.S.$5.6 billion. For the three month period ended March 31, 2010, we had total revenues of U.S.$1.9 billion, gross margin of U.S.$27.6 million, a net loss of U.S.$86.3 million, and EBITDA of U.S.$56.9 million and as of March 31, 2010, we had total assets of U.S.$5.9 billion. The exploration, development and production activities of our Exploration and Production division are performed within the Magallanes region of Chile directly through us and outside Chile through our 100% wholly-owned subsidiary, Enap Sipetrol S.A. (Enap Sipetrol). The majority of our upstream operations related to the exploration and production of petroleum takes place abroad, primarily in South America and, to a lesser extent, Northern Africa. Domestically, our upstream operations are focused on the production of natural gas in Magallanes. In 2009, our domestic oil production averaged 407 cubic meters per day, and our domestic natural gas production averaged 4.7 million cubic meters per day, while our international oil production averaged 2,735 cubic meters per day and our international natural gas production averaged 1.0 million cubic meters per day. In 2009, the Exploration and Production division generated 5.6% of our consolidated revenues. The refining activities of our Refining and Logistics division are handled through our 99.98% owned subsidiary Enap Refinerías S.A. (ERSA), which owns and operates two of our three refineries, Bío Bío and Aconcagua, and operates a third, Gregorio Magallanes, which is directly owned by us. The Bío Bío refinery represents approximately 47.0% of our refining capacity, Aconcagua represents approximately 46.7% of our refining capacity and Gregorio Magallanes represents approximately 6.3% of our refining capacity. Our refineries process local and foreign crude oil purchased from third parties or extracted by us. In 2009, we processed 13.2 million cubic meters of crude oil and intermediate petroleum products. Approximately 98.4% of the crude oil that we process is purchased from third parties. In 2009, the Refining and Logistics division generated 94.4% of our consolidated revenues. In 2009, our refineries delivered 15.5 million cubic meters of refined products to the Chilean and international markets (including internal production and third party purchases). Of the total fuel products we sold, 78.6% was refined or 1

7 processed by us and the remainder was imported. In 2009, diesel fuel accounted for the largest portion of our refined products and petrochemical sales by volume (41.7%), followed by gasoline (25.2%), fuel oil (13.8%), LPG (8.6%), kerosene (6.7%) and other industrial products (4.0%). In recent years, sales outside of Chile Central America (36.9% of exports by volume), Peru (30.6% of exports by volume), Ecuador (25.2% of exports by volume), the United States (7.0% of exports by volume) and Argentina (0.3% of exports by volume) have begun to represent a significant portion of our sales by volume. In 2009, sales outside of Chile represented 8.9% of our sales by volume. We own an extensive network of facilities for the transportation, storage and distribution of crude oil, natural gas and refined products that covers most of Chile. Pipelines we own, or have an interest in, connect crude oil and natural gas producing centers with our refinery, petrochemical plants and marine terminal in the Magallanes area. We also receive and deliver crude oil and refined products via marine terminals at Aconcagua and Bío Bío and deliver our refined products through marine terminals and pipelines. We believe that our extensive transportation and distribution network provides us with a significant competitive advantage over competing importers in Chile. See Business Refining and Logistics Transportation and Distribution. We have invested in a company that has built the first liquefied natural gas (LNG) storage and re-gasification plant in South America. The plant is capable of receiving liquid natural gas from tankers and transforming it back into natural gas for delivery into the pipeline to Chile s central zone. The re-gasification facility, GNL Quintero S.A. (GNL Quintero), is located on the coast of Chile, north of Santiago (near our Aconcagua refinery) and has been built in partnership with British Gas (BG), Metrogas and Endesa. We own 20% of GNL Quintero. We are required to purchase one-third of the use of the re-gasification capacity of GNL Quintero. In addition to its equity ownership, BG is the sole supplier of LNG. GNL Quintero is currently producing 5.4 million cubic meters of natural gas per day. In the immediate wake of the February 27, 2010 earthquake, in order to help many of Chile s power generators to substitute natural gas for diesel fuel as their primary source of energy, we were temporarily able to increase output at GNL Quintero up to approximately 6.5 million cubic meters of natural gas per day. We expect that the terminal will start operating at full capacity in August 2010, producing and supplying to the Chilean market an average of approximately 10 million cubic meters of natural gas per day. The supply of LNG from GNL Quintero has allowed us to decrease the cost of operating our Aconcagua refinery by permitting us to substitute natural gas for diesel and other fuels in powering Aconcagua. We expect that GNL Quintero will continue to enhance our ability to supply our refineries and the Chilean market with natural gas, stabilizing our cost structure and helping the Republic of Chile achieve a greater level of energy independence from its South American neighbors, particularly by decreasing our dependence on gas supplies from Argentina. Together with our partners at GNL Quintero, we have also begun developing a truck loading facility project. The project will employ trucks to transport LNG to a satellite re-gasification plant, where re-gasified natural gas would be injected into the Gasoducto del Pacífico and then transported to the Bío Bío refinery. We expect that the project will allow us to transport an average of 600,000 cubic meters of natural gas per day to the Bío Bío refinery and other potential customers in Region VIII. Recent Developments Impact of the February 27, 2010 Earthquake and Subsequent Tsunami on Our Operations On February 27, 2010, an earthquake measured at a magnitude of 8.8 on the Richter scale and a subsequent tsunami struck the South-Central Region of Chile, where our Aconcagua and Bío Bío refineries are located, resulting in the immediate shutdown of both refineries. Our Aconcagua refinery suffered minor damage to some of its installations. After taking the necessary safety precautions, the Aconcagua refinery was re-started and became fully operational on April 21, The Bío Bío refinery was more severely affected, suffering damages to several of its installations, including its water intake tank. As a result, the Bío Bío refinery was not fully operational for a longer period of time. The Bío Bío refinery became fully operational on June 22, 2010, with the exception of our co-generation facility, Petropower, a special purposes entity which we expect to become fully operational by January According to our own preliminary assessment, we estimate that we have incurred approximately U.S.$154 million in losses as a result of the earthquake, approximately U.S.$76 million due to physical damages suffered by our infrastructure and approximately U.S.$78 million due to losses arising from business interruption. Of the U.S.$76 million in physical damages, U.S.$64 million corresponds to the net value of the assets damaged and U.S.$12 million corresponds to the value-added taxes related to expenditures necessary to repair those assets. As a result, our financial statements for the three-month period ended March 31, 2010, record a loss of U.S.$64 million associated with the physical damage from the earthquake. We expect our insurance policy to cover a significant portion of the losses resulting from the earthquake, 2

8 subject to certain deductibles, including a 60-day business interruption deductible and a U.S.$5 million property damages deductible. In April and May 2010 we received three payments in the aggregate amount of U.S.$10 million from our insurance company. We expect certain costs due to the earthquake will not be covered by insurance. For example, we incurred higher financing costs related to our increased short-term borrowing immediately after the earthquake that are not covered by our insurance policy. We expect to receive all recoverable insurance proceeds by the end of See Risk Factors We experienced significant business disruption and net losses in the first quarter of 2010 as a result of the February 27, 2010 earthquake. Inauguration of New President of the Republic of Chile On March 11, 2010, President Sebastian Piñera from the Coalición por el Cambio (formerly the Alianza por Chile), an alliance of Chilean right-of-center parties, took office as President of the Republic of Chile. In connection with the recent change in presidential administration, the Republic of Chile is considering various corporate governance reforms as well as possible strategic alternatives for ENAP, including further investments in retail or other downstream operations and the sale of assets outside of Chile. Ricardo Rainieri, the Minister of Energy and the Chairman of our board of directors, has indicated in conversations with the Chilean press that the Republic of Chile is currently evaluating the introduction of private capital investments in our company among the possible alternatives and that an announcement on a possible strategic change at ENAP would be made within the next few months. Certain strategic changes, including any partial privatization of the ENAP, would require legislative action and there has been no formal governmental action to permit private investment in us to date. We cannot predict whether such action will be taken in the future. Confirmation of our Chief Executive Officer On July 19, 2010, after the new presidential administration took office, our board of directors confirmed Mr. Rodrigo Azócar Hidalgo as our Chief Executive Officer (CEO). Business Strategy Maintain our leadership position in the growing Chilean market Our refineries currently supply 75.8% of the Chilean demand for oil products. We believe that the projected growth of the Chilean economy will lead to greater demand for our products. We also expect that demand for our diesel fuel from thermal power generators, although reduced since June 2009 due to the availability of natural gas from our facility at GNL Quintero, will also continue to contribute to periodic increases in demand for our refined products. We intend to focus on maintaining our leadership position in Chile s oil and gas markets by maintaining high levels of customer satisfaction among our most important clients by continuing to offer a variety of fuels and natural gas products at competitive prices. As part of our strategy to be the leading oil and gas company in Chile, we have continuously invested in enhancing the complexity of our refineries and we plan to continue to invest in plants and processes that enable us to produce a variety of higher value added products that meet the evolving demands of the Chilean fuels market. These investments have also enabled us to improve the quality of the products we sell, which we believe gives us a competitive advantage over other refiners in the South American region. Improve our operating efficiency and profitability In 2008 and 2009, we faced a challenging operating environment due to market volatility and an extreme drop in international oil prices during the second half of In addition to the volatility in oil prices, we also faced a dramatic decrease in the supply of natural gas from Argentina and unforeseen weather conditions in Chile, which affected the availability of hydroelectric power generation. All of these factors ultimately had a negative impact on our refining margin and the value of our inventory of diesel fuel. In 2009, our management set a goal of reducing our operating costs and improving our operating efficiency, and as a result we implemented a series of reforms, including: Changes in our inventory management procedures, which we made more efficient by shortening the inventory cycle and implementing a more flexible commodity price hedging policy. These modifications allowed us to respond more quickly to changes in market conditions and be more opportunistic in hedging our exposure to crude oil price volatility and decrease our inventory. In part as a result of these modifications, our average 3

9 inventory levels for refined products decreased by 18.8% from an average 1.6 million cubic meters in 2008 to an average 1.3 million cubic meters in Reductions in the number of outside consulting, construction, engineering and outsourcing contracts in order to achieve cost savings. Improvements to programming for our marine fleet and reduced costs for transporting crude oil and other refined products were achieved by re-negotiating our lease rates with third parties and reducing demurrage costs. Negotiation of new sales contracts with our wholesale distributor customers, beginning in December 2009, through which we incentivize our customers to provide us with advance order volumes, which allows us to significantly increase the efficiency of our inventory management and refining processes. These contracts establish a more rigid sales program that allows us to streamline our operational resources, better predict our sales volume for any given month, and pass on to our final customers costs related to hedging various risks, including price fluctuations. Establishment of new purchase relationships in June 2010 by our commercial and finance divisions that allow us to purchase directly from crude oil producers rather than from commodity traders. By purchasing directly from producers we have been able to avoid paying the additional price mark-ups charged by the commodity traders. In addition to these reforms implemented in 2009, we also benefited in 2009 from the commencement in July 2008 of operations at Energía Concón S.A. (Enercón), a coker facility at our Aconcagua refinery, which has allowed us to increase our processing of heavier crude oil, which is cheaper than lighter crude oils. Our refineries transition to heavier crude oil, which is abundant in South America, also shortened our inventory cycle by reducing our need to import from more distant markets. In part as a result of Enercón, in 2009 we increased the amount of heavy crude oil our refineries process to 5.4 million cubic meters from 4.7 million cubic meters in We also benefited in 2009 from our increased access to LNG and our reduced reliance on diesel fuel due to the commencement of operations of GNL Quintero, our re-gasification facility, in September GNL Quintero has decreased the cost of operating our Aconcagua refinery and increased the efficiency of our operations. We expect that GNL Quintero will continue to enhance our ability to supply our refineries and the Chilean market with natural gas, stabilizing our cost structure and helping us achieve a greater level of energy independence from our South American neighbors, particularly by decreasing our dependence on gas supplies from Argentina. Expand international exploration and production operations to replace and increase our hydrocarbon reserves, primarily in South America and Northern Africa Through our wholly owned subsidiary, Enap Sipetrol, we seek to expand our international exploration and production operations in order to increase our hydrocarbon reserves. With this goal in mind, we have recently revised our business strategy to focus on new opportunities in markets where we already have an established presence and close working relationships with government entities and other stakeholders. For this reason, we sold our operations in Colombia in 2006, later closed our office in the United Kingdom and have disposed of our assets in Iran to the Iranian government. These measures will help us to refocus our exploration and production activities in Egypt, Ecuador and Argentina. We are also interested in pursuing new opportunities in other countries, which will help us pursue our goal of increasing reserves. Achieve a greater level of integration of our oil and gas operations by expanding our refining, logistics and distribution capability in Central and South America We seek to become a leading refining and logistics company on the Pacific Coast of Central and South America. Currently, we benefit from our extensive network for the transportation, storage and distribution of crude oil, natural gas and refined products in Chile. Our pipelines connect crude oil and natural gas producing centers with the Gregorio Magallanes refinery and marine terminal and also with our natural gas processing centers in the Magallanes region in Southern Chile. Additionally, we receive and deliver crude oil and refined products via marine terminals at Quintero (for the Aconcagua refinery) and San Vicente (for the Bío Bío refinery). As part of our efforts to develop our downstream operations internationally, we began retail distribution of our products in Peru (2004) and Ecuador (2006) through Primax S.A. (Primax) and Primax Holding S.A. (Primax Holdings), fuel distribution companies in which we own a 49% interest and in which the Romero family of Peru owns the remaining 51% interest. These companies have retail distribution capabilities through a chain of service stations as well as wholesale 4

10 distribution to customers in the mining, fishing, foodservice and transportation industries. This has enabled us to export products to these markets, where our proximity, and the resulting low transportation costs, provide us with higher profit margins than we would earn by exporting to markets further away, such as the U.S. Gulf Coast. We are currently considering various other strategic alternatives for our downstream business, including further investments in retail or other downstream operations. Become a leader in sustainable development by working together with the communities in which we operate in order to preserve the environment while contributing to the development of a vibrant local economy In recent years, we have been involved in various corporate social responsibility activities and have received international recognition for these initiatives. ENAP Sipec, our upstream operations company in Ecuador, has been recognized for its excellent sustainability approach and was recognized in 2009, for the fourth time, as one of Ecuador s best places to work by the Great Place to Work Institute. In 2008 we won the Best Corporate Social Responsibility Campaign Award by the Petroleum Economist for our project Promotion Plan for Wise Use of Wetlands. Following these achievements, we will continue to invest in and to promote corporate social responsibility as a way to improve the environment where we operate, while seeking to build long-term relationships with local communities and stakeholders. Competitive Strengths We are owned by the Chilean government and we benefit from its support We are wholly owned by the Republic of Chile and were the second largest Chilean state-owned company in terms of revenue for the year ended December 31, The Chilean government and its agencies closely regulate and supervise our operations. Pursuant to a recent ruling by the Office of the General Comptroller of the Republic, our relationship with the Chilean government is now managed through the Ministry of Energy. In June 2010, the Chilean government sent a bill to the Chamber of Deputies, the lower house of the Chilean congress, that would overrule the ruling by the General Comptroller of the Republic and reinstate the Ministry of Mining as the entity through which our relationship is managed. This bill is currently being considered by the Chamber of Deputies. Under the current regulatory scheme, the Minister of Energy serves as Chairman of our board of directors and the Ministerio de Hacienda (Ministry of Finance) continues to manage our annual budget process and authorizes any indebtedness that we incur. We are a leader in Chile s domestic oil and gas industry and we own extensive oil and gas assets and infrastructure in Chile for the delivery of our refined products Our leadership position is based on our refining capacity and our extensive oil, fuels and gas network in Chile, which delivers natural gas and refined products to our customers. This network includes: Three refineries located in central and southern Chile (Aconcagua, Bío Bío and Gregorio Magallanes) that as of 2009 produced an average of thousand barrels of refined products per day, including a wide range of products such as LGP, gasoline, jet fuel, kerosene, diesel, fuel oil, among others; Interests in two gas pipelines in Chile (Gasoducto del Pacífico and Electrogas) that have the capacity to transport up to 13.8 million cubic meters per day; Gas pipelines in the Magallanes region, the most important of which is Posesion-Cabo Negro and others that connect Tierra del Fuego island with the continent and that connect our facilities to our industrial customers; Crude oil storage facilities with an aggregate storage capacity of approximately one million cubic meters; Marine terminals at Quintero, next to the Aconcagua refinery, and San Vicente, next to the Bío Bío refinery, with sufficient capacity to receive 100% of the refineries crude oil and imported refined products requirements; Pipelines in Magallanes connecting crude oil producing wells with the Gregorio Magallanes refinery and the marine terminal; Storage facilities for refined products with a total capacity of approximately 1.5 million cubic meters; and 5

11 Our 20% interest in a new re-gasification facility, GNL Quintero, which currently produces 5.4 million cubic meters of natural gas per day and which we expect to become fully operational during the second half of 2010, with the capacity to re-gasify an average of 10 million cubic meters of natural gas per day. We have long-standing relationships with our customers We have been in operation since 1950 and we have long-standing relationships with our top four customers who accounted for approximately 74.5% of our total sales in Our main domestic customers are wholesalers who own distribution networks and distribute our refined products to retail customers. Compañía de Petróleos de Chile S.A. (Copec), Chile s largest petroleum fuels retailer, is our largest client, accounting for 41.2% of our total sales of refined petroleum products by volume in Shell-Chile, a subsidiary of the Royal Dutch/Shell Group, is our second largest client, accounting for 14.6% of our total sales of refined petroleum products by volume in Organización Terpel Chile Ltda. (Terpel Chile) is our third largest client, accounting for 9.5% of our total sales of refined petroleum products by volume in 2009 and Petrobras Chile is our fourth largest client, accounting for 9.3% of our total sales of refined petroleum products by volume in On May 14, 2010, Copec informed the Chilean SVS, the Chilean securities regulator, that it had acquired two companies that directly control Terpel Chile. The purchase of Terpel Chile by Copec raised the prospect of the further consolidation of our customer base. The transaction raised antitrust concerns and, as a result, Copec has announced that it plans to divest its interest in Terpel Chile within two years. On June 22, 2010, Copec consulted with the Tribunal de Defensa de la Libre Competencia ( the Chilean antitrust court), in hopes of obtaining court resolution on a number of proposed measures that, according to Copec, are designed to ensure that Terpel Chile and Copec function independently until Copec divests its assets in Terpel Chile. As of the date of this offering memorandum, the Chilean antitrust court has not ruled on Copec s request and we can provide no assurance regarding the timing of such ruling or whether the sale of Copec s assets in Terpel Chile will occur at all. We benefit from experienced senior management, engineers and operations teams A substantial majority of our senior management is composed of executives who have had extensive experience in the oil and gas business, either at ENAP or at other companies. See Management. Our engineering and operations teams are composed of professionals who have been with us for a long period of time and have invaluable experience and insight into our particular business and operating environment, complemented with highlevel relationships and business experience with other oil companies of Latin America. How to Reach Us Our executive offices are located at Avenida Vitacura 2736, Piso 10, Las Condes, Santiago, Chile. Our telephone number is +(562) , our address is investorrelations@enap.cl. 6

12 The Offering The following is a brief summary of certain terms of this offering. For a more complete description of the terms of the notes, see Description of the Notes in this offering memorandum. Issuer... Notes Offered... Empresa Nacional del Petróleo. U.S.$500 million in an aggregate principal amount of 5.250% notes due Maturity... August 10, Interest Rate % Issue Price % Issue Date... August 10, Interest Payment Dates... Ranking... Form and Denomination... Additional Amounts... Optional Redemption... February 10 and August 10 of each year, commencing on February 10, The notes will be our direct, unconditional and unsecured general obligations and will, other than in the case of certain obligations granted preferential treatment pursuant to Chilean law, at all times rank pari passu in right of payment with all of our other unsecured obligations that are not, by their terms, expressly subordinated in right of payment to the notes. The notes will be effectively subordinated to all of our secured indebtedness with respect to the value of our assets securing that indebtedness and to all of the existing and future liabilities of our subsidiaries, including trade payables of our subsidiaries. Although we are wholly owned by the Republic of Chile, the Republic of Chile is not liable for our obligations under the notes, nor do such obligations form any part of the public debt of the Republic of Chile. The notes will be issued in fully registered book-entry form, with a minimum denomination of U.S.$100,000 and integral multiples of U.S.$1,000 in excess thereof. Under current Chilean laws and regulations, payments of interest to a foreign holder of the notes that is not a resident of Chile for purposes of Chilean taxation will generally be subject to Chilean withholding tax assessed at a rate of 4.0%. Subject to certain exceptions, we will pay additional amounts so that the amount received by the foreign holder that is not a resident of Chile, after Chilean withholding tax, will equal the amount that would have been received if no such taxes had been applicable. For discussion of the tax consequences of, and limitations on, the payment of additional amounts with respect to any withholding taxes, see Description of the Notes Payment of Additional Amounts and Taxation Chilean Taxation. The notes are not redeemable prior to maturity, except we may redeem the notes at our option if certain tax changes occur. See Tax Redemption. 7

13 Tax Redemption... Change of Control... Certain Covenants... Governing Law... Transfer Restrictions... Use of Proceeds... Clearance and Settlement... Listing... Trustee... Security Identifiers... We may redeem the notes at our option in whole (but not in part), at any time, at the principal amount thereof plus accrued and unpaid interest if the laws or regulations affecting taxes in the Republic of Chile change in certain respects. See Description of the Notes Redemption for Taxation Reasons and Taxation Chilean Taxation. Upon the occurrence of a change of control event as described in Description of the Notes, you will have the right to require us to purchase all or a portion of your notes at a purchase price in cash equal to 100% of the principal amount plus accrued and unpaid interest, if any. The indenture under which the notes will be issued contains certain covenants, including limitations on liens and limitations on sale and leaseback transactions. Our contractual rights and obligations and the rights of the holders of the notes arising out of, or in connection with, the indenture and the notes are governed by, and will be construed in accordance with, the laws of the State of New York, without giving effect to any conflict of law principles. The notes have not been and will not be registered under the Securities Act and are subject to restrictions on transfer. See Transfer Restrictions. We estimate that the net proceeds from the offering will be approximately U.S.$494.6 million, after deducting estimated fees and expenses. We intend to use the net proceeds for the refinancing of existing short-term indebtedness. See Use of Proceeds. The notes will be represented by one or more global securities registered in the name of a nominee of The Depositary Trust Company (DTC). You will hold beneficial interests in the notes through DTC and its direct and indirect participants, including Euroclear and Clearstream, Luxembourg, and DTC and its direct and indirect participants will record your beneficial interest on their books. Luxembourg Stock Exchange The Bank of New York Mellon CUSIP 144A: 29245JAE2 Reg S: P37110AF3 ISIN 144A: US29245JAE29 Reg S: USP37110AF39 Common Codes 144A: Reg S:

14 Risk Factors Investing in the notes involves substantial risks. You should carefully consider all the information in this offering memorandum prior to investing in the notes. In particular, we urge you to consider carefully the factors set forth under Risk Factors beginning on page 14 of this offering memorandum. 9

15 Summary Consolidated Financial and Other Information The following tables present our summary consolidated financial and other information as of and for each of the periods indicated. This data is qualified in its entirety by reference to, and should be read together with, our consolidated financial statements and the notes thereto. The following data as of and for each of the years ended December 31, 2007, 2008 and 2009, has been derived from our audited consolidated financial statements. The data for the three month periods ended March 31, 2009 and 2010 and as of March 31, 2010, has been derived from our unaudited interim financial statements. The consolidated results of operations for the three month period ended March 31, 2010, are unaudited and are not necessarily indicative of the results to be expected for the year ending December 31, 2010, or any other period. We have prepared the unaudited interim consolidated financial statements on the same basis as our audited financial statements and, in our opinion, have included all adjustments necessary to present fairly in all material respects our financial position and results of operations. The financial data presented in this offering memorandum should be read together with Management s Discussion and Analysis of Financial Condition and Results of Operations. Our consolidated financial statements for all periods prior to January 1, 2009 have been prepared in accordance with Chilean GAAP. Our consolidated financial statements for the year ended December 31, 2008 have been presented in accordance with both IFRS and Chilean GAAP in order to render them comparable to the consolidated financial statements for the year ended December 31, See note four to our consolidated financial statements for the years ended December 31, 2008 and December 31, 2009 contained elsewhere in this offering memorandum for a description of the principal differences between Chilean GAAP and U.S. GAAP through December 31, 2008 as they relate to us and our consolidated subsidiaries. Starting January 1, 2009, we no longer prepare financial statements in accordance with Chilean GAAP. Our consolidated financial statements as of and for the year ended December 31, 2009, for the three-month periods ended March 31, 2009 and 2010 and as of March 31, 2010 have been prepared in accordance with IFRS, which differs in significant respects from Chilean GAAP. See note four to our consolidated financial statements for the years ended December 31, 2008 and December 31, 2009 contained elsewhere in this offering memorandum for a description of the principal differences between Chilean GAAP and IFRS as they relate to us and our consolidated subsidiaries. 10

16 Summary Consolidated Financial and Other Information The following table presents our unaudited interim consolidated financial information for the three month periods ended March 31, 2009 and 2010, and as of March 31, 2010, and our audited consolidated financial information as of and for the years ended December 31, 2008 and December 31, 2009, prepared in accordance with IFRS. As of and For the Year Ended December 31, As of and For the Three Months Ended March 31, (audited) (unaudited) (in millions of U.S. dollars, in accordance with IFRS) INCOME AND LOSS STATEMENT DATA Revenues... U.S.$ 12,182.7 U.S.$ 7,097.5 U.S.$ 1,564.1 U.S.$ 1,937.4 Cost of sales... (12,926.9) (6,819.5) (1,472.4) (1,909.8) Gross margin... (744.2) Other income, by function (1) Other expenses, by function (1)... (117.4) (100.2) (6.7) (20.1) Administrative expenses... (107.3) (97.3) (23.5) (22.6) Other income (losses) (2) (0.3) (64.4) Financial income (1) Financial expense (3)... (201.4) (172.4) (43.7) (34.9) Equity in earnings of associates recorded under the equity method Foreign currency exchange differences... (129.1) 51.6 (5.4) 9.6 Income (loss) before income tax... (1,186.2) (91.2) Income tax (67.0) 4.8 Net income (loss) from continuing operations... (962.2) (33.7) (86.3) Income from discontinuing operations Income (loss)... (955.5) (86.3) Income attributable to non-controlling interest Net income (loss) attributable to equity holders of the parent... (960.4) (89.6) FINANCIAL POSITION DATA Cash and cash equivalents... U.S.$ U.S.$ 76.8 U.S.$ Trade and other receivables, net Inventories , ,177.3 Property, plant and equipment, net... 2, , ,513.4 Total assets... 5, , ,923.6 Total interest bearing debt... 2, , ,620.9 Trade and other payables (4)... 1, , ,218.8 Total liabilities... 5, , ,577.0 Total equity Total liabilities and equity... 5, , ,923.6 Total Interest bearing debt/total equity OTHER FINANCIAL DATA (unaudited) EBITDA (5)... U.S.$ (722.7) U.S.$ U.S.$ U.S.$ 56.9 Depreciation EBITDA (5) / Financial expense (3)... N/A Total interest bearing debt/ebitda (LTM) (6)... N/A 6.69 N/A (1) Due to a reclassification during the first half of 2010 of certain line items of our financial statements required by the SVS, the presentation of these line items in our financial statements for the years ended December 31, 2008 and 2009 is different from the presentation set forth in this Summary Consolidated Financial and Other Information. The items reported in this table as Other income, by function and Financial income appear in our financial statements for the years ended December 31, 2008 and 2009 as a single line item titled Other operating revenues. The item reported in this table as Other expenses, by function appears in our financial statements for the years ended December 31, 2008 and 2009 as Other operating expenses. 11

17 (2) For the three months ended March 31, 2010, includes an impairment of U.S.$64.0 million due to physical damage to our plant, property and equipment as a result of the February 27, 2010 earthquake and subsequent tsunami. See Business Legal Proceedings Insurance Claims Relating to Chilean Earthquake and Subsequent Tsunami. (3) Includes interest expenses incurred in connection with certain short-term trade financing that is included as trade and other payables under liabilities on our balance sheet and is described under Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Short-Term Trade Financing. (4) Due to a reclassification during the first half of 2010 of certain line items of our financial statements required by the SVS, the line item reported in this table as Trade and other payables is presented differently in each of our financial statements included herein. The line item reported in this table as Trade and other payables appears in our financial statements for the years ended December 31, 2008 and 2009, as the sum of current and non-current Trade payables and other accounts payable, and in our financial statements for the three months ended March 31, 2010, and as of December 31, 2009, and March 31, 2010, as the sum of Trade debtors and other accounts payable and Non-current liabilities. (5) For the financial statements presented under IFRS, we define EBITDA as the sum of (i) gross margin, (ii) other income by function, (iii) income from discontinuing operations and (iv) depreciation, less (v) other expenses by function and (vi) administrative expenses. We have included EBITDA data in this offering memorandum because we believe such data is used by certain investors to measure a company s ability to service debt and fund capital expenditures, and it is included herein for convenience only. EBITDA is not a measure of financial performance under Chilean GAAP, IFRS or U.S. GAAP and should not be considered as an alternative to using net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. EBITDA as it is used in this offering memorandum may differ from similarly titled measures reported by other companies. (6) Based on EBITDA for the last twelve months (LTM). For the twelve months ended March 31, 2010, EBITDA LTM was U.S.$311.1 million. 12

18 The following table presents our summary consolidated financial information as of and for the years ended December 31, 2007 and 2008, prepared in accordance with Chilean GAAP. As of and For the Year Ended December 31, (audited) (in millions of U.S. dollars, in accordance with Chilean GAAP) INCOME STATEMENT DATA Operating revenue... U.S.$ 9,019.3 U.S.$ 12,185.2 Operating costs... (8,728.6) (13,017.5) Administrative expenses... (91.2) (104.9) Operating profit (loss) (937.2) Non-operating expenses (1)... (152.9) (237.9) Non-operating income (2) Foreign currency exchange differences (128.4) Income (loss) before income tax, minority interest and amortization of goodwill (1,179.3) Net income (loss) (957.8) BALANCE SHEET DATA Total current assets... U.S.$ 3,321.2 U.S.$ 2,270.7 Property, plant and equipment, net... 1, ,270.5 Total assets... 5, ,872.1 Total current liabilities... 2, ,776.7 Total long-term liabilities... 1, ,834.3 Total liabilities... 4, ,611.0 Total equity Total liabilities and equity... 5, ,872.1 OTHER FINANCIAL DATA (unaudited) EBITDA (3)... U.S.$ U.S.$ (703.9) Debt with banks and financial institutions (4)... 1, ,587.9 Depreciation Interest expenses (5)... (145.2) (211.0) Debt with banks and financial institutions (4) / EBITDA (3) n/a (6) EBITDA (3) / Interest expenses (5) n/a (6) Debt with banks and financial institutions (4) /total equity (1) Includes interest expenses and other non-operating expenses. (2) Includes financial income, other non-operating income and equity in earnings of related companies, net. (3) For the financial statements presented under Chilean GAAP, we define EBITDA as the sum of (i) operating profit (loss) plus (ii) depreciation. We have included EBITDA data in this offering memorandum because we believe such data is used by investors to measure a company s ability to service debt and fund capital expenditures, and it is included herein for convenience only. EBITDA is not a measure of financial performance under Chilean GAAP, IFRS or U.S. GAAP and should not be considered as an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. EBITDA as it is used in this offering memorandum may differ from similarly titled measures reported by other companies. (4) Includes outstanding notes and bonds. Includes the current portion of such liabilities. Excludes certain short-term trade financing that is included as notes payable under current liabilities on our balance sheet and is described under Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Short-Term Trade Financing. The total amount outstanding under such trade financing as of December 31, 2008, was U.S.$305.0 million. (5) Includes interest expenses incurred in connection with certain short-term trade financing that is included as notes payable under current liabilities on our balance sheet and is described under Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Short-Term Trade Financing. (6) EBITDA for the year ended December 31, 2008, was negative. 13

19 The following table presents our operating data for the periods indicated. For the Year Ended December 31, For the Three Months Ended March 31, OPERATING DATA Refining capacity (1) Refining production Refinery runs (2) Refined products (3) Capacity utilization rate (4) % 94.9% 87.7% 89.1% 83.7% 87.5% 60.3% Proved reserves* Crude oil (5) Natural gas (6) Total oil and natural gas proved reserves Employees*... 2,979 3,020 3,298 3,382 3,380 3,409 3,401 (1) Total amount of crude oil introduced into the first step of the refining process, referred to as atmospheric distillation. In thousands of barrels per day at December 31 or March 31, as the case may be. See Business Refining and Logistics Refining Processes and Capacity. (2) Total amount of inputs, including crude oil and other raw materials, introduced throughout one complete cycle of the refining process. In thousands of average barrels per day. See Business Refining and Logistics. (3) Total amount of refined products produced by one complete cycle of the refining process. In thousands of average barrels per day. See Business Refining and Logistics. (4) Defined as crude oil refinery runs (in thousands of average barrels per day for the period) divided by atmospheric distillation refining capacity (in thousands of barrels per day at period end). (5) In millions of barrels at December 31 or March 31, as the case may be. See Business Exploration and Production Reserves. (6) In millions of barrels of oil equivalent (boe) at December 31 or March 31, as the case may be. * Reserve and employee data calculated at December 31 or March 31, as the case may be. Reserve data is audited by third parties. 14

20 RISK FACTORS An investment in the notes involves risk. You should consider carefully the following factors, as well as all other information in this offering memorandum, before deciding to invest in the notes. Risk Factors Related to Our Operations Substantially all of our crude oil suppliers are located far from our refineries and we face challenges in maintaining an optimum level of inventory Substantially all of our suppliers of crude oil are located far from our refineries, and the crude oil that we process must be shipped to our facilities. In 2009, 77.6% of the crude oil we processed at our refineries was imported from other countries in South America and took an average of 9 days to be shipped to our facilities; 15.0% was imported from Europe and took an average of 25 days to be shipped to our facilities; 3.3% was imported from Asia and took an average of 31 days to be shipped to our facilities; and 2.0% was imported from Africa and took an average of 20 days to be shipped to our facilities. The lag between the time when we purchase crude oil abroad and when we price our refined products sales in Chile exposes us to changes in prices for crude oil and refined products. If we purchase too little crude oil at the time of unexpected increases in demand for petroleum products, or if we experience shipping interruptions or other delays on imports of crude oil, our ability to satisfy our crude oil requirements could be materially adversely affected. Conversely, if demand unexpectedly decreases we may purchase too much crude oil and thereby create excess inventory and increase our exposure to price fluctuations. In the second half of 2008, the sharp drop in the demand for diesel fuel, combined with a significant drop in the prices of refined products, left us with a large and greatly overvalued inventory of refined products, particularly diesel fuel. In addition, our inventories were underutilized due to our lack of retail operations in Chile, as our wholesale customers were able to sell their own imports and inventories to their retail customers. As a result, we marked down the value of our refined products inventory in 2008, which resulted in a U.S.$213.3 million increase in our operating costs for Although we have implemented a new hedging policy in an effort to improve protection against price fluctuations in inventory, given the long distance from the main sources of crude oil production to our refineries in Chile, which results in a longer inventory cycle than most refineries abroad, we continue to face the challenge of properly calibrating our purchases of crude oil to match the prevailing demand at the time of sale of our refined products. We can make no assurance that future fluctuations in the demand for fuels, crude oil and refined product prices and shipping interruptions will not adversely affect our results of operations. We experienced significant net losses in 2008 and may experience similar results in the future In 2008, we experienced an operating loss of U.S.$937.1 million and a net loss of U.S.$957.8 million. The significant losses we experienced in 2008 were due to a variety of factors. In the first half of 2008, Chile experienced a severe drought that limited hydroelectric generation and increased the demand for natural gas, which was unavailable due to export restrictions on natural gas in Argentina, and diesel fuel by power generators and other energy consumers. As a result, we shifted our product mix to produce and purchase more diesel fuel at a time when prices were at a historical high, which contributed to an increase in our operating costs both in terms of the purchase price of crude oil as a raw material in the refining process and the need to run our own refining facilities on diesel fuel (which is more expensive than natural gas). As drought conditions in Chile eased during the second half of 2008, we were forced to take greater inventory write downs on our excess crude oil, diesel fuel and other fuel inventories, as discussed above. In addition, in the second half of 2008 the steady decline in crude oil and refined product prices negatively affected our refining margin by exposing us to price decreases between the time we purchased crude oil and refined products and the time that we sold those products. Due to the losses we experienced in 2008, the Chilean government made a capital contribution of U.S.$250 million and released us from certain obligations and dividend payments to which we are generally subject. See Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Payments to the Chilean Government. The Chilean government is under no obligation to make future capital contributions to us or to release us from making dividend payments or paying the 40% special tax on our income. We cannot assure you that we will not have similar losses in the future, due either to a reoccurrence of some of the external events that adversely affected our net income in 2008 or other unexpected events. 15

21 We experienced significant business disruption and net losses in the first quarter of 2010 as a result of the February 27, 2010 earthquake On February 27, 2010, an earthquake measured at a magnitude of 8.8 on the Richter scale and subsequent tsunami struck the South-Central Region of Chile, where our Aconcagua and Bío Bío refineries are located, resulting in the immediate shutdown of both refineries. Our Aconcagua refinery suffered minor damage to some of its installations. After taking the necessary safety precautions, the Aconcagua refinery was re-started and became fully operational on April 21, The Bío Bío refinery was more severely affected, suffering damages to several of its installations, including its water intake tank. As a result, the Bío Bío refinery was not fully operational for a longer period of time. The Bío Bío refinery became fully operational on June 22, 2010, with the exception of our co-generation facility, Petropower, a special purposes entity which we expect to become fully operational by January In the first quarter of 2010, we experienced a net loss of U.S.$89.6 million, mainly due to the impact of the February 2010 earthquake. We estimate that we have incurred approximately U.S.$154 million in losses as a result of the earthquake, approximately U.S.$76 million due to physical damages suffered by our infrastructure and approximately U.S.$78 million due to losses arising from business interruption. Of the U.S.$76 million in physical damages, U.S.$64 million corresponds to the value of the assets damaged and U.S.$12 million corresponds to the value-added taxes related to those assets. As a result, our financial statements for the three-month period ended March 31, 2010, record a loss of U.S.$64 million associated with the physical damage from the earthquake. See Business Legal Proceedings Insurance Claims Relating to Chilean Earthquake and Subsequent Tsunami. We may not have correctly estimated the losses suffered as a result of the earthquake and other unexpected costs due to the earthquake might arise. In addition, further setbacks in the Bío Bío refinery could result in further business interruption and other losses. Furthermore, while we expect our insurance companies to cover a significant portion of the losses resulting from the earthquake, we can provide no assurance that we will receive any or all of the insurance proceeds nor do we expect the insurance proceeds to fully compensate us for the losses we incurred during the first quarter of We also cannot assure you that earthquakes or other natural disasters will not cause losses in the future. We have a significant amount of indebtedness, a large portion of which matures before or during 2015 We have a significant amount of both short and long-term indebtedness, which amounted to approximately U.S.$3.6 billion as of March 31, 2010, approximately U.S.$2.6 billion of which will mature before or during The potential significant consequences on our financial condition and results of operations that could result from our substantial debt include: limiting our ability to obtain additional financing to fund our working capital requirements, capital expenditures, debt service, general corporate or other obligations; limiting our ability to raise capital in order to finance certain strategic initiatives that would be attractive to us; requiring a substantial portion of our cash flows from operations be used for the payment of principal and interest on our debt, therefore reducing funds available to us for operations or other capital needs; limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate because our available cash flow after paying principal and interest on our debt may not be sufficient to make the capital and other expenditures necessary to address these changes; increasing our vulnerability to general adverse economic and industry conditions because, during periods in which we experience lower earnings and cash flow, we will be required to devote a proportionally greater amount of our cash flow to paying principal and interest on our debt; and making it difficult for us to refinance our indebtedness or to refinance such indebtedness on competitive terms. Any borrowings we make at variable interest rates leave us vulnerable to increases in interest rates generally, which may increase our debt burden and the possibility of each of the consequences above. Additionally, our regulatory framework requires that the Ministry of Finance, the Ministry of Energy, and the Ministerio de Economía Fomento y Reconstrucción (the Ministry of Economy) approve our annual budget and, therefore, our incurrence of indebtedness. The Ministry of Finance also has the authority to order that our remaining net dividends be transferred to the Republic of Chile. More 16

22 importantly, we do not expect to be able to repay our outstanding indebtedness solely from cash flow generated by our operations and, if we are unable to incur additional indebtedness or secure an equity contribution from the Republic of Chile in order to repay our indebtedness as it matures, we could be forced to sell equity to third parties, which would result in the partial privatization of ENAP, or some of our core assets to meet payment obligations. Any such action would require Congressional approval. Our business requires substantial working capital and our working capital needs may fluctuate widely We rely on short-term credit from our crude oil suppliers and from various financial institutions to finance our inventory cycle. Increases in crude oil prices and other costs of our business, or other events, create significant increases in our working capital needs. For example, in 2008 our demand for working capital increased significantly and we materially increased our short-term financing from financial institutions and from our suppliers in order to maintain adequate liquidity. Although crude oil prices decreased at the end of 2008 and beginning of 2009, they have been increasing steadily since February Further, after the February 27, 2010, earthquake, our working capital needs increased temporarily due to our need to purchase imports of refined goods to sell to our customers. We cannot assure you that our suppliers or our other sources of financing will continue to extend us credit if and when our demand for working capital increases. A decrease in our ability to finance our working capital needs may adversely impact the availability of cash for our operations and may result in our inability to pay our suppliers for crude oil and refined products purchases, disrupting our business cycle. We rely on short-term contracts and spot purchases to obtain substantially all of our crude oil In 2009, only 1.6% of our crude oil needs for refined petroleum products were satisfied by oil extracted from our reserves in Chile. We rely on short-term supply contracts with unaffiliated third parties to satisfy substantially all of our crude oil needs. The crude oil provided under these short-term supply contracts accounted for approximately 21.8% of the total crude oil we imported in Most of these short-term supply contracts have terms of one year or less and are renewed as they expire. There can be no assurance that we will be able to renew our existing supply contracts or that we will be able to enter into similar supply contracts in the future. In addition, we rely on purchases in the spot market for a significant portion of the balance of our crude oil supply. In 2009, 78.2% of the crude oil we imported was acquired in the spot market. Reliance on short-term supply contracts and spot market purchases exposes us to increased costs for our principal raw materials in the event of increases in crude oil prices. See Business Refining and Logistics Crude Oil Supply. We obtain the majority of our crude oil from a small number of suppliers We depend on a small number of suppliers to obtain a substantial majority of our crude oil. In 2009, our main crude oil suppliers were Mercuria (24.2% of crude oil supply), Vitol (13.0% of crude oil supply), Glencore (12.5% of crude oil supply), Petroecuador (11.8% of crude oil supply), Petróleo Brasileiro S.A. (Petrobras) (10.5% of crude oil supply) and Shell (9.0% of crude oil supply). Any disruption related to one or more of these principal suppliers could have a material adverse effect on our ability to satisfy our crude oil requirements and on our results of operations. In addition, we cannot assure you that we will be able to continue to obtain the crude oil we need from these suppliers at current prices and current levels to fulfill our commercial obligations. In 2009, approximately 98.4% of the total crude oil we refined was provided by third party suppliers, while 1.6% of the total crude oil we refined was supplied by our own exploration and production operations. We depend on a small number of customers with short-term contracts for a significant portion of our sales We sell a significant portion of our refined products to a small number of customers, most of which are wholesalers. We do not have retail distribution in Chile and only limited retail distribution in Peru and Ecuador. In 2009, our four largest customers, Copec, which is the largest oil and gas retailer in Chile, Shell Chile (a subsidiary of Royal Dutch Shell), Petrobras Chile (formerly Esso Chile, a subsidiary of Exxon Mobil acquired by Petrobras in the first half of 2009) and Terpel Chile collectively accounted for approximately 74.5% of our total consolidated sales. On May 14, 2010, Copec informed the Chilean SVS, the Chilean securities regulator, that it had acquired two companies that directly control Terpel Chile. The purchase of Terpel Chile by Copec raised the prospect of the further consolidation of our customer base. The transaction raised antitrust concerns and, as a result, Copec has announced that it plans to divest its interest in Terpel Chile within two years. On June 22, 2010, Copec consulted with the Chilean antitrust court, in hopes of obtaining court resolution on a number of proposed measures that, according to Copec, are designed to ensure that Terpel Chile and Copec function independently until Copec divests its assets in Terpel Chile. As of the date of this offering memorandum, the Chilean antitrust court has not ruled on Copec s request and we can provide no assurance regarding the timing of such ruling or whether the sale of Copec s assets in Terpel Chile will occur at all. In addition to purchasing fuel from us, the wholesalers also import their own fuel, allowing them, at times, to rely upon their own inventory instead of purchasing 17

23 fuel from us. We cannot assure you that our principal customers will continue to purchase significant quantities of our output in the future. The loss of one or more of these customers could have a material adverse effect on our cash flows or our results of operations. See Business Refining and Logistics Revenues. Similarly, we sell all of our natural gas produced in Magallanes to two customers: Methanex Chile Limited (Methanex), an affiliate of Canada s Methanex Corporation, and Gasco S.A. (Gasco), which distributes natural gas to the city of Punta Arenas. In 2009, these customers accounted for 55.6% and 44.4% of our total natural gas sales, respectively. We cannot assure you that our customers will continue to purchase significant quantities of our natural gas output in the future. The loss of these customers would have an adverse impact on our cash flows and results of operations. Crude oil and refined product prices are volatile Our revenues and results of operations depend substantially on our refining margin, which is a function of the difference between the price of crude oil (our principal raw material) and the prices of refined products we produce from crude oil (our principal source of revenue). We pay our suppliers variable amounts per barrel of crude oil sold to us based on the West Texas Intermediate (WTI) and Dated Brent (DTD) crude spot prices, adjusted to take into account the quality of the crude oil. The WTI crude spot price averaged U.S.$ per barrel in 2008 and U.S.$61.9 per barrel in The prices we paid our suppliers in 2009 ranged from WTI less U.S.$21.00 per barrel to WTI plus U.S.$4.20 per barrel and from DTD less U.S.$1.50 per barrel to DTD plus U.S.$3.80 per barrel. For the month of June 2010, the average WTI crude spot price was U.S.$ per barrel, and the price we paid our suppliers ranged from WTI less U.S.$1.50 per barrel to WTI less U.S.$4.00 per barrel. For the month of March 2010, the average WTI crude spot price was U.S.$81.3 per barrel and the price we paid our suppliers ranged from WTI less U.S.$7.15 per barrel to WTI plus U.S.$0.55 per barrel. Additionally, the sales prices of our refined products are based on U.S. Gulf Coast prices, which are themselves susceptible to volatility in international crude oil prices, refining capacity, changes in product specifications and other factors beyond our control. As a result, there have been periods where crude oil prices have risen faster than refined oil prices, reducing our refining margin. In addition, we are required by Chilean regulations to maintain a 25-day stock of refined products, which exposes us to U.S. Gulf Coast and other international price fluctuations for refined products. Historically, international prices of crude oil and refined petroleum products have been volatile and have fluctuated widely due to various factors that are beyond our control, including: changes in global supply and demand for crude oil and refined petroleum products, the availability and price of competing commodities, international economic trends, currency exchange fluctuations, inflation, the actions of commodity markets participants, and political events in major oil producing and consuming nations. Fluctuations in oil and refined product prices may have an adverse impact on the availability of cash and could affect our profitability and results of operations. Although we seek to hedge against fluctuations in the price of oil and refined products, past hedging efforts have not insulated us entirely from shifts in market prices, and we can make no assurance that future hedging will protect us fully from price fluctuations. While we have instituted a new hedging policy, there can be no assurance that we will be able to properly hedge our exposure or that our counterparties will honor the hedging contracts. Hedging the price of oil carries significant mark-to-market risk even for short dated hedges. Compliance with environmental regulations could adversely affect our ability to accomplish our development goals and adversely affect our results of operations or cause us to incur material costs or liabilities A wide range of general and industry-specific Chilean environmental laws and regulations regulate our operations, including requirements governing the preparation of environmental impact assessments for our projects, the generation, storage, handling and disposal of hazardous materials, the discharge of pollutants to air and water and the remediation of 18

24 contamination. Numerous Chilean government entities have issued rules and regulations that are often difficult and costly to comply with and carry substantial penalties for non-compliance. Chilean environmental regulations have become increasingly stringent in recent years, particularly in connection with the approval of new projects, and this trend is likely to continue. Accordingly, we may be subject to stricter enforcement or interpretation of existing Chilean environmental laws and regulations, and such laws and regulations may become more stringent in the future. We have made, and expect to continue to make, significant expenditures to comply with new and existing environmental requirements. In addition, compliance with environmental laws may require us to change our development plans and, thus, may adversely affect the manner in which we seek to implement our business strategy and our ability to accomplish our development goals. Future developments in the establishment or implementation of environmental requirements, or in the interpretation of such requirements, could result in substantially increased capital, operating or compliance costs or otherwise adversely affect our business, financial condition and results of operations. Although we believe that we are currently in material compliance with the requirements of applicable environmental laws and regulations, from time to time we may not be in compliance with all such requirements at all of our locations. Violations of these laws and regulations could result in substantial costs or liabilities, including claims for damages and/or civil or criminal penalties or sanctions ranging from fines to closure orders in the event of material violations. Pollution resulting from current and past waste disposal, emissions and other operating practices may occur, requiring us to remediate contamination or to retrofit our facilities at substantial cost. The Ley No. 19,300 Sobre Bases Generales del Medio Ambiente (the Chilean Environmental Law) provides that Chilean companies are responsible for any environmental damage caused by their negligence and may be subject to monetary fines as a result. In addition, the Ley de Navegación (Chilean Law of Navigation), as contained in Decreto Ley (Law) No. 2,200, imposes strict liability for damages caused by spills, such as the one that occurred in San Vicente Bay described below. Consequently, we could be subject to fines, or could be required to remediate contamination or pay compensation, for any environmental damages caused by our operations. Integrated oil and gas companies around the world are periodically subject to adverse effects from unfavorable market perceptions of the environmental impact of their operations. Given the possibility of unanticipated regulatory or other developments, including more stringent environmental laws, the amount and timing of future environmental compliance expenditures could vary substantially from their current levels. These variations could limit the availability of our funds and resources for other purposes. We are liable for damages related to an oil spill in San Vicente Bay On May 25, 2007, an oil spill occurred in San Vicente Bay due to a rupture in our pipeline during the unloading of a ship at our Bío Bío refinery. As a result of the oil spill in San Vicente Bay, fishermen and other individuals, as well as the governmental Consejo de Defensa del Estado (Council for the Defense of the State or CDE), have filed various suits against us and ERSA in the city of Concepción and in nearby Talcahuano alleging environmental and other damages caused by the oil spill in the aggregate amount of approximately U.S.$484 million. Additional claims amounting to approximately U.S.$299 million have been filed against us to date, although we have not yet received service of process. Based on the advice of our legal counsel, claims for which we did not receive service of process by May 25, 2010, the day the statute of limitations expired, will be barred. New claims against us can no longer be filed without special permission of the court. The claims filed by the fishermen and other individuals allege property damages, loss of earnings and/or moral damages, including emotional pain and suffering. We have filed and won various motions to consolidate the claims against us into a single court proceeding. As of the date of this offering memorandum, the suit by the Council is still pending and we intend to commence settlement negotiations in the near future. We cannot provide any assurances that those settlement negotiations will, in fact, take place or what the outcome may be if they proceed. See Legal Proceedings Environmental Claims Relating to Oil Spill in San Vicente Bay. Under Chilean law we are strictly liable for any damages caused by the spill. Based on the advice of our legal counsel, however, we believe that the damages sought in these claims far exceed the actual or compensable losses suffered by plaintiffs. We believe that insurance coverage held by ENAP and ERSA against third party liability is available to indemnify us against the costs of defense and some of the damages alleged by plaintiffs. Our insurer has disputed coverage for certain types of economic and emotional damages. In addition, our policy has a cap of U.S.$100 million. Although we intend to vigorously pursue recovery from our insurers for these claims, there can be no assurance that insurance coverage will be available to cover any portion of these claims. Similarly, although we intend to vigorously defend our interests in these matters, an unfavorable resolution of these civil suits and/or the imposition of damages in excess of our insurance coverage could have a material adverse effect on our business, financial condition, cash flow or results of our operations. 19

25 Our subsidiary is involved in disputes regarding the imposition of customs duties, the taxation of its operations and alleged violations of currency controls in Argentina Our subsidiary Enap Sipetrol Argentina is currently involved in a number of disputes regarding the taxation of its operations, the imposition of customs duties and currency controls in Argentina. Disputes with the Argentine Tax and Customs Authorities regarding supplementary liquidations on export duties, income tax and oil royalties involve controversies valued at U.S.$12.0 million, U.S.$1.3 million and U.S.$1.7 million, respectively. Enap Sipetrol Argentina is also facing various fines by Argentine authorities relating to two distinct alleged violations of currency controls in Argentina. In connection with the first alleged violation, our external counsel has advised us that Enap Sipetrol Argentina s maximum potential liability under Argentine law is U.S.$45.3 million. The claims in the second alleged violation are against Enap Sipetrol Argentina in connection with the operations of our joint venture with Repsol YPF (YPF) in Argentina. Our external counsel has advised us that the maximum potential liability for these claims under Argentine law is U.S.$37.3 million, of which each of YPF and Enap Sipetrol Argentina would be responsible for fifty percent. Although we have been advised by external counsel that any adverse decision would likely result in a lesser fine than the maximum potential liability, we can make no assurance that we will prevail in defending these claims. See Business Legal Proceedings Tax, Customs and Currency Control Disputes in Argentina. We are exposed to production, equipment and transportation risks that could interrupt our operations and result in substantial liability We are subject to production, equipment and transportation risks that are common among oil and gas companies. For example, we encounter: production risk i.e., risk related to fluctuations in production due to accidents, mechanical difficulties, work stoppages, adverse natural conditions, such as bad weather and other acts of God, as well as the inability to manage unforeseen production costs, equipment risk i.e., risk related to the adequacy and condition of the production facilities, including equipment becoming obsolete, and transportation risk i.e., risk related to the condition of our pipelines, shipping of our crude products and vulnerability of other modes of transportation. In particular, our business is subject to the risk of: pipeline explosions (oil or natural gas), oil spills and leaks, fires and explosions in refineries, suspension of refinery operations for unscheduled maintenance and repairs, unexpected geological formations or pressures, blow outs, which are sudden, violent explosions of oil, natural gas or water from a drilling well, followed by an uncontrolled flow from the well, fires and cratering, which is the caving in and collapse of the earth s structure around a blow out well, and mechanical failures and collapsed holes, particularly in horizontal wellbores. The occurrence of any these events could result in: substantial disruption to our operations, personal injuries or loss of life, significant environmental damage resulting in remediation costs and expenses, claims, sanctions or fines, a material adverse effect on our results of operations and financial condition, or 20

26 other significant damage to our property or the property of others. In accordance with customary industry practice, we have purchased insurance policies covering some of these risks. However, these policies do not cover all potential liabilities that may result from these risks. We cannot assure you that we will continue to be able to obtain insurance policies on reasonable terms. Failure by one or more of our insurers to honor its coverage commitments for an insured event could materially and adversely affect our future cash flows, operating results and financial condition Our refining and marketing operations are subject to various hazards common to the oil and gas industry, including explosions, fires, toxic emissions and other pollution, maritime hazards and natural catastrophes. We maintain insurance coverage for protection against some, but not all, of these potential losses and liabilities. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for many insurance policies have increased substantially, and could escalate further. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our financial position. Our insurance program includes a number of insurance carriers. Disruptions in global financial markets have resulted in the deterioration in the financial condition of many financial institutions, including insurance companies. We are not currently aware of any information that would indicate that any of our insurers is unlikely to perform in the event of a covered incident. However, in light of this uncertainty and the volatile current market environment, we can provide no assurances that we will be able to obtain the full amount of our insurance coverage for insured events. For example, in 2008, we reached a settlement agreement with Mapfre Compañía de Seguros Generales S.A. (Mapfre), an insurance carrier with which we have a U.S.$100 million third party liability insurance policy, over U.S.$21.1 million in claims we had submitted relating to certain clean-up costs and related expenses stemming from the San Vicente Bay oil spill. Pursuant to the settlement with Mapfre, we agreed to receive a payment of U.S.$15.5 million for these claims. Pursuant to that settlement, we received various payments in the aggregate amount of U.S.$5.0 million between January 2009 and April 2009 and various payments in the aggregate amount of U.S.$10.3 million between January 2010 and May We are, however, still in dispute with Mapfre regarding coverage for certain economic and moral damages in claims filed by third parties against us following the spill. Damages alleged to date total approximately U.S.$783 million. We have claims outstanding with our insurance provider relating to the U.S.$154 million in damages that we suffered as a result of the February 27, 2010 earthquake and subsequent tsunami. Our insurance policies are with a panel of reinsurers led by Chartis and cover property damage, business interruption losses and third party liability. Although we expect to be reimbursed for the majority of our claims, we have received only U.S.$10 million in insurance proceeds to date. We expect certain costs due to the earthquake will not be covered by insurance. For example, we incurred higher financing costs related to our increased short-term borrowing immediately after the earthquake that are not covered by our insurance policy. We can provide no assurances that we will recover any more or all of our outstanding damages relating to the earthquake from our insurance providers. Our operations and demand for our products are influenced by weather conditions that are beyond our control and may be adversely impacted by natural disasters Weather and other natural events beyond our control can adversely influence our operations and the demand for our products. We operate three petroleum refineries, any of which could be damaged or forced to shut down by severe weather or other natural disasters. Any such unplanned shutdown could have a material adverse effect on our business, financial condition and results of operations. For more information regarding the impact of the February 27, 2010 earthquake and subsequent tsunami, see Risk Factors Risk Factors Related to Our Operations We experienced significant net losses in the first quarter of 2010 as a result of the February 27, 2010 earthquake. Weather conditions and other events beyond our control can also affect the demand for refined hydrocarbons. Sudden shifts in demand may result in our inability to meet fuel demand fully or, conversely, may result in significant excess inventory. In the first half of 2008, Chile experienced a drought that decreased our hydroelectric generators capacity to produce electricity and sharply increased the demand for diesel fuel, which required us to both produce and import more diesel fuel. In the second half of 2008, the drought ended and both the demand for electricity and our capacity to produce it increased accordingly, which resulted in a decrease in the demand for diesel fuel and a significant increase in and overvaluation of our diesel fuel inventory. We cannot assure you that future weather conditions or other natural events beyond our control will not have adverse impacts on our results of operations. 21

27 Our business requires substantial capital expenditures Our business is capital intensive. Specifically, the exploration and development of hydrocarbon reserves, production, processing and refining and the maintenance of machinery and equipment require substantial capital expenditures. We must continue to invest capital to maintain or to increase the amount of hydrocarbon reserves that we produce and the amount of crude oil that we process. Our ability to finance our capital expenditures, however, is limited given our current levels of debt and cash flow. We cannot assure you that we will be able to maintain our production levels or generate sufficient cash flow, or that we will have access to sufficient loans or other financing alternatives to continue our refining, exploration and development activities at or above our present levels. Decreases in our estimates of our hydrocarbon reserves could reduce our potential future income There are numerous uncertainties inherent in estimating quantities of our proved hydrocarbon reserves and projecting future rates of production or the timing of development expenditures. This uncertainty depends chiefly on the amount of reliable geological, engineering and economic data available at the time of the estimate and the geological and engineering interpretation of this data. Therefore, the reliability of reserve estimates depends on factors that are beyond our control and many of which may prove to be incorrect over time. The results of our future drilling, testing and production activity may cause us to make significant revisions to our reserve estimates. Proved reserve estimates may be materially different from the quantities of crude oil and natural gas that we can ultimately recover. Lower market prices, increased cash production costs, reduced recovery rates and other factors may render proved reserves uneconomic to exploit and may result in revisions of reserve data from time to time. Reserve data is not indicative of future results of our operations. Labor disputes, strikes, work stoppages and protests could lead to increased operating costs As of December 31, 2009, approximately 94.9% of our employees were members of unions. Although we do not have a history of adverse labor relations, strikes are common in the global petroleum industry. If our workers were to strike, the resulting work stoppages could have an adverse effect on us. The insurance that we carry would only partially cover losses incurred as a result of business interruptions caused by labor action. As a result, our results of operations and financial condition could be adversely affected by future strikes, work stoppages, protests or similar activities. Our operations are subject to operating hazards that could expose us to potentially significant losses Our operations are subject to potential operating hazards and risks inherent in the exploration and refining operations and in transporting and storing crude oil and refined products, such as fires, explosions, maritime disasters, labor disputes, security breaches, pipeline ruptures and spills and mechanical failure of equipment at our or third party facilities, any of which can result in business interruptions and damage to our properties and the properties of others. In December 2006, we were forced to suspend crude oil production from the Magallanes region of Argentina for 15 months in order to carry out a precautionary replacement of a pipeline. Other future contingencies may require similar or more substantial operating delays. A serious accident at our facilities could also result in serious injury or death to our employees or contractors and could expose us to significant liability for personal injury claims and reputational risk. In October 2007, an accident occurred at our Aconcagua refinery due to the explosion of a heat exchanger and resulted in the death of a contract employee. We have agreed to compensate the family of the contractor and we do not expect any claims against us to arise from this incident, but we cannot assure you that similar events will not occur in the future for which we may be liable and which may have an adverse affect on our results of operations. Risk Factors Related to Our Relationship with the Chilean Government The Chilean government controls us, and approves our annual budget and financing program We are a state-owned, autonomous company. The Chilean government and its agencies closely regulate and supervise our operations. Pursuant to a recent ruling by the Office of the General Comptroller of the Republic, our relationship with the Chilean government is now managed through the Ministry of Energy. In June 2010, the Chilean government sent a bill to the Chamber of Deputies, the lower house of the Chilean congress, that would overrule the ruling by the General Comptroller of the Republic and reinstate the Ministry of Mining as the entity through which our relationship is managed. This bill is currently being considered by the Chamber of Deputies. We can provide no assurances as to the passage of this bill by the Chilean Congress. The Minister of Energy currently serves as the Chairman of our board of directors, and the Chilean government appoints a majority of our board of directors. The President of the Corporación de Fomento de la Producción (Corporation of Promotion of Production or CORFO) is a member of our board of directors and CORFO appoints three additional 22

28 members to our board. In addition, the President of Chile must approve our by-laws, as well as any amendments to our by-laws by issuing a Decreto Supremo (Supreme Decree). We must also submit our proposed annual budget to the Ministry of Finance, the Ministry of Energy and the Ministry of Economy for approval and possible revision, after our board of directors has approved it. As described above and under Management, the composition of our board of directors is determined by the Chilean government. In 2008, the President of Chile proposed a mensaje (legislative bill) to the Chilean Congress that would establish an autonomous public entity referred to as the Consejo del Sistema de Empresas Públicas (Council on State Owned Enterprises) with authority to appoint the majority of board members of state owned enterprises, but excluding us. We cannot assure you as to whether the legislative bill, if adopted by Congress, will or will not place us under the authority of the proposed Council or what the consequences would be of being regulated by such an entity. We cannot assure you that we will not be required to comply additional regulatory requirements or processes either by this proposed entity or through other future government intervention. We cannot provide any assurances that the new administration, which took office on March 11, 2010 and is led by President Sebastian Piñera, will continue to pursue this legislative bill. In accordance with our public charter, we are an autonomous entity. However, as a state-owned entity, we cannot assure you that your interests as note holders will always align with those of the Chilean government in its capacity as our owner. For example, political considerations may affect the decisions of our board of directors in a way that they do not affect the decisions of boards of directors of privately owned companies. Nor can we assure you that governmental intervention would not have an adverse effect on us or any of our subsidiaries and thereby adversely affect our ability to make payments under the notes. The Chilean government may privatize us We are 100% owned by the Republic of Chile and certain legislative action on the part of the Chilean Congress would be required to allow private participation in our ownership. In addition to authorizing private investment in us, the Chilean government could also transfer our activities to another Chilean government-controlled entity or could sell the stock of our subsidiaries or a portion of their assets. In connection with the recent change in presidential administration, the Republic of Chile is considering various corporate governance reforms as well as possible strategic alternatives for ENAP, including further investments in retail or other downstream operations and the sale of assets outside of Chile. Ricardo Rainieri, the Minister of Energy and the Chairman of our board of directors, has indicated in conversations with the Chilean press that the Republic of Chile is currently evaluating the introduction of private capital investments in our company among the possible alternatives and that an announcement on a possible strategic change at ENAP would be made within the next few months. Certain strategic changes, including any partial privatization of the ENAP, would require legislative action and there has been no formal governmental action to permit private investment in us to date. We cannot predict whether such action will be taken in the future. The introduction of private capital into ENAP would result in the partial privatization of the Company. We pay taxes and dividends to the Chilean government We pay special taxes to the Republic of Chile. In addition to the general corporate tax of 17% applicable to all corporations, which is expected to be 20% in 2011, 18.5% in 2012 and 17% in 2013, certain state-owned companies must pay a 40% special tax on their unconsolidated pre-tax income and on all dividends received from its subsidiaries. Additionally, the Ministry of Finance has the power to set our dividend and may require us to transfer annual dividends amounting up to 14% of our equity, even if our return on equity (net profits) are less than that amount for the year. We cannot assure you that the amounts or rates at which the Chilean government or the Ministry of Finance may require us to pay in taxes or dividends will not increase in the future, including as a result of an increase in the general corporate tax rate. See Management s Discussion and Analysis of Financial Condition and Results of Operations General Dividends to Chilean Government. We do not own our own hydrocarbon reserves in Chile or elsewhere Chilean law provides that the Republic of Chile retains all ownership rights to its natural resources, including hydrocarbon reserves. Similar provisions exist in the laws of nearly all the other countries in which we have reserves. Although we generally possess exclusive long-term usage and exploitation rights over these reserves, we do not own them outright. We cannot predict or prevent policy changes that may be enacted by the Chilean government or the governments of other countries in which we have reserves, nor the impact any such policy changes may have on our current usage rights. A transfer of such rights to another company or entity would adversely affect our ability to generate income and our results of operations. 23

29 Claims made against us may not be enforceable under principles of sovereign immunity We are a state-owned company. Because the Republic of Chile is a foreign sovereign, you may not be able to obtain a judgment in a U.S. court against us or any of our subsidiary companies. We have waived our sovereign immunity under the Foreign Sovereign Immunities Act (FSIA) of However, you may not be able to enforce a judgment against us or any of our subsidiary companies property in the United States except under the limited circumstances specified in the FSIA. Furthermore, if you obtain a U.S. judgment against us or any of our subsidiaries as a result of our waiver under the FSIA, you still might not be able to obtain a judgment in Chile that is based on that U.S. judgment. We also do not know whether Chilean courts would enforce judgments of United States courts based on any civil liability provisions of the federal securities laws of the United States. Risk Factors Related to Chile Our growth and profitability depend on the level of economic activity in Chile A substantial majority of our revenues are derived from our sales in Chile. Accordingly, our financial condition and results of operations are dependent to a significant extent on the level of economic activity in Chile. The Chilean economy has been influenced, to varying degrees, by economic conditions in other emerging market countries and by the economic effects the global financial crisis. We cannot assure you that the Chilean economy will continue to grow in the future or that future developments in or affecting the Chilean economy, including the potential deterioration of economic conditions in other emerging markets such as Argentina or Brazil, will not materially and adversely affect our business, financial condition or results of operations. According to data published by the Central Bank, the Chilean economy grew at a rate of 4.6% in 2007, 3.7% in 2008, contracted 1.5% in 2009 and grew 1.0% in the first three months of Our financial condition and results of operations could also be affected by regulatory changes in administrative practices, changes in economic or other policies of the Chilean government or other political or economic developments in or affecting Chile, over which we have no control. Inflation could adversely affect our financial condition and results of operations Although the level of inflation in Chile has been moderate in recent years and was negative in 2009, Chile has experienced high levels of inflation in the past. High levels of inflation in Chile could adversely affect the Chilean economy and could have an adverse effect on our results of operations. The following table shows the annual rate of inflation as measured by changes in Chilean CPI, and as reported by the INE, for each of the last five years and the first six months of There can be no assurance that Chilean inflation will not change significantly from the current level. Consumer Price Index (IPC) % Change from Year prior year (1.4) 2010 (year ended June 30, 2010) Our refined products prices are set by a formula based on the dollar prices charged by U.S. Gulf Coast refineries. Thus, our prices are indexed to the U.S. inflation rate and generally are not correlated with the inflation rate in Chile. If the Chilean inflation rate exceeds the U.S. inflation rate (without a corresponding depreciation in the peso) our ability to meet some of our operating costs and other obligations denominated in Chilean pesos may be negatively affected. In addition, periods of high inflation have coincided with periods of reduced demand for some of our petroleum products. We cannot assure you that our operating results in the future will not be adversely affected by fluctuations in the rate of inflation, or that Chilean inflation will not change significantly from the current level. A devaluation of the Chilean peso could adversely affect our financial condition and results of operations Substantially all of our revenues are denominated in Chilean pesos, though a significant portion is based upon U.S. dollarreferenced international prices, and a substantial portion of our indebtedness is denominated in U.S. dollars. From the 24

30 time we invoice our sales of refined products until we receive payment, we bear exchange rate risk associated with changes in the value of the Chilean peso. We are exposed to foreign exchange fluctuations in our receivables for peso denominated sales in the Chilean market. In 2009, these receivables averaged 20.8 days outstanding. Although we seek to hedge our exchange rate risk, past hedging efforts have not insulated us entirely from shifts in market prices, and we can provide no assurance that future hedging will protect us fully from currency devaluations. In the event of a devaluation of the peso relative to the dollar, our financial condition and results of operations and our ability to meet our dollardenominated obligations, including the notes, could be adversely affected. Chile has different corporate disclosure and accounting standards than those you may be familiar within the United States and Chile s securities laws may not afford you the same protection as U.S. federal securities laws The accounting, financial reporting and securities disclosure requirements in Chile differ from those in the United States in some important respects. Accordingly, the information about us available to you will not be the same as the information disclosed by a company required to file reports with the U.S. Securities and Exchange Commission. In addition, although Chilean law imposes restrictions on insider trading and price manipulation, applicable Chilean laws are different from those in the United States, and in certain respects the Chilean securities markets are not as highly regulated and supervised as the U.S. securities markets. Risks Factors Related to Other Markets Global economic and financial conditions may negatively affect our liquidity, customers, business and results of operations The continuing impact of the global financial and credit crisis and any potential economic impact of the credit difficulties experienced by certain European sovereign states, such as Greece, may have a negative impact on our business, financial condition and results of operations, an impact that is likely to be more severe on an emerging market economy, such as Chile. Any further deterioration in global financial and economic conditions may also have a negative impact on third parties with whom we do, or may do, business. In addition, our ability to access the credit or capital markets may be restricted at a time when we need financing, which could have an impact on our flexibility to react to changing economic and business conditions. For these reasons, any of the foregoing factors or a combination of these factors could have an adverse effect on our results of operations and financial condition and cause the market value of the notes to decline. The current restriction on exports of natural gas in Argentina may negatively affect our business and results of operations Our access to Argentine gas supplies has been fundamentally curtailed since Argentina s economic crisis in 2000 and In the wake of that crisis, the Argentine government s decision to fix energy prices had the dual effect of discouraging investment in a maturing Argentine gas reserve base and inflating domestic consumption of natural gas. As a result of inadequate supplies of natural gas to meet domestic demands, Argentina began to impose restrictions on exports to Chile to retain the natural gas supply available within Argentina. See Management s Discussion and Analysis Disruption of Argentine Supply of Natural Gas. The restrictions on the export of natural gas from Argentina have had a significant impact on our results of operations. We cannot assure you that natural gas exports from Argentina will resume on a continuous basis or that the Chilean government and Argentine government will reach an agreement on natural gas exports in the future. Additionally, we cannot assure you that future developments in or affecting the Argentine economy will not materially and adversely affect our operations in Argentina. We may be exposed to additional risks as a result of the expansion of our operations outside of Chile In the last six years, our business strategy has focused on better positioning ourselves to take advantage of new opportunities in those markets outside of Chile where we already have an established presence. As a result, we are actively pursuing the further development of our operations outside of Chile. Foreign projects often require us to become familiar with foreign legal and business environments and present greater risks to us than those we typically face with Chilean projects. For example, in 2007, after discovering oil in the Mehr block in Iran, our subsidiary Enap Sipetrol, along with its partners in the Mehr Block joint venture (OMV AG Austria, as operator, YPF and Sipetrol International S.A.), decided to commence the negotiation of a development plan with the National Iranian Oil Company (NIOC) for the oil field discovered. However, we were not able to reach an agreement with the NIOC and we and our partners decided to withdraw from the negotiations and surrender the block. We had invested approximately U.S.$43.4 million in Iran. Of this amount, we have established a provision for U.S.$27.3 million which we believe must be returned to us by the Iranian government under the terms of our exploration agreement, and have taken a write-down for the remainder. However, we 25

31 can provide no assurance that the Iranian government will return this amount. Currently, we do not have any operations in Iran. In addition, a substantial portion of our operations outside of Chile are in countries such as Ecuador and Argentina with a history of expropriating foreign investment. The inability to reach agreements with foreign governments regarding exploration and exploitation of hydrocarbons within their borders may prevent us from advancing our business strategy and may adversely affect our results of operations. The potential success of our strategy will depend in part on factors which we cannot control such as political, social and economic developments in such countries. Our operations are subject to extensive regulation outside of Chile The majority of our activities are regulated by a broad range of legislative and regulatory guidelines, both in Chile and elsewhere. Such legislation and regulations address nearly every aspect of our business operations. For example, our activities in countries other than Chile are subject to environmental regulation by municipal, provincial and federal governmental authorities. Our foreign subsidiaries have incurred and expect to continue to incur capital and operating expenditures to comply with applicable environmental regulations. Changes in foreign environmental laws, or their interpretation, may require these subsidiaries to incur significant unforeseen expenditures to comply with such requirements, which could have an adverse effect on our business, financial condition and results of operations. Some U.S. legislation may also impact our operations in certain other countries. In particular, the United States authorizes the imposition of certain sanctions on companies that invest at specified levels in the development of petroleum resources in Iran. Although we believe that our limited investment in Iran does not reach the statutory threshold that would be necessary before such sanctions could be authorized, we cannot predict future changes that might occur in U.S. law regarding Iran. If we were to become subject to U.S. sanctions in the future, they could negatively affect the market for our notes and otherwise impair our ability to access U.S. capital markets. Risk Factors Related to the Notes The notes are a new issue of securities for which there is currently no public market; you may be unable to sell your notes if a trading market for the notes does not develop The offer and sale of the notes have not been registered under the Securities Act or the securities laws of any other jurisdiction and the notes are being offered and sold only to qualified institutional buyers within the meaning of Rule 144A under the Securities Act and in offshore transactions to persons other than U.S. persons under Regulation S under the Securities Act. The notes are subject to the restrictions on transfer described under Transfer Restrictions. The notes will constitute a new issue of securities with no established trading market. Although we applied to list the notes on the Luxembourg Stock Exchange (LSE) and to have the notes admitted to trading on the Euro Multilateral Trading Facility (MTF) market of the LSE, we cannot assure you that a trading market will develop for the notes. If such a trading market does not develop or is not maintained, holders of the notes may experience difficulty in reselling the notes or may be unable to sell them at all. The liquidity of any market for the notes will depend on the number of holders of the notes, the interest of securities dealers in making a market in the notes and other factors. Accordingly, we cannot assure you as to the development or liquidity of any market for the notes. If an active trading market does not develop, the market price and liquidity of the notes may be adversely affected. If the notes are traded, they may trade at a discount from their initial offering price depending upon prevailing interest rates, the market for similar securities, general economic conditions, our performance and business prospects and other factors. The notes cannot be offered in Chile unless they are registered with the SVS. The definition of a public offering of securities under Chilean law includes both offers directed to the general public and offers directed to a part or specific group thereof. Changes in foreign exchange controls could restrict or prevent payment in U.S. dollars on the notes Future Central Bank regulations or legislative changes to the current foreign exchange control regime in Chile could restrict or prevent the purchase of U.S. dollars by us to make payments under the notes. See Exchange Rate Information. Changes in Chilean tax laws could lead to our redeeming the notes Under current Chilean law and regulations, payment of interest to holders of the notes that are not Chilean residents for purposes of Chilean taxation generally will be subject to Chilean withholding tax at a rate of 4.0%. Subject to certain exemptions, we will pay additional amounts so that the amount received by the holder after Chilean withholding tax will equal the amount that would have been received if no such taxes had been applicable. The notes are redeemable at our 26

32 option in whole (but not in part), at any time at 100% of the principal amount thereof plus accrued and unpaid interest and any additional amounts due thereon if, as a result of changes in the laws or regulations affecting Chilean taxation, we become obligated to pay additional amounts on the notes at a rate of withholding or deduction in excess of 4.0%. We are unable to determine whether such increase in withholding tax rate will ultimately be presented to or enacted by the Chilean Congress. However, if such increase is enacted, the notes would be redeemable at our option. See Description of the Notes Redemption for Taxation Reasons and Taxation Chilean Taxation. Developments in other emerging markets may adversely affect the market price of the notes The market price of the notes may be adversely affected by declines in the international financial markets and global economic conditions. The market for securities issued by Chilean entities is, to varying degrees, influenced by economic and market conditions in other emerging market countries, especially those in Latin America. Although economic conditions are different in each country, investors reactions to developments in one country can affect the securities markets and the securities of issuers in other countries, including Chile. The global financial crisis has affected economies across the globe, depressing exports, limiting access to capital and lowering investment levels. If the global economy or the current economic situation in other countries where we have significant operations deteriorates significantly, our results of operations could be adversely affected and the value of the notes could decline. 27

33 USE OF PROCEEDS We estimate that the net proceeds from the offering will be approximately U.S.$494.6 million, after deducting the initial purchasers discount and estimated offering fees and expenses. We intend to use the net proceeds from the offering to prepay some of our existing short-term indebtedness coming due on or before March See Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Debt. 28

34 EXCHANGE RATE INFORMATION Chile has two currency markets, the Mercado Cambiario Formal (the Formal Exchange Market) and the Mercado Cambiario Informal (the Informal Exchange Market). Under the Ley Orgánica Constitucional del Banco Central de Chile (the Central Bank Act), the Central Bank has the authority to determine which purchases and sales of foreign currencies must be carried out in the Formal Exchange Market. The Formal Exchange Market is comprised of the banks and other entities authorized to purchase and sell foreign currencies by the Central Bank. Payments or remittance of funds under the notes, either from or to Chile, must be carried out through the Formal Exchange Market, using currency purchased either in the Formal Exchange Market or the Informal Exchange Market. Alternatively, we may make payments under the notes with foreign currency held abroad. The tipo de cambio observado ( observed exchange rate) for a given date is the average exchange rate of the transactions conducted in the Formal Exchange Market on the immediately preceding banking day, as certified by the Central Bank. The Central Bank is authorized to carry out its transactions at the rates that it sets. Generally, however, the Central Bank carries out its transactions at the spot rate. Authorized transactions by banks are generally carried out at the spot rate. Purchases and sales of foreign currencies which may be effected outside the Formal Exchange Market can be carried out in the Informal Exchange Market. The Informal Exchange Market reflects transactions carried out at informal exchange rates by entities not expressly authorized to operate in the Formal Exchange Market, such as foreign exchange houses and travel agencies. Currently, the Central Bank does not have in effect any limits on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the observed exchange rate. The following table sets forth the annual low, high, average and period-end observed exchange rate for U.S. dollars for each year beginning in 2005, as reported by the Central Bank. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos. Observed Exchange Rate (Ch$ per U.S.$1.00 (1) ) Daily Observed Exchange Rate Ch$ per U.S.$1.00 (1) Year Low (2) High (2) Average (3) Period End (4) Ch$ Ch$ Ch$ Ch$ January February March April May June July Source: Central Bank (1) Nominal amounts. (2) Exchange rates are the actual low and high, on a day-by-day basis for each period. (3) The average of monthly average rates during the year or period. (4) As reported by the Central Bank on the first business day of the following period. 29

35 EXCHANGE CONTROLS The Central Bank is responsible for establishing monetary policy and exchange controls in Chile. Chapter XIV of the Compendio de Normas de Cambios Internacionales (Compendium of Foreign Exchange Regulations) sets forth the regulations under which Chilean issuers offer bonds in the international markets. Before the last version of the Compendium of Foreign Exchange Regulations went into effect on March 1, 2002, all international bond issuances by Chilean companies required application to and approval by the Central Bank. Absent such authorization, issuers were not allowed to offer bonds outside of Chile. The regulations imposed restrictions on the type of companies that were entitled to issue bonds abroad and on the bonds themselves, including certain limitations on the average term of the bonds to be placed internationally. Under the Compendium of Foreign Exchange Regulations currently in effect, approval by and registration with the Central Bank is no longer required. The proceeds of the international sale of the notes may now be brought into Chile or held abroad. In either case, we are required to inform the Central Bank of the financial terms and conditions of the notes and file with the Central Bank a schedule of payments on the notes. The Central Bank must be notified of any amendment to the information that we file with the Central Bank or to the schedule of payments within the first 10 days of the month following the month in which such amendment is made. The Compendium of Foreign Exchange Regulations also requires that payments or remittance of funds under the notes either from or to Chile must be carried out through the Formal Exchange Market. Alternatively, we may make payments under the notes with foreign currency held abroad. The Compendium of Foreign Exchange Regulations also provides that any payment as well as any remittance of foreign currency under the notes will be subject to the foreign exchange regulations in force at the time of the corresponding payment or remittance. Although there are currently no foreign exchange regulations or restrictions other than the ones described in this offering memorandum, we cannot assure you that new restrictions will not be imposed in the future. 30

36 CAPITALIZATION The following table sets forth our consolidated capitalization as of March 31, 2010, (i) on a historical basis, and (ii) as adjusted to reflect the issuance of the notes in this offering and the application of proceeds therefrom. See Use of Proceeds and Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Debt. This table should be read together with our financial statements included elsewhere in this offering memorandum. As of March 31, 2010 As of March 31, 2010 Actual As Adjusted (in millions of U.S. dollars) Short-term debt Short-term liabilities with banks... U.S.$ 1,276.9 U.S.$ Liabilities bonds, current portion Financial leasing, current portion Total short-term debt... 1, Long-term debt Long-term liabilities with banks... 1, ,061.0 Long-term liabilities, bonds... 1, ,253.0 Notes offered hereby Financial leasing Total long-term debt... 2, ,826.7 Equity Paid-in capital... 1, ,182.7 Other reserves... (102.0) (102.0) Retained losses... (772.7) (772.7) Minority interest Total equity Total capitalization... U.S.$ 3,967.7 U.S.$ 3,

37 SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION The following tables present our selected consolidated financial information and other data as of and for each of the periods indicated. This data is qualified in its entirety by reference to, and should be read together with, our consolidated financial statements and the notes thereto. The following data as of and for each of the years ended December 31, 2007, 2008 and 2009, has been derived from our audited consolidated financial statements. The data for the three month periods ended March 31, 2009 and 2010 and as of March 31, 2010, has been derived from our unaudited interim financial statements. The consolidated results of operations for the three month period ended March 31, 2010, are unaudited and are not necessarily indicative of the results to be expected for the year ending December 31, 2010, or any other period. We have prepared the unaudited interim consolidated financial statements on the same basis as our audited financial statements and, in our opinion, have included all adjustments necessary to present fairly in all material respects our financial position and results of operations. The financial data presented in this offering memorandum should be read together with Management s Discussion and Analysis of Financial Condition and Results of Operations. Our consolidated financial statements for all periods prior to January 1, 2009 have been prepared in accordance with Chilean GAAP. Our consolidated financial statements for the year ended December 31, 2008 have been presented in accordance with both IFRS and Chilean GAAP in order to render them comparable to the consolidated financial statements for the year ended December 31, See note four to our consolidated financial statements for the years ended December 31, 2008 and December 31, 2009 contained elsewhere in this offering memorandum for a description of the principal differences between Chilean GAAP and U.S. GAAP through December 31, 2008 as they relate to us and our consolidated subsidiaries. Starting January 1, 2009, we no longer prepare financial statements in accordance with Chilean GAAP. Our consolidated financial statements as of and for the year ended December 31, 2009, for the three-month periods ended March 31, 2009 and 2010 and as of March 31, 2010 have been prepared in accordance with IFRS, which differs in significant respects from Chilean GAAP. See note four to our consolidated financial statements for the years ended December 31, 2008 and December 31, 2009 contained elsewhere in this offering memorandum for a description of the principal differences between Chilean GAAP and IFRS as they relate to us and our consolidated subsidiaries. 32

38 Selected Consolidated Financial and Other Information The following table presents our unaudited interim consolidated financial information for the three month periods ended March 31, 2009 and 2010, and as of March 31, 2010, and our audited consolidated financial information as of and for the years ended December 31, 2008 and December 31, 2009, prepared in accordance with IFRS. As of and For the Year Ended December 31, As of and For the Three Months Ended March 31, (audited) (unaudited) (in millions of U.S. dollars, in accordance with IFRS) INCOME AND LOSS STATEMENT DATA Revenues... U.S.$ 12,182.7 U.S.$ 7,097.5 U.S.$ 1,564.1 U.S.$ 1,937.4 Cost of sales... (12,926.9) (6,819.5) (1,472.4) (1,909.8) Gross margin... (744.2) Other income, by function (1) Other expenses, by function (1)... (117.4) (100.2) (6.7) (20.1) Administrative expenses... (107.3) (97.3) (23.5) (22.6) Other income (losses) (2) (0.3) (64.4) Financial income (1) Financial expense (3)... (201.4) (172.4) (43.7) (34.9) Equity in earnings of associates recorded under the equity method Foreign currency exchange differences... (129.1) 51.6 (5.4) 9.6 Income (loss) before income tax... (1,186.2) (91.2) Income tax (67.0) 4.8 Net income (loss) from continuing operations... (962.2) (33.7) (86.3) Income from discontinuing operations Income (loss)... (955.5) (86.3) Income attributable to non-controlling interest Net income (loss) attributable to equity holders of the parent... (960.4) (89.6) FINANCIAL POSITION DATA Cash and cash equivalents... U.S.$ U.S.$ 76.8 U.S.$ Trade and other receivables, net Inventories , ,177.3 Property, plant and equipment, net... 2, , ,513.4 Total assets... 5, , ,923.6 Total interest bearing debt... 2, , ,620.9 Trade and other payables (4)... 1, , ,218.8 Total liabilities... 5, , ,577.0 Total equity Total liabilities and equity... 5, , ,923.6 Total Interest bearing debt/total equity OTHER FINANCIAL DATA (unaudited) EBITDA (5)... U.S.$ (722.7) U.S.$ U.S.$ U.S.$ 56.9 Depreciation EBITDA (5) / Financial expense (3)... N/A Total interest bearing debt/ebitda (LTM) (6)... N/A 6.69 N/A (1) Due to a reclassification during the first half of 2010 of certain line items of our financial statements required by the SVS, the presentation of these line items in our financial statements for the years ended December 31, 2008 and 2009 is different from the presentation set forth in this Selected Consolidated Financial and Other Information. The items reported in this table as Other income, by function and Financial income appear in our financial statements for the years ended December 31, 2008 and 2009 as a single line item titled Other operating revenues. The item reported in this table as Other expenses, by function appears in our financial statements for the years ended December 31, 2008 and 2009 as Other operating expenses. (2) For the three months ended March 31, 2010, includes an impairment of U.S.$64.0 million due to physical damage to our plant, property and equipment as a result of the February 27, 2010 earthquake and subsequent tsunami. See Business Legal Proceedings Insurance Claims Relating to Chilean Earthquake and Subsequent Tsunami. 33

39 (3) Includes interest expenses incurred in connection with certain short-term trade financing that is included as trade and other payables under liabilities on our balance sheet and is described under Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Short-Term Trade Financing. (4) Due to a reclassification during the first half of 2010 of certain line items of our financial statements required by the SVS, the line item reported in this table as Trade and other payables is presented differently in each of our financial statements included herein. The line item reported in this table as Trade and other payables appears in our financial statements for the years ended December 31, 2008 and 2009, as the sum of current and non-current Trade payables and other accounts payable, and in our financial statements for the three months ended March 31, 2010, and as of December 31, 2009, and March 31, 2010, as the sum of Trade debtors and other accounts payable and Non-current liabilities. (5) For the financial statements presented under IFRS, we define EBITDA as the sum of (i) gross margin, (ii) other income by function, (iii) income from discontinuing operations and (iv) depreciation, less (v) other expenses by function and (vi) administrative expenses. We have included EBITDA data in this offering memorandum because we believe such data is used by certain investors to measure a company s ability to service debt and fund capital expenditures, and it is included herein for convenience only. EBITDA is not a measure of financial performance under Chilean GAAP, IFRS or U.S. GAAP and should not be considered as an alternative to using net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. EBITDA as it is used in this offering memorandum may differ from similarly titled measures reported by other companies. (6) Based on EBITDA for the last twelve months. For the twelve months ended March 31, 2010, EBITDA LTM was U.S.$311.1 million. 34

40 The following table presents our selected consolidated financial information as of and for the years ended December 31, 2007 and 2008, prepared in accordance with Chilean GAAP. As of and For the Year Ended December 31, (audited, in millions of U.S. dollars, in accordance with Chilean GAAP) INCOME STATEMENT DATA Operating revenue... U.S.$ 9,019.3 U.S.$ 12,185.2 Operating costs... (8,728.6) (13,017.5) Gross profit (832.3) Administrative expenses... (91.2) (104.9) Operating profit (loss) (937.2) Non-operating (expense) income Financial income Interest expenses... (145.2) (211.0) Equity in earnings of related companies, net Amortization of goodwill... (1.2) (1.9) Other non-operating income Other non-operating expenses... (7.7) (26.9) Foreign exchange difference credit (charge) (128.4) Total non-operating (expense) income... (62.1) (244.0) Income before income tax and minority interest (1,181.2) Income tax... (87.8) Minority interest Net income (loss) (957.8) BALANCE SHEET DATA Total current assets... U.S.$ 3,321.2 U.S.$ 2,270.7 Property, plant and equipment, net... 1, ,270.5 Total other long-term assets Total assets... 5, ,872.1 Total current liabilities... 2, ,776.7 Total long-term liabilities... 1, ,834.3 Total liabilities... 4, ,611.0 Total equity Total liabilities and equity... 5, ,872.1 OTHER FINANCIAL DATA (unaudited) EBITDA (1)... U.S.$ U.S.$ (703.9) Debt with banks and financial institutions (2)... 1, ,587.9 Depreciation Interest expenses (3)... (145.2) (211.0) Debt with banks and financial institutions (2) / EBITDA (1) 2.4 n/a (4) EBITDA (1) / Interest expenses (3) n/a (4) Debt with banks and financial institutions (2) / Total equity (1) For the financial statements presented under Chilean GAAP, we define EBITDA as the sum of (i) operating profit plus (ii) depreciation expenses. We have included EBITDA data in this offering memorandum because we believe such data is used by certain investors to measure a company s ability to service debt and fund capital expenditures, and it is included herein for convenience only. EBITDA is not a measure of financial performance under Chilean GAAP, IFRS or U.S. GAAP and should not be considered as an alternative to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. EBITDA as it is used in this offering memorandum may differ from similarly titled measures reported by other companies. (2) Includes outstanding notes and bonds. Includes current portion of such liabilities. Excludes certain short-term trade financing that is included as notes payable under current liabilities on our balance sheet and is described under Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Short-Term Trade Financing. The total amount outstanding under such trade financing as of December 31, 2008, was U.S.$305.0 million. (3) Includes interest expenses incurred in connection with certain short-term trade financing that is included as notes payable under current liabilities on our balance sheet and is described under Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Short-Term Trade Financing. (4) EBITDA as of December 31, 2008 is negative. 35

41 The following table presents our operating data for the periods indicated. For the Year Ended December 31, For the Three Months Ended March 31, OPERATING DATA Refining capacity (1) Refining production Refinery runs (2) Refined products (3) Capacity utilization rate (4) % 94.9% 87.7% 89.1% 83.7% 87.5% 60.3% Proved reserves* Crude oil (5) Natural gas (6) Total oil and natural gas proved reserves (7) Employees*... 2,979 3,020 3,298 3,382 3,380 3,409 3,401 (1) Total amount of crude oil introduced into the first step of the refining process, referred to as atmospheric distillation. In thousands of barrels per day at December 31 or March 31, as the case may be. See Business Refining and Logistics Refining Processes and Capacity. (2) Total amount of inputs, including crude oil and other raw materials, introduced throughout one complete cycle of the refining process. In thousands of average barrels per day. See Business Refining and Logistics. (3) Total amount of refined products produced by one complete cycle of the refining process. In thousands of average barrels per day. See Business Refining and Logistics. (4) Defined as crude oil refinery runs (in thousands of average barrels per day for the period) divided by atmospheric distillation refining capacity (in thousands of barrels per day at period end). (5) In millions of barrels at December 31 or March 31, as the case may be. See Business Exploration and Production Reserves. (6) In millions of barrels of oil equivalent (boe) at December 31 or March 31, as the case may be. * Reserve and employee data calculated at December 31 or March 31, as the case may be. Reserve data is audited by third parties. 36

42 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included elsewhere in this offering memorandum. Our consolidated financial statements as of and for the years ended December 31, 2007 have been prepared in accordance with Chilean GAAP. Our consolidated financial statements as of and for the year ended December 31, 2008 have prepared in accordance with both Chilean GAAP and IFRS. See note four to our consolidated financial statements for the years ended December 31, 2008 and December 31, 2009 contained elsewhere in this offering memorandum. Adoption of IFRS In October 2006, the SVS adopted a rule requiring all companies with publicly-traded securities in Chile to prepare their financial statements in accordance with IFRS as adopted by the IASB beginning in January In May 2008, we began our transition from Chilean GAAP to IFRS and, despite a subsequent announcement by the SVS that companies would be granted an additional time to comply with IFRS, we voluntarily began preparing our financial statements in accordance with IFRS as of January 1, Our financial statements as of and for the year ended December 31, 2009 were the first of our audited financial statements prepared in accordance with IFRS. Pursuant to IAS 1 Presentation of Financial Statements, we have also prepared our consolidated financial statements as of and for the year ended December 31, 2008 in accordance with IFRS. IFRS differs in certain significant respects from Chilean GAAP. See note four to our consolidated financial statements for the years ended December 31, 2008 and December 31, 2009 contained elsewhere in this offering memorandum for a qualitative and quantitative description of the principal differences between Chilean GAAP and IFRS as of and for the year ended December 31, 2008 as they relate to us and our consolidated subsidiaries. As a result of our adoption of IFRS, there were significant changes in the presentation of our consolidated financial statements and our level of equity. Our IFRS consolidated financial statements also include additional disclosures that are not required by Chilean GAAP. The adoption of IFRS represents an accounting change only and does not affect our operations or cash flows. Impact of the IFRS Transition on Equity at the Transition Date Our restated equity as a result of the IFRS transition as of January 1, 2008 was U.S.$1.1 billion as compared to equity of U.S.$989.6 million under Chilean GAAP. The principal factors contributing to the increase in equity involved the revaluation of land to fair value (which increased equity by U.S.$198.1 million) and the reclassification of derivatives into equity (which increased equity by U.S.$62.2 million). These increases were partially offset by the restatement of property, plant and equipment due to the requirement under IFRS to use historical exchange rates as of the relevant transaction date as a result of our adoption of the dollar as our functional and accounting currency in 2005 (a decrease of U.S.$58.5 million) and the recognition under IFRS of dividends for 2007 (a decrease of U.S.$49.6 million). Please refer to note four of our interim IFRS financial statements for further details. Special Purpose Entities As a result of our adoption of IFRS, we consolidated, for the first time, five additional entities that had not been consolidated under Chilean GAAP. These entities are Enercón, Éteres y Alcoholes S.A. (Etalsa), Petrosul S.A. (Petrosul), Productora de Diesel S.A. (Prodisa) and Compañía de Hidrógeno del Bío Bío S.A. Although our ownership interest in these entities is less than 50%, under IFRS these entities are considered subsidiaries because, pursuant to agreements among us and their other shareholders, or as a result of their structure, we directly or indirectly exercise control. As a result, our interest bearing debt under IFRS as of December 31, 2008 increased by U.S.$535.1 million, compared to our interest bearing debt as of December 31, 2008 under Chilean GAAP. The increase in our interest bearing debt was offset by a reduction of non-interest bearing debt in the statement of financial position. Our financial statements have not been reconciled to U.S. GAAP purposes of this offering memorandum or otherwise. Any such reconciliation would likely result in material differences. 37

43 General Our results of operations are directly related to: our cost structure, the demand for our refined products and our inventory management, and refining margins and the pricing of our products. Our Cost Structure Our most significant cost is the cost of crude oil, which under our crude oil supply contracts is pegged to international indices such as the WTI or DTD Brent crude spot price. Chile does not currently impose special duties on hydrocarbon imports and has free trade agreements with most of the countries from which we import crude oil and refined products. Consequently, the hydrocarbons we import are not subject to import duties. An exception, however, is a 6% import duty that we pay on hydrocarbons we import from countries with whom Chile does not have a free trade agreement, including countries in Africa and certain Asian countries. Substantially all of our suppliers of crude oil are located far from our refineries, and the crude oil that we process must be shipped to our facilities. In 2009, 77.6% of the crude oil we processed at our refineries was imported from other countries in South America and took an average of 9 days to be shipped to our facilities; 15.0% was imported from Europe and took an average of 25 days to be shipped to our facilities; 3.3% was imported from Asia and took an average of 31 days to be shipped to our facilities; and 2.0% was imported from Africa and took an average of 20 days to be shipped to our facilities. Our results of operations are particularly affected by movements in the price of crude oil during the significant time lag between when we price the crude oil we purchase and when we price the refined goods we sell. Crude oil prices have fluctuated widely in recent years. The average WTI crude spot price was U.S.$72.2 per barrel in 2007 and U.S.$100.1 per barrel in On July 3, 2008, WTI crude spot prices reached a historic high of U.S.$145.3 per barrel. In the second half of 2008 and early 2009, crude spot prices entered a period of sustained decline as a result of declining global demand due to the global economic crisis, and the strengthening of the U.S. dollar. In February 2009, WTI crude spot prices reached U.S.$34 per barrel, one of the lowest prices since The average price of crude oil in 2009 was U.S.$61.9 per barrel, 38.2% lower than the average price of crude oil in Declining prices of crude oil and refined products throughout the second half of 2008 and early 2009, combined with the significant lag in our production cycle, caused an increase to our operating costs and adversely affected our refining margin. Throughout most of 2009, crude oil prices increased gradually. This gradual increase in oil prices throughout 2009 resulted in the appreciation of our inventory and had a positive impact on our results of operations for the year. Similarly, crude oil prices continued to rise during the three month period ended March 31, 2010 with a corresponding positive impact on both our inventory and our results of operations for the period. In the first half of 2010, oil prices increased 26.3% over the average price of crude oil for 2009 from an average price of U.S.$61.9 per barrel for 2009 to an average price of U.S.$78.2 per barrel during the first half of As of July 30, 2010, the WTI crude spot price was U.S.$78.90 per barrel. 38

44 The following table presents the WTI monthly average price per barrel for the periods indicated. WTI Monthly Crude Spot Average (in U.S. dollars per barrel) January... U.S.$/bbl U.S.$/bbl U.S.$/bbl U.S.$/bbl February March April May June July August (1) September October November December (1) The average price for July was calculated for the time period August 1, 2010 through August 3, We partially hedge the risks associated with fluctuations in international crude oil prices. In May 2009, our board of directors established a market risk committee, composed of various members of our management, that meets weekly to review our hedging transactions and risk management policies and to supplement the work of the market risk committee of our board of directors. The market risk committee has improved the flexibility of our hedging practices by allowing us to respond to changes in market risks more quickly. Our most significant remaining costs are primarily related to the costs of managing our inventory, the costs incurred in operating our refineries and transportation costs. In 2009, our management set a goal of reducing our operating costs and improving our operating efficiency, and as a result we implemented a series of reforms, including: Changes in our inventory management procedures, which we made more efficient by shortening the inventory cycle and implementing a more flexible commodity price hedging policy. These modifications allowed us to respond more quickly to changes in market conditions and be more opportunistic in hedging our exposure to crude oil price volatility and decrease our inventory. In part as a result of these modifications, our average inventory levels for refined products decreased by 18.8% from an average 1.6 million cubic meters in 2008 to an average 1.3 million cubic meters in Reductions in the number of outside consulting, construction, engineering and outsourcing contracts in order to achieve cost savings. Improvements to programming for our marine fleet and reduced costs for transporting crude oil and other refined products were achieved by re-negotiating our lease rates with third parties and reducing demurrage costs. Negotiation of new sales contracts with our wholesale distributor customers, beginning in December 2009, through which we incentivize our customers to provide us with advance order volumes, which allows us to significantly increase the efficiency of our inventory management and refining processes. These contracts establish a more rigid sales program that allows us to streamline our operational resources, better predict our sales volume for any given month, and pass on to our final customers costs related to hedging various risks, including price fluctuations. Establishment of new purchase relationships in June 2010 by our commercial and finance divisions that allow us to purchase directly from crude oil producers rather than from commodity traders. By purchasing directly from producers we have been able to avoid paying the additional price mark-ups charged by the commodity traders. 39

45 In addition to these reforms implemented in 2009, we also benefited in 2009 from the commencement in July 2008 of operations at Energía Concón S.A. (Enercón), a coker facility at our Aconcagua refinery, which has allowed us to increase our processing of heavier crude oil, which is cheaper than lighter crude oils. Our refineries transition to heavier crude oil, which is abundant in South America, also shortened our inventory cycle by reducing our need to import from more distant markets. In part as a result of Enercón, in 2009 we increased the amount of heavy crude oil our refineries process to 5.4 million cubic meters from 4.7 million cubic meters in We also benefited in 2009 from our increased access to LNG and our reduced reliance on diesel fuel due to the commencement of operations of GNL Quintero, our re-gasification facility, in September GNL Quintero has decreased the cost of operating our Aconcagua refinery and increased the efficiency of our operations. We expect that GNL Quintero will continue to enhance our ability to supply our refineries and the Chilean market with natural gas, stabilizing our cost structure and helping us achieve a greater level of energy independence from our South American neighbors, particularly by decreasing our dependence on gas supplies from Argentina. Demand for Refined Products and Inventory Management The demand for our refined products is almost entirely determined by the demand of the Chilean market. In 2009, 91.1% of our sales by volume were domestic sales and 8.9% of our total sales by volume were international. Chilean demand for refined petroleum products increased by an average annual rate of 3.0% in the period from 2001 to 2009, primarily due to the growth in the Chilean economy throughout this period. In 2009, Chile consumed approximately 18.7 million cubic meters of refined petroleum products, which represents a decrease of 6.4% compared to Chile s consumption in The contraction in 2009 was primarily due to a decrease in demand by power generators for diesel fuel as a result of the increase in domestically-generated LNG from the GNL Quintero facility, which began supplying LNG in July The demand for diesel fuel decreased by 10.3% to 9.1 million cubic meters in Consumption of gasoline increased by 7.3% by volume in 2009 as compared to We are required by Chilean regulation to maintain a 25-day stock of refined products, which exposes us to international price fluctuations for refined products. In addition, the significant lag between the time when we purchase crude oil abroad and when we sell our refined products in Chile exposes us to the risk of declines in prices for crude oil and refined products. Throughout 2009, a gradual increase in the price of crude oil led to an appreciation of our inventory, which had a positive effect on our results of operations for Refining Margins and Pricing of our Products Our profitability is predominantly determined by the difference between the selling price of refined products (our principal source of revenues) and the purchase price of crude oil (our principal raw material), which we refer to as refining margins. In 2009, the hydrocarbon industry experienced reduced refined product margins across the globe, including Chile, primarily due to the continuing effects of the global economic crisis. We base the sales price of our refined products on an import parity formula. This formula is intended to set prices based on the implied cost of importing refined petroleum products from the U.S. Gulf Coast, the nearest alternative source capable of supplying a substantial portion of the Chilean market. The main components of the import parity pricing are: the reference price for the relevant refined product in the U.S. Gulf Coast, shipping cost from the U.S. Gulf Coast to the relevant Chilean port, insurance, vapor losses, costs relating to ship demurrages cost (charges for exceeding allotted port capacity), and associated terminal costs. Chile has a free trade agreement with the United States and hydrocarbon imports from the United States to Chile are not subject to import duties. As a result, the import parity formula does not include import duties. Our prices are currently adjusted on a weekly basis each Tuesday (and become effective the following Thursday), and reflect any variation in U.S. Gulf Coast reference prices. U.S. Gulf Coast reference prices are the most important component of our import parity pricing. Reference prices are averages of daily spot prices of the applicable refined 40

46 petroleum product over the two or three week period occurring one week before the pricing date (which reflects the 15-day voyage from the U.S. Gulf Coast to Chilean ports). A value-added tax (19% of the net price), a specific fuel tax (in the case of gasoline and diesel fuel only) and, if applicable, a tax or credit relating to the Fondo de Estabilización del Precio del Petróleo (Petroleum Prices Stabilization Fund or FEPP), through which a tax (or credit) is added to (or deducted from) the import parity price to create a range within which the consumer price is permitted to fluctuate. Prices set according to this import parity formula are expressed in U.S. dollars, but are invoiced and collected in Chilean pesos, at the market exchange rate set by the Central Bank on the business day prior to the date of conversion. In the absence of other refiners in Chile, the consistent use of import parity pricing has helped us to maintain a market share of 75% to 90% of the domestic fuels market in the last five years by acting as a disincentive for import competition. From 2005 until June 2010, the FEPP was replaced by the Fondo de Estabilización de Precios de los Combustibles Derivados de Petróleo (Petroleum Derivative Fuel Prices Stabilization Fund or FEPC), and in July 2010, the Ministry of Finance proposed that FEPP be replaced with a new mechanism, the Sistema de Protección ante Variaciones de Precios de Combustibles (System of Protection against Variations in Petroleum Prices or SIPCO). Both the expired FEPC and the proposed SIPCO employ a similar tax and credit system to the FEPP, but each established different ranges within which consumer prices are permitted to fluctuate. Under SIPCO, the consumer price for fuel would be permitted to fluctuate within a band of 12.5% above and below the long-term moving average of the import parity price of each fuel. The adoption of SIPCO requires Congressional approval and a bill, which was sent to Congress to seek such approval on July 13, 2010, is currently under discussion. See Regulatory Framework Fuel Prices Stabilization. Access to Natural Gas Our access to Argentine gas supplies has been severely curtailed since Argentina s economic crisis in 2000 and In the wake of that crisis, the Argentine government s decision to fix energy prices had the dual effect of discouraging investment in Argentina s maturing gas reserve base and inflating domestic consumption of natural gas. As a result, Argentina has had difficulty meeting domestic demand for natural gas and has imposed restrictions on exports to Chile in order to conserve its supply of natural gas for the domestic market. Since 2004, the supply of natural gas from Argentina to Chile has suffered successive restrictions, resulting in the unavailability of natural gas for industrial consumption for extended periods as well as isolated episodes of unavailability for residential consumption. As a result of a bi-national commission created in December 2007 by the presidents of Chile and Argentina, the two countries implemented in 2008 a swap mechanism in which natural gas was provided by Argentina to certain power generators in Chile in exchange for which the recipient Chilean generator was required to pay the cost of providing fuel oil to power an Argentine generator. This swap mechanism was in place until April 2008 when the Argentine government again began to further restrict exports and increase export taxes applicable to natural gas, in order to align the price of Argentine natural gas in Chile with the purchase price paid by Argentine purchasers for natural gas from Bolivia. Since November 2008, exports of natural gas from Argentina have increased, although they have not yet reached the amounts contemplated by the original contractual agreements. The restrictions on the export of natural gas from Argentina have had a significant impact on our results of operations. The scarcity of natural gas has required us to rely on more expensive diesel fuel to power our refineries. In 2008, a lack of hydroelectric power due to drought conditions combined with the dearth of natural gas to increase our reliance on diesel fuel and significantly drive up our operating costs. Our access to natural gas began to improve in 2009 with the commencement of operations at GNL Quintero, a facility that has significantly reduced our dependence on Argentine natural gas and helped to stabilize our cost structure. In September 2009, the re-gasification facility and the first of three planned storage tanks, with a storage capacity of 10,000 cubic meters of LNG, were completed and GNL Quintero became operational. During this first stage of operations, GNL Quintero was able to receive shipments of LNG every fifteen (15) days, using ships in the terminal in part to store additional gas, and produced an average of 5 million cubic meters of LNG per day. In April 2010, a second storage tank, with a storage capacity of 160,000 cubic meters, became operational. We expect that the final liquid gas storage tank at the terminal, also with a storage capacity of 160,000 cubic meters, will be completed and the terminal will reach full capacity in August Once fully operational, we expect that GNL Quintero will gasify an average of 10 million cubic meters of natural gas per day. Our ability to access natural gas through GNL Quintero was especially beneficial in the immediate wake of the February 27, 2010 earthquake. The shutdown of our two refineries resulted in a nationwide effort to conserve diesel fuel and other refined products in Chile. By increasing production of natural gas at GNL Quintero, we were able to help many of Chile s power generators substitute natural gas for diesel fuel as their primary source of energy. Output at GNL Quintero increased to 6.5 million cubic meters of natural gas per day. In the long term, the increased supply of natural gas from 41

47 GNL Quintero will help us to reduce further our dependence on Argentine natural gas as well as stabilize our cost structure. Impact of the February 27, 2010 Earthquake and Subsequent Tsunami on Our Operations On February 27, 2010, an earthquake measuring a magnitude of 8.8 on the Richter scale and subsequent tsunami struck the South-Central Region of Chile. The epicenter was located approximately 150km northeast of the city of Talcahuano, where ENAP s Bío Bío refinery is located. Soon after the earthquake, the Bío Bío region was also affected by several tsunamis. These events resulted in the immediate shutdown of both Aconcagua and Bío Bío refineries. The power supply to both refineries was also cut off due to damage to Chile s utility infrastructure and was not re-established until one week later at the Aconcagua refinery and two weeks later at Bío Bío refinery. Our Aconcagua refinery suffered minor damage to some of its installations. After taking the necessary safety precautions, the Aconcagua refinery was re-started and became fully operational on April 21, The Bío Bío refinery was more severely affected, suffering damages to several of its installations, including its water intake tank. As a result, the Bío Bío refinery was not fully operational for a longer period of time. The Bío Bío refinery became fully operational on June 22, 2010, with the exception of our co-generation facility, Petropower, a special purposes entity which we expect to become fully operational by January We are currently purchasing power from the Sistema Interconectado Central (SIC) to replace the energy ordinarily provided to Bío Bío by the co-generation facility. Each of the Quintero Maritime Terminal, the GNL Quintero re-gasification terminal and the San Vicente Maritime Terminal is fully operational. Immediately after the earthquake, we made arrangements to begin purchasing and importing refined products to meet the demand of our customers. Our ability to quickly arrange for an alternate source of refined goods helped to assure that Chile s fuel supply was never interrupted. In the immediate wake of the February 27, 2010 earthquake and subsequent tsunami, we increased our short-term credit lines with suppliers as well as our working capital facilities from various financial institutions by approximately U.S.$450 million, in order to provide ourselves with a working capital cushion of approximately U.S.$500 million in anticipation of potential increases in the need for working capital expected to result from the earthquake. As a result, our short-term indebtedness had increased to U.S.$1.3 billion by March 31, We intend to use a large part of our cash reserves to repay this short-term indebtedness through the course of the 2010 fiscal year. According to our own preliminary assessment, we estimate that we have incurred approximately U.S.$154 million in losses as a result of the earthquake, approximately U.S.$76 million due to physical damages suffered by our infrastructure and approximately U.S.$78 million due to losses arising from business interruption. Of the U.S.$76 million in physical damages, U.S.$64 million corresponds to the value of the assets damaged and U.S.$12 million corresponds to the valueadded taxes related to those assets. We expect our insurance policy to cover a significant portion of the losses resulting from the earthquake, subject to certain deductibles, including a 60-day business interruption deductible and a U.S.$5 million property damages deductible. In April and May 2010 we received three payments in the aggregate amount of U.S.$10 million from our insurance company. We expect certain costs due to the earthquake will not be covered by insurance. For example, we incurred higher financing costs related to our increased short-term borrowing immediately after the earthquake that are not covered by our insurance policy. We expect to receive all recoverable insurance proceeds by the end of

48 Sales by Product The following tables set forth our sales revenue in U.S. dollars and sales volume for each of the periods indicated. Revenue from Sales to Third Parties Year Ended December 31, Three Months Ended March 31, (in millions of U.S. dollars, in accordance with Chilean GAAP) (in millions of U.S. dollars, in accordance with IFRS) Crude oil... U.S.$ % U.S.$ % U.S.$ % U.S.$ % U.S.$ % Natural gas % % % % % Total crude oil and natural gas % % % % % LPG % % % % % Gasoline... 2, % 2, % % % % Kerosene % % % % % Diesel... 3, % 5, % 2, % % % Fuel oil % 1, % % % % Other refined products % % % % % Total refined products... 8, % 11, % 6, % 1, % 1, % Petrochemicals % % % % % Total refined products and petrochemicals... 8, % 11, % 6, % 1, % 1, % Other income (2) % % % 61.6 (1) 3.9% % Total sales... U.S.$ 9, % U.S.$12, % U.S.$ 7, % U.S.$ 1, % U.S.$ 1, % (1) Includes income of U.S.$ 45.8 million from the sale of Enap Sipetrol stake in the North Bahariya block in Egypt. This amount is also included as cost of goods sold, resulting in no effect on our gross margin. (2) Corresponds to income related to refined products transport and other services. Volume of Sales to Third Parties Year Ended December 31, Three Months Ended March 31, (in thousands of average barrels per day, except natural gas and percentages) Crude oil % % % % % Natural gas (1) % % % % % Total oil and gas % % % % % LPG % % % % % Gasoline % % % % % Kerosenes % % % % % Diesel % % % % % Fuel oil % % % % % Other refined products % % % % % Total refined products % % % % % Petrochemicals % % % % % Total refined products and petrochemicals % % % % % Total sales % % % % % (1) In thousands of average boe per day. 43

49 Results of Operations for the Three Months Ended March 31, 2010 Compared to the Three Months Ended March 31, 2009 The following table presents selected income statement data for the periods ended March 31, 2009 and 2010, prepared in accordance with IFRS. Income and Loss Statement Data Three Months Ended March 31, (unaudited, in millions of U.S. dollars, in accordance with IFRS) Revenues... U.S.$ 1,564.1 U.S.$ 1,937.4 Cost of sales... (1,472.4) (1,909.8) Gross margin Other income, by function (1) Other expenses, by function (1)... (6.7) (20.1) Administrative expenses... (23.5) (22.6) Other income (losses) (2)... (0.3) (64.4) Financial income (1) Financial expense (3)... (43.7) (34.9) Equity in earnings of associates recorded under the equity method Foreign currency exchange differences... (5.4) 9.6 Income (loss) before income tax (91.2) Income tax... (67.0) 4.8 Net income (loss) from continuing operations... (33.7) (86.3) Income from discontinuing operations Income (loss) (86.3) Income attributable to non-controlling interest Net income (loss) attributable to equity holders of the parent (89.6) (1) Due to a reclassification during the first half of 2010 of certain line items of our financial statements required by the SVS, the presentation of these line items in our financial statements for the years ended December 31, 2008 and 2009 is different from the presentation set forth above. The items reported in this table as Other income, by function and Financial income appear in our financial statements for the years ended December 31, 2008 and 2009 as a single line item titled Other operating revenues. The item reported in this table as Other expenses, by function appears in our financial statements for the years ended December 31, 2008 and 2009 as Other operating expenses. (2) For the three months ended March 31, 2010, includes an impairment of U.S.$64.0 million due to physical damage to our plant, property and equipment as a result of the February 27, 2010 earthquake and subsequent tsunami. See Business Legal Proceedings Insurance Claims Relating to Chilean Earthquake and Subsequent Tsunami. (3) Includes interest expenses incurred in connection with certain short-term trade financing that is included as trade and other payables under liabilities on our balance sheet and is described under Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Short-Term Trade Financing. Revenues Revenues increased 23.9% from U.S.$1.6 billion for the three months ended March 31, 2009, to U.S.$1.9 billion for the three months ended March 31, Revenues from sales of refined petroleum products (i.e., excluding petroleum and natural gas sales) increased by 26.6% from U.S.$1.4 billion for the three months ended March 31, 2009, to U.S.$1.8 billion for the three months ended March 31, These increases in revenues in the first three months of 2010 were primarily due to a 51.5% increase in the average price of refined products from an average price of U.S.$57.1 per barrel for the three months ended March 31, 2009, to an average price of U.S.$86.5 per barrel for the three months ended March 31, This increase was offset by a 22.3% decrease in the volume of refined products sold as a result of the February 27, 2010 earthquake and temporarily shut down Aconcagua and Bío Bío refineries. See Impact of the February 27, 2010 Earthquake and Subsequent Tsunami on Our Operations. Revenues from sales of natural gas and crude oil increased by 60.1% from U.S.$77.4 million for the three months ended March 31, 2009 (excluding revenues from the sale of the North Bahariya block in Egypt), to U.S.$123.9 million for the three months ended March 31, 2010, primarily as a result of increases in the price and volume of crude oil sold during the three months ended March 31, 2010, compared to the three months ended March 31,

50 Cost of Sales Cost of sales increased by 29.7% from U.S.$1.5 billion for the three months ended March 31, 2009, to U.S.$1.9 billion for the three months ended March 31, 2010, principally due to an increase in the cost of crude oil and to higher costs attributable to the import of refined products from third parties abroad to replace refined products that we could not produce due to damage caused by the February 27, 2010 earthquake and subsequent tsunami. Gross Margin Gross margin decreased by 69.9% from U.S.$91.8 million in the three months ended March 31, 2009, to U.S.$27.6 million in the three months ended March 31, 2010, primarily as a result of increased costs of sales attributable to the import of refined products from third parties abroad to replace refined products we could not produce due to damage caused by the February 27, 2010 earthquake and subsequent tsunami. Other Income, by Function Other income, by function decreased by 44.9% from U.S.$7.8 million in the three months ended March 31, 2009, to U.S.$4.3 million in the three months ended March 31, 2010, primarily as a result of a one-time tax credit we received during the three months ended March 31, Other Expenses, by Function Other expenses, by function increased by 198.4% from U.S.$6.7 million in the three months ended March 31, 2009, to U.S.$20.1 million in the three months ended March 31, 2010, primarily as a result of an increase in the indirect operating costs for the three months ended March 31, 2010 relating to exploration activities carried out by our Exploration and Production division. Administrative Expenses Administrative expenses decreased 3.6% from U.S.$23.5 million for the three months ended March 31, 2009, to U.S.$22.6 million for the three months ended March 31, 2010, primarily due to a decrease in the amount of severance payments paid to our employees. Other Income (Losses) Other losses increased by U.S.$64.1 million from U.S.$0.3 million for the three months ended March 31, 2009, to U.S.$64.4 million for the three months ended March 31, 2010, primarily due to U.S.$64.0 million in asset impairments as a result of the earthquake and subsequent tsunami that struck Chile on February 27, Financial Income Financial income decreased by 97.2% from U.S.$11.7 million for the three months ended March 31, 2009, to U.S.$0.3 million for the three months ended March 31, 2010, primarily as a result of the inclusion under financial income for the three months ended March 31, 2009, of U.S.$11.0 million in unrealized gains. For the three months ended March 31, 2010 and in the year ended December 31, 2009, these unrealized gains are reflected as reductions in cost of sales. Financial Expense Financial costs decreased 20.1% from U.S.$43.7 million for the three months ended March 31, 2009, to U.S.$34.9 million for the three months ended March 31, 2010, primarily due to a shift in our credit providers from suppliers (who charge higher interest rates) in the first three months of 2009 to banks, which charge lower interest rates. Equity in Earnings of Associates Recorded under the Equity Method Equity in earnings of associates recorded under the equity method increased by U.S.$7.4 million from U.S.$1.6 million for the three months ended March 31, 2009, to U.S.$9.0 million for the three months ended March 31, 2010, primarily as a result of an increase in the net profits of our associates Sociedad Nacional de Oleoductos S.A. (U.S.$3.9 million increase in net profits), Sociedad Nacional Marítima (U.S.$2.1 million increase in net profits) and Primax (U.S.$3.0 million increase in net profits). 45

51 Foreign Currency Exchange Differences Foreign currency exchange differences increased U.S.$15.0 million from a loss of U.S.$5.4 million for the three months ended March 31, 2009, to a gain of U.S.$9.6 million for the three months ended March 31, 2010, primarily as a result of the appreciation of the Chilean peso, which positively impacted our Chilean peso dominated accounts receivable. Income Tax Income tax decreased from a loss of U.S.$67.0 million for the three months ended March 31, 2009, to a gain of U.S.$4.8 million for the three months ended March 31, 2010, primarily as a result of the decrease in pre-tax income. Income from Discontinuing Operations Income from discontinuing operations for the three months ended March 31, 2009 was U.S.$45.8 million, primarily the result of the sale in March 2009 of Enap Sipetrol s 50% stake in the North Bahariya block in Egypt. Income from discontinuing operations is not recorded for the three months ended March 31, 2010 because we did not divest any assets during the period. Income (Loss) Income decreased by U.S.$98.6 million from U.S.$12.1 million for the three months ended March 31, 2009, to a loss of U.S.$86.3 million for the three months ended March 31, 2010, primarily due to the increased cost of sales attributable to the substitution of our refined products for direct imports of refined products from third parties abroad and asset impairments due to the physical damages caused by the February 27, 2010 earthquake and subsequent tsunami. Income Attributable to Minority Interest Income attributable to minority interest decreased U.S.$1.3 million from U.S.$4.6 million for the three months ended March 31, 2009, to U.S.$3.3 million for the three months ended March 31, 2010, primarily as a result of lower net profits for Enercón, in which we have a 49% interest. 46

52 Results of Operations for the Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008 The following table presents selected income statement data for the periods ended December 31, 2008 and 2009, prepared in accordance with IFRS. Income and Loss Statement Data Year Ended December 31, (audited, in millions of U.S. dollars, in accordance with IFRS) INCOME AND LOSS STATEMENT DATA Revenues... U.S.$12,182.7 U.S.$ 7,097.5 Cost of sales... (12,926.9) (6,819.5) Gross margin... (744.2) Other income, by function (1) Other expenses, by function (1)... (117.4) (100.2) Administrative expenses... (107.3) (97.3) Other income (losses) (2) Financial income (1) Financial expense (3)... (201.4) (172.4) Equity in earnings of associates recorded under the equity method Foreign currency exchange differences... (129.1) 51.6 Income (loss) before income tax... (1,186.2) Income tax Net income (loss) from continuing operations... (962.2) Income from discontinuing operations Income (loss)... (955.5) Income attributable to non-controlling interest Net income (loss) attributable to equity holders of the parent... (960.4) (1) Due to a reclassification during the first half of 2010 of certain line items of our financial statements required by the SVS, the presentation of these line items in our financial statements for the years ended December 31, 2008 and 2009 is different from the presentation set forth above. The items reported in this table as Other income, by function and Financial income appear in our financial statements for the years ended December 31, 2008 and 2009 as a single line item titled Other operating revenues. The item reported in this table as Other expenses, by function appears in our financial statements for the years ended December 31, 2008 and 2009 as Other operating expenses. (2) For the three months ended March 31, 2010, includes an impairment of U.S.$64.0 million due to physical damage to our plant, property and equipment as a result of the February 27, 2010 earthquake and subsequent tsunami. See Business Legal Proceedings Insurance Claims Relating to Chilean Earthquake and Subsequent Tsunami. (3) Includes interest expenses incurred in connection with certain short-term trade financing that is included as trade and other payables under liabilities on our balance sheet and is described under Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Short-Term Trade Financing. Revenues Revenues decreased 41.7% from U.S.$12.2 billion for the year ended December 31, 2008, to U.S.$7.1 billion for the year ended December 31, Revenues from sales of refined petroleum products (i.e., excluding petroleum and natural gas sales) decreased by 42.8% from U.S.$11.4 billion for the year ended December 31, 2008, to U.S.$6.4 billion for the year ended December 31, This decrease in revenues for the year ended December 31, 2009 was primarily due to a 37.4% decrease in the average price of refined products, which was partially offset by a slight increase of 1.2% in the volume of refined products sold. Revenues from sales of natural gas and crude oil decreased by 79.5% from U.S.$458.4 million for the year ended December 31, 2008, to U.S.$364.5 million for the year ended December 31, 2009, primarily as a result of the decrease in prices for crude oil during the year ended December 31, 2009, compared to the year ended December 31, Cost of Sales Cost of sales decreased 47.2% from U.S.$12.9 billion for the year ended December 31, 2008, to U.S.$6.8 billion for the year ended December 31, 2009, principally due to a decrease in the average cost of crude oil. Other factors contributing to 47

53 this decrease include a reduction in the average price of fuels used to power our refineries as well as improvements to our operations and logistics. See General Our Cost Structure. Gross Margin Gross margin increased U.S.$1.0 billion from a loss of U.S.$744.2 million for the year ended December 31, 2008, to a gain of U.S.$278.0 million for the year ended December 31, 2009, principally due to the decrease in the average cost of crude oil. Other Income, by Function Other income, by function increased 148.8% from U.S.$32.0 million for the year ended December 31, 2008, to U.S.$79.6 million for the year ended December 31, 2009, principally due to the renegotiation of Innergy s gas purchase contracts to eliminate Innergy s take or pay obligation and, as a result, our obligation to cover a share of Innergy s shortfall under these contracts. Other Expenses, by Function Other expenses, by function decreased by U.S.$17.2 million from U.S.$117.4 million for the year ended December 31, 2008, to U.S.$100.2 million for the year ended December 31, 2009, principally due to the decreased indirect operating costs for 2009 relating to exploration activities carried out by our Exploration and Production division during that year. Administrative Expenses Administrative expenses decreased 9.3% from U.S.$107.3 million for the year ended December 31, 2008, to U.S.$97.3 million for the year ended December 31, 2009, principally due to an increase in the useful life of certain assets which in turn led to a decrease in the depreciation for the period. Other Income (Losses) Other income decreased 3.7% from U.S.$8.1 million for the year ended December 31, 2008, to U.S.$7.8 million for the year ended December 31, 2009, principally due to a decrease in the amount of dividends received. Financial Income Financial income decreased 95.7% from U.S.$70.3 million for the year ended December 31, 2008, to U.S.$3.0 million for the year ended December 31, 2009, principally due to a decrease in income from derivative financial instruments used to hedge the price of crude oil as a result of more stable crude oil prices in Financial Expense Financial cost decreased 14.4% from U.S.$201.4 million for the year ended December 31, 2008, to U.S.$172.4 million for the year ended December 31, 2009, principally due to a decrease in the prevailing interest rate and the credit spreads charged by our financial counterparties as well as a decrease in the percentage of working capital financed with credit from our suppliers. Equity in Earnings of Associates Recorded under the Equity Method Equity in earnings of associates recorded under the equity method increased by U.S.$70.0 million from U.S.$2.7 million for the year ended December 31, 2008, to U.S.$72.7 million for the year ended December 31, 2009, principally due to Innergy s increased earnings as a result of the renegotiation of Innergy s gas purchase contracts and the elimination of its take or pay obligation under such contracts. Foreign Currency Exchange Differences Foreign currency exchange differences increased by U.S.$180.7 from a loss of U.S.$129.1 million for the year ended December 31, 2008, to a gain of U.S.$51.6 million for the year ended December 31, 2009, principally due to the appreciation of the Chilean peso, which positively impacted our Chilean peso dominated accounts receivable. 48

54 Income Tax Income tax decreased by U.S.$192.2 million from a gain of U.S.$224.1 million for the year ended December 31, 2008, to a gain of U.S.$31.9 million for the year ended December 31, 2009, principally due to a reduction in the deferred and income taxes we incurred in Income from Discontinuing Operations Income from discontinuing operations increased by U.S.$39.2 million from U.S.$6.6 million for the year ended December 31, 2008, to U.S.$45.8 million for the year ended December 31, 2009, principally due to the March 2009 sale of Enap Sipetrol s 50% stake in the North Bahariya block in Egypt. Income (Loss) Income increased by U.S.$1.2 billion from a loss of U.S.$955.5 million for the year ended December 31, 2008, to a gain of U.S.$200.4 million for the year ended December 31, 2009, principally due to increases in our sales margin, net profits of associates and the March 2009 sale of Enap Sipetrol s 50% stake in the North Bahariya block in Egypt. Income Attributable to Minority Interest Income attributable to minority interests decreased by 8.2% from U.S.$4.9 million for the year ended December 31, 2008, to U.S.$4.5 million for the year ended December 31, 2009, principally due to a decrease in Enercón s net profit. Results of Operations for the Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007 The following table presents selected income statement data for the periods ended December 31, 2007 and 2008, prepared in accordance with Chilean GAAP. Income Statement Data Year Ended December 31, (audited, in millions of U.S. dollars, in accordance with Chilean GAAP) Operating revenue... U.S.$ 9,019.3 U.S.$ 12,185.2 Operating costs... (8,728.6) (13,017.5) Gross profit (832.3) Administrative expenses... (91.2) (104.9) Operating profit (loss) (937.2) Non-operating income (expense)... (62.1) (244.0) Income before income tax and minority interest (1,181.2) Income tax... (87.8) Minority interest and amortization of goodwill Net income (957.8) Operating Revenue In the first half of 2008, Chile experienced a severe drought that limited hydroelectric power generation and increased the demand for natural gas and diesel fuel by power generators and other energy consumers, causing an increase in our volume of diesel fuel sold, when compared to the first half of Operating revenue increased 35.1% from U.S.$9.0 billion in 2007 to U.S.$12.2 billion in 2008, primarily due to an increase in the prices and volumes sold of refined products during the first half of

55 Revenues from sales of refined products (i.e., excluding petroleum and natural gas sales) increased by 35.6% in 2008, from U.S.$8.4 billion in 2007 to U.S.$11.4 billion in 2008, primarily due to the increase in average refined product prices during the first half of 2008 and an increase in the sales volume of crude oil and natural gas and a small increase in the sales volumes of our refined products during the year ended December 31, 2008, as compared to the year ended December 31, Revenues from sales of crude oil increased from U.S.$237.2 million in 2007 to U.S.$313.0 million in Revenues from sales of natural gas increased by 9.8%, from U.S.$132.4 million in 2007 to U.S.$145.4 million in Operating Costs Operating costs increased 49.1% from U.S.$8.7 billion in 2007 to U.S.$13.0 billion in This increase was primarily a result of increased costs in our refining business due to: An increase in the first half of 2008 of imports of refined products, especially diesel fuel, in response to and in anticipation of an unusual increased demand from thermoelectric power generators and other customers for diesel fuel due to the lack of natural gas supply and expected drought conditions that limited other sources of power generation in Chile. A U.S.$213.3 million write down of our refined products and crude oil inventory resulting from the increase of our inventory during the first half of 2008 and the sudden decrease in demand for and overvaluation of our refined petroleum products in the second half of An increase in the cost of our refining business due to our efforts to meet the foreseeable increase in demand, our reliance on diesel fuel as our primary fuel to run our refineries (due to the lack of natural gas from Argentina), higher energy costs and higher transport and ship demurrage costs (due to our exceeding our terminal capacity) associated with the increase in imports of refined products. Gross Profit Gross profit decreased by U.S.$1.1 billion from a profit of U.S.$290.7 million in 2007 to a loss of U.S.$832.2 million in Margins were adversely affected by price decreases in the second half of 2008 between the time we purchased crude oil and refined product imports and the time that we sold these products after shipping, as we sell our refined product according to the import parity formula that takes into account U.S. Gulf coast prices. This reduction in margins was partially offset by the hedging agreements we have in place for our crude oil shipments. Administrative Expenses Administrative expenses increased 15% from U.S.$91.2 million in 2007 to U.S.$104.9 million in 2008, principally due to an increase in our operations and business activities during the first half of This was also due to an increase in our labor force and labor costs required by current labor legislation regarding subcontractors. In addition, salaries increased by 7.2% due to an increase in labor hours and overtime required to meet increased demand. 50

56 Non-Operating Income (Expenses) The following table sets forth the principal components of our non-operating expenses for the periods indicated: Year Ended December 31, (in millions of U.S. dollars) % Change from Prior Period Financial income... U.S.$ 8.9 U.S.$ % Equity in income of related companies, net Other non-operating income (35.7) Amortization of goodwill... (1.2) (1.9) 65.7 Financial expenses... (145.2) (211.0) 45.3 Other non-operating expenses... (7.7) (26.9) Foreign currency exchange differences (128.4) n/a Total non-operating (expense) income... U.S.$ (62.1) U.S.$ (244.0) 293.2% Total non-operating expenses increased 293.2% from U.S.$62.1 million in 2007 to U.S.$244.0 million in This increase was primarily due to the 45.3% increase in interest expenses, from U.S.$145.2 million in 2007 to U.S.$211.0 million in 2008, due to increased indebtedness and increased costs of borrowing. Foreign exchange differences charges resulted in a loss of U.S.$128.4 million, due to the depreciation of the Chilean peso relative to the U.S. dollar in 2008 from the time we invoiced and the time we collected payment. The loss due to Chilean peso depreciation was partially offset by forward agreements entered into during the year. Other non-operating income decreased approximately 35.7% from U.S.$74.7 million in 2007 to U.S.$48.0 million in 2008, primarily because non-operating income in 2007 included certain one time events that did not occur in 2008, such as profits from asset disposals, tax recoveries and dividends received from investments in associated companies. In addition, other non-operating expenses increased from a loss of U.S.$7.7 million in 2007 to a loss of U.S.$26.9 million in 2008, mainly due to a tax recovery provision and the change of accounting method for retirement indemnification provisions. The increase in other non-operating expenses for 2008 partially offset an increase in financial income, which derived from an early settlement of a cross-currency swap and a 1.8% increase in equity in income of related companies, net. Income Tax Income tax amounted to a credit of U.S.$222.9 million in 2008, compared to expenses of U.S.$87.8 million in The credit was primarily driven by pre-tax losses and the reversal of a U.S.$126.4 million tax provision that we had expected to receive from our subsidiaries, related to the capitalization of retained earnings at our subsidiaries ERSA and Enap Sipetrol. Our subsidiaries were ultimately not required to pay this sum, pursuant to action taken by the Ministry of Finance on June 30, See Liquidity and Capital Resources Payments to the Chilean Government. Liquidity and Capital Resources Our business is highly dependent upon the availability of working capital. Increases in crude oil prices, such as occurred in 2008, and other costs of our business create corresponding increases in our working capital needs. We rely on short term credit from our crude oil suppliers and from various financial institutions to finance our inventory cycle and provide necessary working capital. Reduced liquidity in credit markets, such as the global economy experienced in 2008, could make it challenging for us to finance our working capital needs. We have met our cash requirements for working capital, capital expenditures and investments over the past three years with a combination of funds provided by operations and financings and, in 2008, a U.S.$250 million equity contribution from the Chilean government. In the immediate wake of the February 27, 2010 earthquake, we increased our short-term credit lines with suppliers and increased working capital facilities with various banks by approximately U.S.$450 million in order to provide ourselves with a working capital cushion. As of March 31, 2010 we recorded $540.0 million dollars in Cash and Cash Equivalents on our balance sheet. We intend to use a large part of our cash reserves to repay this short-term indebtedness during We believe that funds from our operations and financings will be sufficient to meet our working capital, debt service and capital expenditure requirements for the foreseeable future. 51

57 Operating Activities Cash used in operating activities decreased by U.S.$262.6 million from U.S.$378.4 million for the three months ended March 31, 2009 to U.S.$115.8 million for the three months ended March 31, 2010, primarily attributable to the positive cash effect of the substitution of production of refined products (which has an average cash cycle of approximately 62 days) for direct imports of refined products from abroad (which has an average cash cycle of approximately 35 days). In 2009, net cash provided by our operating activities was U.S.$0.8 million. In 2008, cash used in our operating activities was U.S.$371.3 million, and in 2007, cash provided by our operating activities was U.S.$549.2 million. The increase in net cash provided by our operating activities for the year ended December 31, 2009 was primarily attributable to several factors, including a 59.8% reduction in the amount of cash used in our operating activities from U.S.$200.0 million in 2008 to U.S.$80.4 million in 2009; a 92.8% decrease in payments of dividends from operations from U.S.$176.7 million in 2008 to U.S.$12.8 million in 2009; our receipt of a U.S.$122.2 million tax credit in 2009; and a U.S.$61.4 million increase in other income from other operating activities from U.S.$21.2 million in 2008 to U.S.$82.6 million in In 2008, we collected U.S.$15.7 billion from our accounts receivable, which was partially offset by payments of U.S.$12.8 billion of accounts payable and payments of U.S.$3.8 billion of value-added tax (VAT). In 2008, we also received a lump sum cash payment of U.S.$472 million from the Chilean government that represented the balance of credits due to us from the FEPC. The balance of credits accumulated in the first half of 2008 was unusually high given the increased price of crude oil during that period. The proceeds from this payment were used to pay amounts due to our suppliers. Previously, credits in our favor were included under Other Current Assets and applied toward the payment of taxes and dividends owed by us to the Chilean government. Going forward, to the extent that we have a balance of credits with the FEPP or its expected replacement, SIPCO, we will receive monthly cash payments from the Chilean government. See Regulatory Framework Fuel Prices Stabilization. During 2007, we collected U.S.$10.3 billion from our accounts receivable, which was partially offset by U.S.$7.9 billion payments of our accounts payable and U.S.$1.5 billion of VAT payments. Investing Activities Our net cash flows from investing activities principally reflect proceeds from sales of property, plant and equipment, proceeds from other investment income, the application of cash for purchases and additions to property, plant and equipment and capital contributions. For the first three months ended March 31, 2010, net cash used in investing activities was U.S.$62.0 million, reflecting U.S.$48.5 million in property, plant and equipment purchases and U.S.$20.3 million in loans to associates which were partially offset by U.S.$6.9 million collected on prior loans to associates. As a result of the February 27, 2010 earthquake and subsequent tsunami, we expect to invest U.S.$76 million to repair property, plants and equipment damaged by the earthquake. For 2009, we used a total of U.S.$409.1 million in investing activities, which reflected U.S.$487.0 million in purchases of property, plant and equipment and U.S.$11.7 million in capital contributions to joint ventures in which we have an interest, which were partially offset by U.S.$69.5 million from the March 2009 sale of Enap Sipetrol s 50% stake in the North Bahariya block in Egypt and net proceeds of U.S.$23.8 million from the collection of loans to associates. For 2008, we used a total of U.S.$406.0million in investing activities, which reflected U.S.$407.0 million in purchases of property, plant and equipment, U.S.$59.9 million in loans to associates and U.S.$21.5 million in capital contributions to joint ventures in which we have an interest, which were partially offset by net proceeds of U.S.$96.9 million from the collection of loans to related parties. For 2007, net cash used in investing activities was U.S. $506.9 million, primarily reflecting purchases and additions to property, plant and equipment of U.S.$454.6 million, capital contributions of U.S.$15.9 million and net loans to related third parties of U.S.$76.1 million. In 2007, we invested U.S.$59.4 million and U.S.$94.9 million to increase the diesel hydroprocessing and hydrocracking capacity of our Bío Bío and Aconcagua refineries, respectively. These investments increased our ability to produce more low sulfur diesel and convert vacuum gas oil into high quality diesel. In 2007 we also invested U.S.$23.1 million in the marine facilities and crude oil storage capacity at our Quintero Bay terminal. For a discussion of our investments in property, plant and equipment over the past several years see Investments in Exploration and Production. 52

58 Financing Activities Our net cash flows from financing activities principally reflect proceeds from new borrowings, the application of cash to the repayment of loans and the payment of dividends to the Chilean government. For the three months ended March 31, 2010, we received U.S.$644.8 million in net cash flows from financing activities, reflecting U.S.$1.1 billion of short-term borrowings, which was partially offset by U.S.$454.9 million in loan repayments. For the year ended December 31, 2009, we received U.S.$330.1 million from financing activities, reflecting U.S.$2.7 billion in borrowings, which were partially offset by U.S.$2.3 billion in loan repayments. For the year ended December 31, 2008, we received U.S.$825.7 million of net cash flows from financing activities, reflecting U.S.$1.9 billion of new borrowings and U.S.$250 million a capital contribution from an equity injection by the government of Chile, which were partially offset by loan repayments of U.S.$1.3 billion. For the year ended December 31, 2007, we obtained U.S.$4.8 million from financing activities, reflecting new borrowings of U.S.$131.2 million, which were partially offset by U.S.$126.4 million of loan repayments. Debt Our bank debt as of March 31, 2010, consisted principally of the following: A U.S.$220 million syndicated loan for which JPMorgan acted as agent. The loan has a 7 year tenor maturing in September 2013, a bullet repayment and bears an annual interest rate of LIBOR plus a margin grid between 20 and 25 basis points. A U.S.$150 million syndicated loan for which Calyon Bank New York Branch acted as agent. The loan has a 7 year tenor maturing in December 2013 and provides for semi-annual principal payments starting in June The loan bears an annual interest rate of LIBOR plus a margin between 17.5 and 22.5 basis points. Term loans with Banco Santander, S.A. London Branch, BNP Paribas and HSBC Bank USA National Association, in principal amounts equal to U.S.$150 million, U.S.$100 million and U.S.$50 million, respectively. The terms of each loan require us to make payments from December 2010 until maturity in June 2012 and have an annual interest rate of LIBOR, plus a spread ranging from 125 to 150 basis points. U.S.$1,131 million in various short-term loans, for periods ranging from 120 to 180 days, with Scotiabank, JPMorgan, ABN AMRO Bank N.V., Itaú and EDC at annual interest rates ranging from 3.65% to 6.8%. A U.S.$65 million loan from Banco Latino de Exportaciones S.A. (Bladex) to Enap Sipetrol Argentina with interest and principal payment payable at maturity in July 2010 at an annual interest rate of LIBOR plus a spread of 300 basis points plus commissions. A U.S.$410 million syndicated loan lead by BNP Paribas and held by our 49% affiliate Enercón, with semiannual repayments until maturity in 2020 and an annual interest rate ranging from LIBOR plus 50 basis points to LIBOR plus 125 basis points, with a step-up of 50 basis points in case of a downgrade in ratings below BBB+ by S&P or Baa1 by Moody s. A U.S.$102 million syndicated loan lead by BNP Paribas and held by our 45% affiliate Prodisa, with semi-annual amortizations until maturity in 2018 and an annual interest rate ranging from LIBOR plus 125 basis points to LIBOR plus basis points, with a step-up of 50 basis points in case of a downgrade in ratings below BBB+ by S&P or Baa1 by Moody s. A U.S.$30 million loan from Kreditanstalt fur Wiederaufbau to our 42% affiliate Etalsa, with semi-annual amortization payments until maturity in 2011 and an annual interest rate of 4.52%. A U.S.$21 million loan from Kreditanstalt fur Wiederaufbau to our 47% affiliate Petrosul, with semi-annual repayments until maturity in 2013 and an annual interest rate of 6.98%. A U.S.$22 million loan from Société Générale to our 10% affiliate Compañía de Hidrógeno del Bío Bío, with semi-annual repayments until maturity in 2015 and an annual interest rate of 6.43%. 53

59 Our outstanding indebtedness as of March 31, 2010, included the following bonds and notes: In October 2002, we issued and placed UF3,250,000 aggregate principal amount of 4.25% notes due 2012 in the Chilean market. We have entered into foreign exchange hedging contracts with respect to these bonds in the aggregated amount of U.S.$135.9 million. In November 2002, we issued and placed U.S.$290 million aggregate principal amount of 6.75% notes due 2012 with certain qualified institutional buyers, as defined under U.S. federal securities law, in the United States. In March 2004, we issued and placed U.S.$150 million aggregate principal amount of 4.875% notes due 2014 with certain qualified institutional buyers, as defined under U.S. federal securities law, in the United States. In January 2009, we issued and placed UF9,750,000 aggregate principal amount of 4.33% notes due 2019 in the Chilean market. We have entered into cross-currency hedging contracts with respect to these bonds in the aggregated amount of U.S.$339 million. In July 2009, we issued and placed U.S.$300 million aggregate principal amount of 6.25% notes due in 2019 with certain qualified institutional buyers, as defined under the U.S. federal securities laws, in the United States. The transition in our accounting methods from Chilean GAAP to IFRS resulted in some significant changes in the way that we account for debt obligations of certain affiliated companies. See Adoption of IFRS. Due to the consolidation of certain of our affiliates, our interest bearing debt as recorded in accordance with IFRS as of December 31, 2008, was U.S.$2.1 billion, 33.3% (or U.S.$528.7 million) greater than our interest bearing debt as of December 31, 2008, as recorded in accordance with Chilean GAAP, since under Chilean GAAP such debt was recorded under notes and accounts payable to related companies as of the time of completion of each project. Our bank loans do not contain financial covenants. The debt of our consolidated affiliates Etalsa, Petrosul and Compañía de Hidrógeno del Bío Bío S.A. is secured with pledges over their respective fixed assets and the proceeds of the processing fees that they receive from us. The debt of our consolidated affiliates Enercón and Prodisa is secured with pledges over the proceeds of the processing fees that they receive from us. We have also pledged our shares of these companies to guarantee their interest bearing debt. Short-Term Trade Financing We have not entered into any forfaiting agreements with suppliers of crude oil in 2010, and, as of the date of this offering memorandum, we do not have any forfaiting financing outstanding. In the past, we have from time to time entered into forfaiting agreements with certain of our suppliers of crude oil. Pursuant to such agreements, we purchase crude oil from our suppliers and pay them with promissory notes that generally have a maturity term of 90 days, 180 days or one year. The promissory notes generally bear interest at LIBOR plus a spread. Our suppliers then endorse the promissory notes to one or several banks in exchange for payment by the banks for the crude oil at the invoice date. At that moment, the bank replaces the supplier as our creditor and we pay the bank the full amount of the promissory notes at their maturity date. When we do have forfaiting financing outstanding, we account for these notes as notes payable on our balance sheet prepared in accordance with Chilean GAAP and under trade and other payables on our balance sheet prepared in accordance with IFRS. Commitments and Other Contractual Obligations We have entered into or acquired certain commitments and other contractual obligations with affiliated companies for the purpose of facilitating the financing of new facilities owned by these affiliates to serve our refineries. At the expiration of some of these contracts, we have the right, and in some cases the obligation, to buy these facilities at their residual value or at a fixed price. Petropower In 1998, we invested U.S.$11.5 million in a 15% equity stake in Petropower, a delayed coking and hydrotreatment plant located at our Bío Bío refinery that processes heavy crude oil residues into higher value products, such as gasoline and diesel fuel, and produces electricity, steam and demineralized water. We have entered into an agreement with our affiliate Petropower that provides for the payment of an annual processing fee of approximately U.S.$17.4 million for the right to operate its delayed coking and hydrotreatment plant and an annual fee of approximately U.S.$9.9 million for the supply of certain energy products (electricity, steam and demineralized water). These fees were set in 1994 and are subject to an 54

60 annual increase that is determined with reference to inflation in the United States and Chile, exchange rate differences and operating factors until the expiration of the contract in In addition, in the event that Petropower s sales to third parties fall below U.S.$9.6 million in a given year, we must make a payment of 15% of the shortfall. At the expiration of the agreement, we must purchase, or find a purchaser for, the plant for not less than U.S.$43 million, which we believe to be below the plant s estimated market value. The obligations under these contracts are not reflected as liabilities in our consolidated financial statements prepared in accordance with Chilean GAAP. However in our financial statements prepared under IFRS, we account for the amount of payments coming due in the next 12 months as due to related parties. Due to the February 27, 2010 earthquake and subsequent tsunami, Petropower was forced to shut down operations. Operations at Petropower have not yet reached full capacity and we expect that Petropower will become fully operational by January During the temporary shutdown, our payment of the annual processing fee and the annual fee for the supply of certain energy products has been suspended, as has our obligation to pay 15% of any sales shortfall. Instead, we are obligated to make payments to Petropower necessary for the project to meet its debt obligations during the term of the shut down. Gasoducto del Pacífico and Innergy We hold a 25.0% preferred shares interest in Gasoducto del Pacífico, an affiliate company that was built to transport natural gas from Argentina to Chile, and a 25.0% interest in Innergy, a joint venture company that markets natural gas through smaller pipelines that are connected to Gasoducto del Pacífico s pipeline. Innergy has entered into gas purchase agreements with certain Argentine providers of natural gas and transportation agreements with Gasoducto del Pacífico through Until June 2009, Innergy s gas purchase and transportation agreements were unconditional and functioned under a take or pay system. Under this arrangement, Innergy s revenues were not sufficient to cover its take or pay obligations under these contracts as actual volume sales of natural gas had been significantly lower than anticipated due to restrictions on the exportation of natural gas from Argentina. Pursuant to our obligations under the shareholders agreement we entered into in connection with the Innergy investment, we were required to make payments to Innergy to cover our share of the resulting shortfall. From the inception of the joint venture in 1998 through 2009, we contributed a total of U.S.$44.2 million to Innergy. In June 2009, Innergy restructured its gas purchase and transportation agreements and eliminated its take or pay obligation. Innergy also modified its logistical processes under these contracts in order to reduce the cost of operations. As a result of this restructuring, we are no longer required to provide alternate sources of financing and in the second half of 2009 Innergy s revenues were sufficient to cover its cost. GNL Quintero We own a 20% equity interest in our affiliate GNL Quintero, a company that has built and developed and owns South America s first re-gasification terminal in Quintero Bay, Chile. The other investors in GNL Quintero are BG (40%), Metrogas (20%) and Endesa (20%). Metrogas, Endesa and we also own equal shares of GNL Chile S.A. (GNL Chile), which has the exclusive right to use the unloading, storage and re-gasification services provided by GNL Quintero and has entered into a take-or-pay gas purchase agreement with BG. We have entered into a 21 year take-or-pay gas purchase agreement (expiring May 2028) with GNL Chile for one third of total offtake from the Quintero facility and we have guaranteed our portion of GNL Chile s purchases of gas from GNL Quintero. We cannot quantify the amount of these obligations, as they are dependent upon international natural gas prices. Our shares of GNL Quintero are pledged in favor of GNL Quintero s bank creditors. 55

61 Capital Expenditures and Investments The following table sets forth our actual and budgeted consolidated capital expenditures for each of our business segments for the periods indicated: Capital Expenditures Budgeted Year Ended December 31, Expenditures for Three Months Ended March 31, (in millions of U.S. dollars) Exploration and Production... U.S.$ U.S.$ U.S.$ U.S.$ U.S.$ 47.5 U.S.$ 32.9 Refining and Logistics Total... U.S.$ U.S.$ U.S.$ U.S.$ U.S.$ 62.3 U.S.$ 53.3 From 2005 to 2009, we have invested U.S.$1.0 billion in exploration and production activities. Of this amount, 44.2% was allocated to exploration projects and 55.8% to projects in the exploitation phase. Most of our investments were allocated in Chile (U.S.$349.6 million), followed by Argentina (U.S.$300.4 million), Ecuador (U.S.$155.9 million) and Egypt (U.S.$154.3 million). Investments in Exploration and Production In 2008 we invested U.S.$176.6 million and in 2009 we invested U.S.$172.1 million in exploration and production. Although a sudden drop in oil prices led us to suspend drilling for the majority of 2009, we restarted drilling during January 2010 at normal levels to take advantage of the resurgence of higher oil prices. Our investments in crude oil exploration are focused on Argentina, Ecuador and Egypt. Argentina In Argentina, we have concentrated our investments in the Pampa del Castillo and E2 assets. In 2008 we invested U.S.$59.3 million and in 2009 we invested U.S.$73.0 million in Argentina. In the Pampa del Castillo project, we intend to increase our investment in drilling development wells to U.S.$45.2 million in To date, our investments in this project have been focused on repairs as well as improvements to our production facilities, workover and extraction processes. We expect that these investments will allow us to continue with the exploration of deposit reserves in Pampa del Castillo. In E2, which is located on an off-shore continental platform in front of Santa Cruz province, we invested U.S.$48.1 million in the drilling of three wells between 2008 and Although the wells turned out to be dry, the E2 investment repositioned ENAP as an important operating company in the region with expertise in both offshore and other exploratory activities. We maintained a steady level of investment in Argentina from 2004 to In 2007, we increased our investment in production projects in Argentina, such as Pampa del Castillo, in order to capitalize on elevated oil prices and in order to pay for the precautionary replacement of a section of one of our pipelines in Área Magallanes block in the southern region of Argentina. In 2008, we initiated the process of selling our interest in the Campamento Central Cañadón Perdido project, but we suspended that process due to opposition from the current operator of the project, YPF, which had submitted its bid on the assumption that it would continue its role as operator, from permitting another company to take over the operations. We are waiting for an improvement in market conditions in order to restart the selling process, when we will then seek bids from parties willing to assume a non-operating role. Ecuador In Ecuador, we invested U.S.$18.0 million in 2008 and we invested U.S.$14.2 million in 2009 in optimizing production in the Mauro Dávalos Cordero (MDC) and Paraíso Biguno Huachito blocks (PBH). Under an agreement with Ecuador s national oil company, Petroecuador, we have invested roughly U.S.$88 million to develop 16 wells and put the reserves at 56

62 the MDC and PBH blocks into production. Enap Sipetrol extended its contract with Petroecuador in 2006 and committed to investing at least an additional U.S.$38.4 million in new drillings. Many of our investments in Ecuador focus on initiatives designed to reduce our costs, optimize production and increase the value of our activities. Among these initiatives was an electric project start-up at PBH, which we expect will result in the reduction of operating costs by replacing diesel fuel with MDC for energy generation. We also implemented new dual concentric completions at the MDC block, which have already improved our field production in Ecuador. Further, we expect to start exploring two wells during 2010 that will help us determine the area s potential and define when we will begin the development stage. Egypt In Egypt, we invested U.S.$20.6 million in 2008 and we invested U.S.$42.6 million in The majority of that investment was allocated towards the development and exploration of the East Ras Qattara block, where our investments have allowed us to significantly improve the block s production and reserves after three exploratory wells and three development wells began producing results. Al Zahara, a new deposit discovered in 2009, is one of the three wells currently in development. In 2009, we conducted three-dimensional seismic procurement, processing and interpretation process in the Sidi Abd El Rahman (SAER) block and drilled the first commitment exploration well, which resulted in a non-economic oil discovery. We intend to drill a second well at the SAER block during the second half of We also intend to commence drilling in the Rommana block during the second half of 2010 after we obtain and interpret the results of a 330 km2 threedimensional seismic survey. After several years of disappointing exploratory results at the El Diyur and North Bahariya blocks, we decided to divest the El Diyur block in 2007 and sell our interest in North Bahariya block in Chile Our investments in natural gas exploration have focused on the Lago Mercedes and Dorado Riquelme projects in the Magallanes region of Chile, where we have invested a total of U.S.$184.1 million between 2006 and We also continued exploration activities in Arenal, where we have drilled three wells, Intracampos and the Coal Bed Methane. In Lago Mercedes, we conducted a three-dimensional seismic survey and drilled two exploration wells from 2004 to 2007 for a total investment of U.S.$85.2 million. While we found natural gas at Lago Mercedes, we have determined that exploiting it would not be economically feasible at this time due to the high costs associated with constructing a pipeline to carry the natural gas from its source to consumers relative to the economic potential of the block. Between 2006 and 2009, we invested U.S.$62.2 million in the Magallanes region on the exploration and development of the Dorado Riquelme block, where we drilled 21 wells and started production on the first discovery, Palenque. On August 24, 2009, the joint venture between ENAP and Methanex in Dorado Riquelme began operations under its first 36- month exploratory term. Under the terms of the joint venture, Methanex provides financing for our exploration of gas wells in Dorado Riquelme. The joint venture has invested U.S.$107.1 million in these exploratory wells to date and has discovered two commercial gas fields, Palenque and Tropilla, which are currently under development. Between 2007 and 2009, we invested U.S.$47.1 million in two gas-related projects located in Tierra del Fuego Island: the Intracampos Cullen-Lynch project, where we finished a three-dimensional seismic survey of over 935km2 for potential gas reserves in 2008 and drilling two exploration wells in 2009, and the Arenal project, where we finished a threedimensional seismic survey of over 1,000 km2 in 2008 and drilled three wells in 2009, two of which added to gas production. In 2008, we conducted a three-dimensional seismic offshore study that searched over 960 square kilometers for natural gas reserves in an area located within the Valdivia basin in the province of Temuco, Chile, for a total investment of U.S.$12.8 million. We are interpreting data from these seismic surveys and looking for a strategic partner to begin drilling the first wells in this area. In 2008, we completed our investment in the Pecket Esperanza gas pipeline, which distributes gas to city of Puerto Natales in the Magallanes region of Chile. Iran 57

63 We have also invested U.S.$43.4 million in the drilling of wells at the Mehr block in Iran. However, negotiations with NIOC on the development of the Mehr block have reached an impasse and we have decided to surrender the site to the NIOC. We do not expect to invest in further exploration in Iran. Geothermal exploration Through a partnership with the Italian company Enel SpA, we have invested U.S.$28.3 million in the development of geothermal energy resources in Chile, including two geothermal concessions in northern Chile and in two concessions in southern Chile. In 2009, we drilled two exploration wells with positive results in two geothermal concessions, La Torta-El Tatio and Apacheta, both in Northern Chile. While we suspended operations in the La Torta-El Tatio project due to potential environmental concerns encountered during testing, we intend to continue the drilling program in Apacheta during In 2008, we started a new partnership with Antofagasta Minerals, a mining company. This new partnership has resulted in the creation of a new association named Energía Andina S.A., for which we made an initial capital contribution of U.S.$6.0 million for the exploration of new geothermal concessions. Antofagasta Minerals also contributed funding for three geothermal concessions in 2008 and for six additional geothermal concessions in 2009; the six additional concessions are currently being evaluated. Future Investments Our investment strategy seeks to strengthen our position in those countries where we have developed an established presence and technical and managerial expertise, as well as close working relationships with the government entities. Consequently, we have been negotiating new exploration and exploitation contracts in Ecuador, where we presented a proposal to Petroecuador in 2009 for the exploration and development of block 40, an Ecuadorian offshore concession located in the Guayaquil gulf with an area of 4,000 square kilometers and a water depth of 40 to 1,100 meters. We are currently in negotiations with Petroecuador over this proposal. We continue to study alternatives for the optimization of production and reserves recovery at the Mauro Dávalos Cordero and Paraíso Biguno Huachito projects, where we expect to increase our investment in the coming years. In Argentina, we are currently in negotiations to extend exploitation concessions for some of our projects and aim to increase the value of those projects both through greater generation of assets as well as through further investments. We are working towards finalizing these negotiations and expect that some will come to a successful completion before the end of 2010, particularly for Pampa del Castillo, where there is local political support for our investment. In Egypt, we expect that the East Ras Qattara block will end its exploration phase before we have to relinquish unexplored areas in Based on the results already obtained in the East Ras Qattara block, we expect to increase our drilling campaigns and consequently raise our investment level there in the coming years. In Chile, we publicly committed to increasing natural gas exploration and production in Magallanes and the Valdivia basin and developing geothermal energy. We are currently looking for a partner with the requisite expertise to aid us in continuing studies and exploration development in the exploitation of the Coal Bed Methane in Magallanes. Investments in Refining and Logistics Our investments in our Refining and Logistics division focus on four objectives: increasing operational reliability and personnel safety, optimizing our refining process, enhancing the quality of products, and increasing our conversion capacity. Our investments have allowed us to convert heavy products like fuel oil into lighter products such as diesel fuel and gasoline, which usually have higher value-added and more favorable margins. For example, our investments have made it possible for us to increase our production of high-octane gasoline and low sulfur content diesel fuel and gasoline. They have also enabled us to meet increasingly stringent Chilean environmental regulations. During 2009, the Refining and Logistics division invested U.S.$ million, much of which was aimed at improving the safety of persons and facilities, operational reliability, adapting our facilities to applicable environmental and safety 58

64 regulations and increasing storage capacity and steam generation. The following table sets forth the actual and budgeted investments of our Refining and Logistics division for periods indicated. Investments in Refining and Logistics Year Ended December 31, Budgeted Expenditures Three Months Ended March 31, For 2010 (1) (in millions of U.S. dollars) ERSA Aconcagua... U.S.$ 67.2 U.S.$ 62.5 U.S.$ 76.1 U.S.$ 86.5 U.S.$ 6.6 U.S.$ 6.6 Bío Bío DAO Gregorio Magallanes Capital contributions (1) Total... U.S.$ U.S.$ U.S.$ U.S.$ U.S.$ 14.7 U.S.$ 20.4 (1) Capital contributions correspond to the amounts invested by us in various joint ventures such as GNL Quintero, Innergy and Enercón, among others. Does not include amounts spent under operating and supply contracts with Petropower and Enercón, among others. See Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Off-Balance Sheet Arrangements. Bío Bío Refinery In 1998, we invested U.S.$11.5 million in a 15% equity stake in Petropower, a delayed coking and hydrotreatment plant located at our Bío Bío refinery that processes heavy crude oil residues into higher value products, such as gasoline and diesel fuel, and produces electricity, steam and demineralized water. In 2004, we invested U.S.$8.7 million in a benzene saturation unit to reduce toe benzene content in the finished gasoline produced at the Bío Bío refinery. In 2005, we invested U.S.$71.9 million in a new mild hydrocracking unit that converts vacuum gas oil into high quality diesel fuel and generates a low sulfur feed to the catalytic cracking unit. In 2005, we upgraded the pipeline system of the refinery for a total investment of U.S.$5.6 million. In 2006, we completed improvements in the fire protection and utilities systems for a total of U.S.$8.6 million. In 2007, we invested U.S.$59.6 million in increasing the diesel fuel hydroprocessing and hydrocracking capacity, which allows us to produce more low sulfur diesel fuel and convert vacuum gas oil into high quality diesel fuel. In 2008, we finished an FCC naphtha desulphurization unit, which allows us to produce the low sulfur high octane gasoline required to meet more stringent environmental standards. The total cost of the project was U.S.$55.9 million. In 2009, we invested U.S.$11.8 million in a project to increase storage capacity for the gasoline and diesel that we refine. We also invested U.S.$15.8 million in a project to enhance our effluent treatment units. In order to fix the physical damages caused by the February 27, 2010 earthquake and subsequent tsunami, we estimate that we will need to invest a total of U.S.$68 million on the Bío Bío facility. Of the U.S.$68 million we expect to spend, U.S.$57 million corresponds to expenditures we will make in order to repair the assets damaged by the February 27, 2010 earthquake and subsequent tsunami and U.S.$11 million corresponds to the value-added taxes related to those repairs. We have U.S.$111.0 million budgeted to improve our capacity to process heavy crude oils at the Bío Bío refinery, which will allow us to refine cheaper regional crude oil. We are planning to have this improvement in operation in the second half of Aconcagua Refinery In 2004, we completed the construction of a FCC naphtha desulfurization unit, which allows us to produce the low sulfur high octane gasoline required to meet more stringent environmental standards, for a total cost of U.S.$36.4 million. In 2005, we finished the construction of new diesel fuel tanks for U.S.$3.5 million and the upgrading of the isomerization and alkylation units for U.S.$5.1 million. 59

65 In 2006, we invested U.S.$5.9 million in improving our effluent treating systems. In 2007, we invested U.S.$94.9 million in increasing the diesel fuel hydroprocessing and hydrocracking capacity that allow us to produce more low sulfur diesel fuel production and convert vacuum gas oil into high quality diesel fuel. That year we also improved our marine facilities and crude oil storage capacity in order to receive crude oil in VLCC tankers, for a total cost of U.S.$23.1 million. In 2008, we invested U.S.$10.6 million Enercón, a Chilean company in which we have a 49% interest that owns a delayed coking unit and the related gas and effluents treatment units that process heavy crude oil residues into greater value items such as gasoline and diesel fuel. In 2008, we also invested U.S.$10.2 million in improvements in the utilities and pipeline systems of the Aconcagua refinery. In 2009, we invested U.S.$74.7 million in increasing storage capacity for crude oil and increasing steam generation capacity, among other projects to improve operational reliability and personnel safety. In order to fix the physical damages caused by the February 27, 2010 earthquake and subsequent tsunami, we expect to invest a total of U.S.$8 million on the Aconcagua facility. Of the U.S.$8 million we expect to spend, U.S.$7 million corresponds to expenditures we will make in order to repair the assets damaged by the February 27, 2010 earthquake and subsequent tsunami and U.S.$1 million corresponds to the value-added taxes related to those repairs. We have budgeted U.S.$58.0 million to increase the refinery s diesel fuel desulfurization capacity and U.S.$211.0 million for a new alkylation unit that will allow us to continue improving the quality of the gasoline produced at Aconcagua. We estimate that the new desulfurization unit will be operational in the second half of 2010 and the alkylation unit will be operational in Gregorio Magallanes From 2000 to 2009, we have invested approximately U.S.$22.0 million in improvements to increase the capacity and efficiency of our Gregorio Magallanes refinery and Cabo Negro gas reprocessing plants, located outside Punta Arenas. These improvements include the construction of a new tank and improvements in utilities safety and environmental systems. San Vicente Marine Terminal We have U.S.$146.3 million budgeted for improvements to the marine terminal in San Vicente Bay, including the construction of a pier and the installation of machinery for the loading and unloading of crude and other products and delivery to our systems. These facilities, which will improve the operational safety and minimize environmental risks, are scheduled to begin operations during the first half of Future Investments We are conducting a feasibility study for the construction of a U.S.$312.0 million diesel fuel hydrotreater at the Bío Bío refinery. At Aconcagua, we are conducting feasibility studies related to the construction of a new U.S.$1.1 billion atmospheric and vacuum crude unit and a new high pressure hydrocracker that would permit us to process a greater volume of heavy crude oils (a cheaper grade of crude oil) and produce greater quantities of higher value products. Payments to the Chilean Government Under Chilean law we are subject to a general corporate income tax at a rate of 17% on our taxable income, which is expected to be a 20% tax rate in 2011, an 18.5% tax rate in 2012 and a 17% tax rate in We are also subject to a special tax imposed on certain Chilean state-owned entities equal to 40% of our unconsolidated pre-tax income and all dividends received from our subsidiaries. In addition, we pay an immaterial per barrel royalty fee for our exploitation rights to the Chilean government. Our subsidiaries are required to pay dividends to us of 100% of their net income. In August 2005, the Ministry of Finance issued a net profit capitalization policy effective from 2006 to The policy establishes the amount that we are required to transfer to the Chilean Treasury, either through income tax payments or as an advance of profits. Under the policy, we must pay to the Chilean Treasury all income (after payments relating to 60

66 exploitation rights, foreign taxes and our 17% income tax, but before the payment of our 40% income tax) up to an amount equal to 14% of return on equity (defined as profit divided by equity) and 50% of any income in excess of 14% of our return on equity. We are permitted to capitalize any remaining income. If return on equity is less than 14%, we nevertheless must pay dividends up to an amount representing 14% of equity. In December 2007, the Ministry of Finance suspended our obligation to transfer our profits to the Chilean Treasury for year At the same time, the Ministry suspended the payment of any outstanding amounts due from us to the Chilean Treasury under the net profit capitalization policy for previous years. In addition, the Ministry of Finance suspended for the years 2006 and 2007 the obligation of our subsidiaries to transfer 100% of their net income to us as dividends. Subsequently, in June 2008, the Ministry of Finance authorized our subsidiaries to capitalize retained earnings, enabling us to reverse a U.S.$126.4 million tax provision. In November 2008 the Ministry provided us with a U.S.$250 million capital contribution, in order to partially offset losses we experienced in In January 2009, the Ministry again suspended our subsidiaries obligation to pay dividends to us and our obligation to transfer profits to the Chilean Treasury for the year Critical Accounting Policies We have identified certain key accounting policies under IFRS that have a material impact on our financial condition and results of operations. These key accounting policies, including the disclosure of contingent assets and liabilities, most often involve complex quantitative analyses or are based on subjective judgments or decisions. A change in these estimates and assumptions could affect the value of our assets, liabilities, shareholder s equity and earnings, as well as our contingent assets and liabilities. For a full description of our accounting policies, see note 3 to our audited financial statements and note 3 to the interim unaudited consolidated financial statements, which are included elsewhere in this offering memorandum. Property, Plant and Equipment For exploration and production activities, IAS 16 and IAS 36 do not apply. These activities are recorded under IFRS 6 Exploration for and Evaluation of Mineral Resources. Based on the previous paragraph, our exploration and production activities are accounted for under the successful efforts method. The accounting treatment under this method for the various costs incurred is as follows: Costs associated with the acquisition of new rights or interests in areas with proven and unproven reserves are capitalized as investments as incurred. Acquisition costs associated with interests in exploration areas are capitalized at cost and amortized. Subsequently, if no reserves are discovered, these previously capitalized expenses are written off. If there are positive exploration results, resulting in a commercially exploitable discovery, the recorded value of the costs are reclassified to Property Plant and Equipment. The wells are classified as commercial only if it is expected to generate a sufficient amount of reserves to justify commercial development. Exploration costs (geological and geophysical costs, costs associated with the maintenance of unproven reserves, and other costs related to exploration) incurred prior to drilling, are charged to income when incurred. The drilling costs incurred in exploratory campaigns, including for exploratory wells, are capitalized as Property Plant and Equipment, pending the determination of whether proven reserves were found which will justify commercial development. If proven reserves are not found, the related drilling costs are written off. The costs of drilling wells that produce commercially exploitable reserves are reclassified to Property Plant and Equipment. Development costs incurred to extract proven reserves and for processing and storing of oil and gas (including the drilling costs of productive and exploratory dry wells, platforms, systems to improve recovery, etc.) are capitalized as Property, Plant and Equipment. Costs of future decommissioning and abandonment of fields are calculated on a field by field basis and are capitalized at its present value upon initial recording with an offset to Provisions for Decommissioning. 61

67 Costs capitalized in accordance with the above criteria are amortized according to the following method: Costs related to the acquisition of proven reserves are amortized over the estimated commercial life of the reservoir according to the ratio between yearly production and proven field reserves at the beginning of the amortization period. Costs related to unproven reserves or fields in process of evaluation are not amortized. These costs are analyzed annually or earlier if there is an impairment indicator. If impaired, the related amounts are written off. Costs arising from drilling and costs incurred after the development and extraction of hydrocarbon reserves are amortized over the estimated commercial life of the reservoir according to the ratio between yearly production and field reserves developed at the beginning of the amortization period. Changes in the reserves estimates are considered in the calculation of the amortization prospectively. The recoverable value of the assets is compared to the net book value quarterly, or whenever there is an impairment indicator. Any recording or reversal of impairment as a result of this analysis is recorded as Other Income or Expense. For the identification of environmental tangible assets, defined as one whose purpose is to minimize the environmental impact and the protection and improvement of the environment, the nature, policies and regulations of ENAP Group activities, according with technical criteria in this field, the sources of doctrinal guidelines issued by the American Petroleum Institute (API) are generally considered. Value Impairment of Tangible, Intangible Assets and Goodwill The ENAP Group evaluates the value impairment of its assets on an annual basis, according to the methodology stipulated in IAS 36. This methodology is applied to the following assets: Fixed assets related to hydrocarbon exploration and production operations. Goodwill Intangible assets Investments in subsidiaries. Classification of Financial Assets Financial assets within the scope of IAS 39 are classified as financial assets at fair value with an offset to profit or loss and accounts receivable, investments held to maturity, or financial assets available for sale as deemed appropriate. When financial instruments are initially recorded, they are measured at their fair value and those that do not qualify as hedging investments will be directly attributable to the transaction through profit or loss. ENAP Group considers that a contract contains an embedded derivative when they become a party to such contract. Embedded derivatives are separated from the main contract and are not measured at fair value with an offset to profit or loss, when the analysis displays that the economic characteristics and risks of embedded derivatives are not closely related to the main contract. ENAP Group determines the classification of its financial assets after initial recognition and, where possible and appropriate, this designation is reevaluated at the end of each financial year. All regular purchases and sales of financial assets are recognized on the date of the sale, which is the date on which ENAP Group agrees to purchase the asset. Purchases and sales are regular purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or market convention. Financial Assets at Fair Value with Offsets to Profit or Loss Assets at fair value with offsets to profit or loss include financial assets held for sale and financial assets which were recognized initially at fair value with offsets to profit or loss. Financial assets are classified as available for sale if they are acquired with the purpose of selling them in the short-term. Derivatives, including separated embedded derivatives, are also classified as available for sale, unless they are designated as hedging instruments or financial guarantee contracts. The profit or loss on instruments available for sale are recognized in the Income and Loss Statement. 62

68 When a contract contains one or more embedded derivatives, the full hybrid contract may be designated as a financial asset at fair value with an offset to profit or loss, unless the embedded derivative does not significantly modify the cash flows or it is clear that the separation of the embedded derivative is prohibited. Investments Held to Maturity Investments held to maturity are non-derivative financial assets that have fixed or determinable payments, have fixed maturities, and that ENAP Group has the positive intention and ability to hold to maturity. After the initial recognition, financial investments held to maturity are measured at amortized cost. This cost is calculated as the amount initially recognized less prepaid capital, net of the accumulated amortization using effective interest rate method for the difference between the initially recognized amount and the amount at maturity. This calculation includes all fees paid or received between parties of the contract, which are an integral part of the effective interest rate, transaction costs and all premiums and discounts. Profit or loss is recognized in the income and loss statement when the investments are written off or impaired, as well as through the amortization process. Financial Investments Available for Sale Financial assets available for sale are non-derivative financial assets designated as available for sale and not classified in any of the two previous categories. After the initial recognition, financial assets available for sale are measured at fair value with unrealized gains or losses recognized directly in other comprehensive income. When the investment is disposed of, the gains or losses previously recorded in equity are recognized in the income and loss statement. Any interest earned or paid over the life of the investments is reported as income or interest expense using the effective interest rate. Dividends earned are recognized in the income and loss statement as Gain on financial assets held for sale when the dividends for shareholders of record is declared. Derivative Financial Instruments and Hedging Usually ENAP Group maintains derivative financial instruments such as forward currency contracts and interest rate swaps, to mitigate the risks associated with fluctuations in interest and exchange rates and Zero Cost Collar options. Such derivative financial instruments are initially recognized at fair value as of the date of the derivative contract and are subsequently measured at fair value quarterly. Derivatives are recorded as assets when fair value is positive and as liabilities when fair value is negative. Any gain or loss that arises from the changes of the fair value of derivatives during the year that do not qualify for hedge accounting is recorded directly to the income and loss statement. The fair value of forward currency contracts is calculated per review of the current forward exchange rates for contracts with similar maturity profiles. The fair value of swap contracts on interest rate is calculated per review of the market values of similar instruments. Inventories Inventories of crude oil and finished products are valued at their acquisition or production cost. The value of inventories does not exceed their net realizable value. Sales prices of finished products and replacement costs of crude oil are considered to properly value inventories. Inventories in warehouses are valued at their cost of acquisition, net of allowances for estimated obsolescence at average cost method. The obsolescence provision is calculated based on a technical estimate of spare parts and other items on hand that will not be used in our future production activities. Crude oil and finished products are valued at the lower of cost or market, which is determined under the first-in first-out method. Revenue Recognition Sales and service incomes are recognized by ENAP group when significant risk and rewards of ownership are transferred to the buyer. This is usually, when product ownership and risk are transferred to the client and products have been delivered in the agreed location. Incomes are recognized at fair value. 63

69 Income Tax and Deferred Taxes ENAP and its subsidiaries in Chile account for income tax on an accrual basis based on net taxable income determined under the rules established by Chilean tax law. These taxes comprise First Category tax at a 17% rate for 2009, and an additional 40% tax pursuant to Decree Law No.2,398. Our subsidiaries calculate provisions for income tax on an accrual basis according to Chilean tax law and tax statutes in the countries in which they operate. Decree Law No. 2,398 establishes a tax rate of 40% for dividends received by ENAP from subsidiary corporations and direct investors. ENAP calculates provisions for this tax based on estimated earnings to be distributed. As such, a change in estimates used in the current or prior periods could have a material impact on the presentation of our financial condition, changes in financial condition, and results of operations. ENAP Group recognizes deferred taxes arising from temporary differences and from all other events that create differences between the accounting and tax basis of assets and liabilities. These deferred taxes are recorded in accordance with IAS 12 Income taxes. Additionally all foreign subsidiaries of ENAP Group complete separate tax returns, according to the tax rules applicable in the country of operation. Provisions and Contingent Liabilities Legal or assumed provisions relating to present obligations are recorded, which arise from a past event for which a probable outflow of resources is expected and for which the amount and timing can be estimated reliably. Contingent liabilities are obligations arising from past events, whose confirmation is subject to the occurrence or nonoccurrence of events beyond the control of the company, present obligations arising from past events whose amount cannot be estimated reliably, or for which settlement will not likely require an outflow of resources. ENAP Group does not record contingent assets or liabilities except for those arising from onerous contracts, which are recorded as a provision and are reviewed quarterly to properly record the best estimate available. Market Risk Analysis We are exposed to market risk from changes in interest rates, currency exchange rates and commodity prices. Through various arrangements described below we seek to hedge most of these risks. Despite these hedging arrangements, however, we may experience losses due to fluctuations in the underlying market rates and prices. While no hedging policy will completely insulate us from risk, we have recently implemented new hedging policies and procedures in order to provide for additional flexibility and responsiveness in our hedging strategy. In May 2009, our board of directors established a market risk committee that meets weekly to review our hedging transactions and risk management and supplement the work of our board market risk committee. The market risk committee has improved the flexibility of our hedging practices by allowing us to respond to changes in market risks more quickly. In addition, the market risk committee serves as a liaison between our hedging personnel, who execute our derivative transactions, and our commercial personnel, who have the best information regarding market prices and trends. For additional information on our hedging transactions, see note four to our audited consolidated financial statements included elsewhere in this offering memorandum. As of March 31, 2010, the mark-to-market value of our derivative financial instruments amounts to a liability of U.S.$37.5 million. Interest Rate Risk Interest rate risk exists principally with respect to our floating rate indebtedness, substantially all of which is determined by reference to 3- or 6-month LIBOR. At March 31, 2010, we had approximately U.S.$3.6 billion principal aggregate amount of indebtedness (not including accrued interest but including short term forfaiting agreements recorded in our accounts payable), 63% of which bore interest at floating interest rates and 37% of which bore interest at fixed rates, as described in the table below: Fixed Rate Floating Rate Total 64

70 (in millions of U.S. dollars) Short-term bank debt... 1,196 1,196 Long-term bank debt Project finance debt (subsidiaries) Documents payable... Financial lease corporate building International bonds Local bonds To reduce the financial impact of fluctuations in our floating rate debt, we have entered into several hedging contracts. Specifically, we have entered into several interest rate swaps to fix the interest rate on U.S.$520 million of our long-term bank debt. In addition, in 2005 we entered into an interest rate swap in order to partially hedge the exposure on U.S.$150 million of our short-term interest bearing debt, which today includes bank debt and credit from suppliers. As of March 31, 2010, we have U.S.$50 million outstanding under this interest rate swap. We have also entered into several interest rate swaps in order to fix the interest rate on all of the long-term bank debt held by our affiliates Enercón and Prodisa. Finally, we have purchased several interest rate collars to limit the effects on our debt service payments of fluctuations in the interest rate on an additional U.S.$150 million in our long-term bank debt. The net balance of our obligations still exposed to variations in LIBOR after accounting for these hedging arrangements amounts to U.S.$1.1 billion. A hypothetical, instantaneous and unfavorable 100 basis point change in the interest rate applicable to our floating-rate financial liabilities held at March 31, 2010 would have resulted in additional net financing expenses of approximately U.S.$11.5 million per year. This sensitivity analysis assumes an unfavorable 100 basis point movement in the interest rates applicable to each homogeneous category of financial assets and liabilities. A homogeneous category is defined according to the currency in which financial assets and liabilities are denominated. Foreign Currency Risk The U.S. dollar is our functional and accounting currency. Nevertheless, we have assets and liabilities denominated in both Chilean pesos and UF. In addition, local sales are invoiced in pesos. Fluctuations in the exchange rate expose these assets, liabilities and cash flows to changes in their value in U.S. dollars. Thus, our principal exchange rate risk involves changes in the value of the peso relative to the U.S. dollar. Increases in the value of the peso relative to the dollar will increase the dollar amount of our local currency denominated expenses and will increase the dollar value of our local currency denominated debt service obligations. On the other hand, decreases in the value of the peso relative to the dollar will decrease the dollar value of our local currency denominated accounts receivable. The effect of exchange rate fluctuations on sales in local currencies is limited by the import parity price mechanism, which uses prevailing exchange rates to update the local price of products on a weekly basis. For a discussion of import parity pricing, see Management s Discussion and Analysis of Financial Condition and Results of Operation General Refining Margins and Pricing of our Products. We have entered into various cross-currency swaps to limit the effects of exchange rate fluctuations on some of our liabilities and assets, such as our local bonds outstanding and financial leasing agreements (denominated in UF). In addition, we have entered into various forward agreements contracts in order to partially hedge the exposure of our pesodenominated accounts receivables to fluctuations of the peso to dollar exchange rate. The total outstanding principal amount of local bonds as of March 31, 2010 was UF13 million. A Ch$10 drop in the then prevailing peso to U.S. dollar exchange rate of $10 pesos per dollar would have increased the dollar value of the principal amount of such bonds by U.S.$10.1 million. To manage this risk, we have entered into cross-currency swaps through which we receive cash flows in UF equal to the payments to the bondholders and pay fixed cash flows in U.S. dollars. The total outstanding amount of domestic accounts receivable as of March 31, 2010 amounted to U.S.$728.8 million. A Ch$10 increase in the peso per dollar exchange rate would have reduced the value of such accounts receivable by U.S.$13.6 million. In order to manage this risk, we currently enter into exchange rate forward contracts on a regular basis for a substantial portion of our domestic sales estimated for the following week and for tenors corresponding to the estimated average collection time of the respective invoicing. 65

71 Commodity Price Risk Prices of crude oil and refined petroleum products are highly volatile. Our results of operations depend substantially on our refining margin, which is a function of the difference between the price of crude oil (our principal raw material) and the prices of the refined products we produce from crude oil (our principal source of revenue). Considering our annual average refining volume of 72 million barrels, a decrease of U.S.$1.00 per barrel per day in our average refining margin would have reduced our operating income by U.S.$72 million. Historically, we have not hedged our refining margin. Due to the time lag between our purchase of crude oil and our sale of our refined products, we are exposed to the time spread, or the risk that the price of our products at the moment of their sale will be different than the prices that were prevailing when the underlying crude was purchased. Gains or losses arising from time spread increase the variability of our operating results. ENAP imports approximately 6 million barrels of crude oil into Chile each month. A U.S.$1.00 per barrel decrease in the price of the average product basket within our inventory cycle would result in a U.S.$1.00 per barrel negative effect on our operating revenue and a subsequent negative effect on our operating margin. We commonly employ several types of derivative instruments to hedge the commodity price risks of the oil we import each month. We select from among these derivative instruments based on criteria that includes the prevailing price of crude oil, and most commonly employ two complementary instruments. Generally, we purchase zero cost price collars that protect us from price decreases in excess of 10% in exchange for our obligation to forfeit any price increases in excess of an agreed ceiling. We further supplement this by purchasing three legged zero cost price collars in which we receive an immediate, but capped, compensation from the banks for any decrease in crude oil prices. We also receive this compensation in exchange for our obligation to forfeit any price increase in excess of an agreed-upon ceiling. We also hedge against the commodity price risks of the refined products we import each month. We do this on a case-bycase basis, most commonly when we have an indication that the demand for a specific refined product we import might drop to lower than expected levels. We also tend to hedge against these risks when we have an indication that changes in the demand for a specific refined product we import may require us to keep higher levels of inventory for undesirably long periods of time. When these circumstances occur, we most commonly employ product swaps, where we receive a fixed selling price from the banks in exchange for our commitment to pay an average price for an agreed-upon period of time. For more detailed information on our hedging of commodity price risk, see note four of our consolidated financial statements. 66

72 BUSINESS Overview The following diagram sets forth the organizational structure of our principal business divisions and subsidiaries: Empresa Nacional del Petróleo Exploration and Production Division Refining and Logistics Division International Domestic ENAP Sipetrol S.A. ENAP Magallanes E&P Division ENAP Refinerías S.A. ENAP Magallanes R&L Division We are engaged in a broad range of petroleum-related activities, including the exploration, development and production of crude oil and natural gas, the transportation and storage of crude oil, refined petroleum products, liquefied petroleum gas (LPG) and natural gas, petroleum refining and the wholesale marketing of refined petroleum products, petroleum derivatives, LPG, crude oil and natural gas. Our principal source of revenue is the sale of refined petroleum products in Chile. We purchase from third parties virtually all of the crude oil we process. We organize our business into two independently operated business divisions: Exploration and Production, which conducts our upstream operations, and Refining and Logistics, which conducts our downstream operations. Our Refining and Logistics division makes substantially all of our consolidated sales to third parties and is responsible for purchases of crude oil from third parties. We are wholly owned and were created by the laws of the Republic of Chile. Pursuant to a recent ruling by the Office of the General Comptroller of the Republic, our relationship with the Chilean government is now managed through the Ministry of Energy and the Minister of Energy serves as the Chairman of our board of directors. We were the second largest Chilean state owned company in terms of revenues for the year ended December 31, We are the largest hydrocarbon producer and only refiner in Chile, and the Chilean market leader in the refined petroleum products market. We estimate that in 2009 we had a 75.8% share of the Chilean wholesale market for petroleum-based products and LPG. In 2009, we had total revenues of U.S.$7.1 billion, a gross margin of U.S.$278.0 million, income of U.S.$200.4 million and EBITDA of U.S.$431.2 million, and as of December 31, 2009, we had total assets of U.S.$5.6 billion. For the three month period ended March 31, 2010, we had total revenues of U.S.$1.9 billion, gross margin of U.S.$27.6 million, a net loss of U.S.$86.3 million, and EBITDA of U.S.$56.9 million and as of March 31, 2010, we had total assets of U.S.$5.9 billion. The exploration, development and production activities of our Exploration and Production division are performed within the Magallanes region of Chile directly through us and outside Chile through our 100% wholly-owned subsidiary, Enap Sipetrol S.A. (Enap Sipetrol). The majority of our upstream operations related to the exploration and production of petroleum takes place abroad, primarily in South America and, to a lesser extent, Northern Africa. Domestically, our upstream operations are focused on the production of natural gas in Magallanes. In 2009, our domestic oil production averaged 407 cubic meters per day, and our domestic natural gas production averaged 4.7 million cubic meters per day, while our international oil production averaged 2,735 cubic meters per day and our international natural gas production averaged 1.0 million cubic meters per day. In 2009, the Exploration and Production division generated 5.6% of our consolidated revenues. The refining activities of our Refining and Logistics division are handled through our 99.98% owned subsidiary Enap Refinerías S.A. (ERSA), which owns and operates two of our three refineries, Bío Bío and Aconcagua, and operates a 67

73 third, Gregorio Magallanes, which is directly owned by us. The Bío Bío refinery represents approximately 47.0% of our refining capacity, Aconcagua represents approximately 46.7% of our refining capacity and Gregorio Magallanes represents 6.3% of our refining capacity. Our refineries process local and foreign crude oil purchased from third parties or extracted by us. In 2009, we processed 13.2 million cubic meters of crude oil and intermediate petroleum products. Approximately 98.4% of the crude oil that we process is purchased from third parties. In 2009, the Refining and Logistics division generated 94.4% of our consolidated revenues. In 2009, our refineries delivered 15.5 million cubic meters of refined products to the Chilean and international markets (including internal production and third party purchases). Of the total fuel products we sold, 78.6% was refined or processed by us and the remainder was imported. In 2009, diesel fuel accounted for the largest portion of our refined products and petrochemical sales by volume (41.7%), followed by gasoline (25.2%), fuel oil (13.8%), LPG (8.6%), kerosene (6.7%) and other industrial products (4.0%). In recent years, sales outside of Chile Central America (36.9% of exports by volume), Peru (30.6% of exports by volume), Ecuador (25.2% of exports by volume), the United States (7.0% of exports by volume) and Argentina (0.3% of exports by volume) have begun to represent a significant portion of our sales by volume. In 2009, sales outside of Chile represented 8.9% of our sales by volume. We own an extensive network of facilities for the transportation, storage and distribution of crude oil, natural gas and refined products that covers most of Chile. Pipelines we own, or have an interest in, connect crude oil and natural gas producing centers with our refinery, petrochemical plants and marine terminal in the Magallanes area. We also receive and deliver crude oil and refined products via marine terminals at Aconcagua and Bío Bío and deliver our refined products through marine terminals and pipelines. We believe that our extensive transportation and distribution network provides us with a significant competitive advantage over competing importers in Chile. See Business Refining and Logistics Transportation and Distribution. We have invested in a company that has built the first liquefied natural gas (LNG) storage and re-gasification plant in South America. The plant is capable of receiving liquid natural gas from tankers and transforming it back into natural gas for delivery into the pipeline to Chile s central zone. The re-gasification facility, GNL Quintero S.A. (GNL Quintero), is located on the coast of Chile, north of Santiago (near our Aconcagua refinery) and has been built in partnership with British Gas (BG), Metrogas and Endesa. We own 20% of GNL Quintero. We are required to purchase one-third of the use of the re-gasification capacity of GNL Quintero. In addition to its equity ownership, BG is the sole supplier of LNG. GNL Quintero is currently producing 5.4 million cubic meters of natural gas per day. In the immediate wake of the February 27, 2010 earthquake, we were temporarily able to increase output at GNL Quintero up to approximately 6.5 million cubic meters of natural gas per day. We expect that the terminal will start operating at full capacity in August 2010, producing and supplying to the Chilean market an average of approximately 10 million cubic meters of natural gas per day. The supply of LNG from GNL Quintero has allowed us to decrease the cost of operating our Aconcagua refinery by permitting us to substitute natural gas for diesel fuel in powering Aconcagua. We expect that GNL Quintero will continue to enhance our ability to supply our refineries and the Chilean market with natural gas, stabilizing our cost structure and helping the Republic of Chile achieve a greater level of energy independence from our South American neighbors, particularly by decreasing our dependence on gas supplies from Argentina. Together with our partners at GNL Quintero, we have also begun developing a truck loading facility project. The project will employ trucks to transport LNG to a satellite re-gasification plant, where re-gasified natural gas would be injected into the Gasoducto del Pacífico and then transported to the Bío Bío refinery. We expect that the project will allow us to transport an average of 600,000 cubic meters of natural gas per day to the Bío Bío refinery and other potential customers in Region VIII. We were organized on June 19, 1950 as the state owned entity responsible for developing the Chilean petroleum industry. Since 1981, we have been organized as a group of subsidiaries under a parent company. We are governed by our estatutos (by-laws) and are wholly owned by the Republic of Chile. Accordingly, we have no shares in the public domain. Our relationship with the Chilean government is managed through the Ministry of Energy, the Ministry of Finance and, to a lesser extent, by the Ministry of Economy. We have a significant degree of administrative autonomy; however, governmental policies affect the amount of cash flow that is available for capital expenditures after payment of dividends and royalties, duties and taxes to the Chilean government. In connection with the recent change in presidential administration, the Republic of Chile is considering various corporate governance reforms as well as possible strategic alternatives for ENAP, including further investments in retail or other downstream operations and the sale of assets outside of Chile. Ricardo Rainieri, the Minister of Energy and the Chairman of our board of directors, has indicated in conversations with the Chilean press that the Republic of Chile is currently evaluating the introduction of private capital investments in our company among the possible alternatives and that an announcement on a possible strategic change at 68

74 ENAP would be made within the next few months. Certain strategic changes, including any partial privatization of the ENAP, would require legislative action and there has been no formal governmental action to permit private investment in us to date. We cannot predict whether such action will be taken in the future. The introduction of private capital into ENAP would result in the partial privatization of the Company. The February 27, 2010 Earthquake and Subsequent Tsunami On February 27, 2010, an earthquake measured at a magnitude of 8.8 on the Richter scale and subsequent tsunami struck the South-Central Region of Chile, where our Aconcagua and Bío Bío refineries are located, resulting in the immediate shutdown of both refineries. Our Aconcagua refinery suffered minor damage to some of its installations. After taking the necessary safety precautions, the Aconcagua refinery was re-started and became fully operational on April 21, The Bío Bío refinery was more severely affected, suffering damages to several of its installations, including its water intake tank. As a result, the Bío Bío refinery was not fully operational for a longer period of time. The Bío Bío refinery became fully operational on June 22, 2010, with the exception of our co-generation facility, Petropower, a special purposes entity which we expect to become fully operational by January According to our own preliminary assessment, we estimate that we have incurred approximately U.S.$154 million in losses as a result of the earthquake, approximately U.S.$76 million due to physical damages suffered by our infrastructure and approximately U.S.$78 million due to losses arising from business interruption. Of the U.S.$76 million in physical damages, U.S.$64 million corresponds to the value of the assets damaged and U.S.$12 million corresponds to the valueadded taxes related to those assets. As a result, our financial statements for the three-month period ended March 31, 2010, record a loss of U.S.$64 million associated with the physical damage from the earthquake. We expect our insurance companies to cover a significant portion of the losses resulting from the earthquake, subject to certain deductibles, including a 60-day business interruption deductible and a U.S.$5 million property damages deductible. In April and May we received three payments in the aggregate amount of U.S.$10 million from our insurance company. We expect certain costs due to the earthquake will not be covered by insurance. For example, we incurred higher financing costs related to our increased short-term borrowing immediately after the earthquake that are not covered by our insurance policy. We expect to receive all recoverable insurance proceeds by the end of Exploration and Production A principal objective for our upstream investment in exploration and production is to increase the quantity of our reserves. Our second principal objective is to achieve a higher level of productivity by increasing oil and gas production while keeping operation costs low. Both objectives require that we selectively allocate our investments in exploration and/or production projects. Finding the appropriate balance between improving our rate of production and increasing our reserves enables us to achieve a higher operating margin and ensure the sustainability of our exploration and production division. We use both economic and strategic criteria in determining the optimum allocation of our investments. From a strategic perspective, we prioritize investments in those countries where we have established a strong presence, have a history of successful exploration and hydrocarbon field exploitation and have good working relationships with the various stakeholders. On the other hand, we actively pursue divestment from any projects where we cannot identify an opportunity to increase our reserves or where we would not be able to sustain production rates. From 2004 to 2009, we invested U.S.$1.0 billion in exploration and production activities. Of this amount, 44.2% was allocated to exploration projects and 55.8% to projects in the exploration phase. Most of our investments were allocated in Chile (U.S.$349.6 million), followed by Argentina (U.S.$300.4 million), Ecuador (U.S.$155.9 million) and Egypt (U.S.$154.3 million). Currently, we explore and produce crude oil and natural gas in Magallanes (in Southern Chile), Argentina, Ecuador and Egypt. We have also begun oil exploration projects in other parts of Northern Africa. In 2006 our Exploration and Production division sold its participation interests in Colombia and Yemen in order to focus its activities in selected countries where it had more firmly established itself. We continue to explore in Ecuador, Egypt and Argentina, though we divested our El Diyur block in Egypt in 2007 and sold our interest in the North Bahariya block in Egypt in March ENAP currently has two offshore drilling operations, one in the Magallanes region of Chile and one in the Magallanes region of Argentina. The financial results of the Exploration and Production division are dependent on various factors, some of which are within our control, such as oil quality, the terms of exploration and production contracts and our operating costs, and others which are determined by external conditions, such as changes in oil prices and governmental regulations. 69

75 In 2009, we produced approximately 7.2 million barrels of crude oil, which is equivalent to 10.4% of the total volume of crude oil processed by our refineries (68.7 million barrels). We sold the crude oil that we produced primarily in the same countries where we produced it. Crude Oil Production Our crude oil production occurs mainly in Argentina and Ecuador. In Argentina, Enap Sipetrol was producing over 11,900 barrels of crude oil per day until we suspended production in December 2006 in order to carry out a precautionary replacement of an offshore oil pipeline in the Magallanes region. As a result of the maintenance we halted production for 15 months. Enap Sipetrol recommenced production in the Magallanes region in March 2008 and is currently producing an average of 2.6 thousand barrels of crude oil per day. In Ecuador, Enap Sipetrol continues to operate two fields Mauro Dávalos Cordero and Paraiso Biguno Huachito and has reached a peak daily production of approximately 5,100 barrels of crude oil per day. In addition, in 2006, Enap Sipetrol negotiated an extension of the service contract with Ecuador s national oil company, Petroecuador, under which it is authorized to drill five new wells in the Mauro Dávalos Cordero concession. In 1998, Enap Sipetrol began exploration in Egypt and by 2009 we were producing approximately 2,270 barrels of crude oil per day in the country from two blocks the East Ras Qattara and the North Bahariya blocks. The East Ras Qattara block continues to produce good results and in March 2010, Enap Sipetrol located a new oil deposit, the Diaa-1 well in the East Ras Qattara block. We sold our interest in the North Bahariya block in March 2009 for U.S.$72.4 million. In 2009, our total net hydrocarbon production (crude oil and natural gas) reached approximately 18.7 thousand barrels of oil equivalent (boe) per day. We classify crude oil according to its sulfur content. Sour crude oil contains 3.4% or greater sulfur content by weight and sweet crude oil contains less than 1.0% sulfur content by weight. Nearly all of our production is classified as sweet crude oil. We produce two types of crude oil: Heavy crude oil, which has a gravity lower than 30 American Petroleum Institute (API) density. Light crude oil, which has a gravity higher than 30 API density. The following table sets forth our crude oil production rates for the periods indicated: Crude Oil Production Three Months Ended Year Ended December 31, March 31, (in thousands of barrels per day) Chile Light crude oil Argentina Heavy crude oil Light crude oil Ecuador Heavy crude oil Egypt (1) Light crude oil Colombia (2) Heavy crude oil Total heavy crude oil Total light crude oil Total crude oil (1) In 2006 we initiated a development campaign in the North Bahariya and El Diyur concession in Egypt. In March 2009, Enap Sipetrol sold its participation in the North Bahariya block in Egypt. (2) In 2006 ENAP Sipetrol sold its subsidiary in Colombia to Pacific Stratus Energy. 70

76 In Chile, our oil production continues to decline due to depletion of the natural reservoir. Natural Gas Production Our main natural gas reserves as well as our production facilities are located in the Magallanes region of Chile and Cuenca Austral in Argentina. In 2009, we produced approximately 1.6 billion cubic meters of natural gas in the Magallanes region of Chile, 68.2% of which was sold to third parties and the remainder of which was consumed by our internal production cycle. In 2009, we produced approximately 376 million cubic meters of natural gas in Cuenca Austral in Argentina. In 2010, we began a new development drilling campaign in Pampa del Castillo (Cuenca Golfo San Jorge, Argentina) to increase the production of that asset. As shown in the following table, our production has decreased over the last five years and for the three months ended March 31, Despite the decrease in production over this period, sales stabilized in 2007 and 2008 due to various factors, including a decrease in our consumption of natural gas and a steady increase in the global price of methanol throughout the period, which had a positive impact on the prices of ENAP s gas supply contracts. Our sales of natural gas to third parties in 2009 reached approximately 1.5 billion cubic meters. Our two natural gas customers are Methanex, an affiliate of Canada s Methanex Corporation, and Gasco, the natural gas distributor for the city of Punta Arenas. In 2009, these two customers accounted for 55.6% and 44.4% of our total natural gas sales, respectively. We use the natural gas production from Magallanes at our gas processing facilities to produce LPG and gasoline. The following table sets forth our total natural gas production and use for the five years ended December 31, 2009 and for the three months ended March 31, 2009 and Natural Gas Production and Use Three Months Ended Year Ended December 31, March 31, (in millions of cubic meters per year) Natural gas production Chile... 2,294 2,199 2,013 1,828 1, Argentina Other countries Total production... 2,875 2,708 2,091 2,143 1, Natural gas use E&P internal consumption (1) R&L internal consumption (2) Separated as LPG Total use Sales... 2,166 2,002 1,516 1,617 1, Total... 2,875 2,708 2,091 2,143 1, (1) E&P internal consumption refers to the natural gas consumed by Exploration and Production and transportation processes in the Magallanes region, including gas lift, housing consumption, electricity generation and compressors. (2) R&L internal consumption refers to the natural gas consumed by Refining and Logistics in storage and refining processes. We also produce condensates, which include liquid hydrocarbons obtained from natural gas and recovered in surface separating facilities. Our production of natural gas liquids, including stabilized condensates, decreased by 19.1% from 807 barrels per day in 2008 to 653 barrels per day in 2009, due to a decrease in the production of natural gas. Exploration Since 2005, our Exploration and Production division has explored numerous geological prospects and drilled 59 exploration wells. For each of these geological prospects we assessed estimates of reserve volume and risk that ensured 71

77 our replacement of actual reserve production. From 2005 to 2009, our exploration success rate, defined as the percentage of wells drilled in which we find hydrocarbons, was 41.0%. From 2005 to 2009, we drilled development wells in Ecuador, Argentina and Egypt and our success rate, defined as the percentage of wells from which we were able to extract the quality and quantity of hydrocarbons that we projected, was 91.6%. During this period, we drilled 27 wells in the Mauro Dávalos Cordero block and the Paraíso Biguno Huachito block in Ecuador under a special development contract with Petroecuador. In Argentina, we drilled 99 wells under two concessions in Pampa del Castillo and Campamento Central Cañadón Alfa in the San Jorge basin. The average time from our discovery of hydrocarbons to our commercial production of hydrocarbons at our successful development wells is approximately 1.5 years. The following table summarizes our drilling activity for each of the five years ended December 31, 2009 and for the three months ended March 31, 2009 and Drilling Activity Year Ended December 31, Three Months Ended May 31, Exploratory wells Development wells Wells drilled Wells completed Exploratory wells success rate %... 60% 38% 46% 42% 33% 22% 60% Development wells success rate % % 91% 96% 88% 57% 20% 57% Kilometers drilled International Exploration (Enap Sipetrol) In the last five years, our wholly-owned subsidiary Enap Sipetrol has adjusted its business strategy to focus on better positioning itself to take advantage of new opportunities in those markets where it already has an established presence and close working relationships with the relevant government entities and other stakeholders. This strategic shift has resulted in changes in both Enap Sipetrol s project management and resource allocation. This strategy was reflected in Enap Sipetrol s decision in 2006 to sell its operations in Colombia to Pacific Stratus Energy for approximately U.S.$60 million and to close its office in the United Kingdom. Since its exit from Colombia, Enap Sipetrol has re-focused its exploration and production activities in Egypt, Ecuador, and Argentina, seeking to strengthen its relationships in those countries. Nevertheless, Enap Sipetrol continues to pursue new opportunities and recently conducted exploratory studies in Libya, Algeria, Peru and Brazil. Egypt From 2004 to 2009, much of our investment in overseas exploration focused on our interests in three concessions in Egypt East Ras Qattara (in which we have a 50.5% interest), North Bahariya (50.0%) and El Diyur (41.0%). Since 2006, we have invested a total of U.S.$82.6 million in the development of the East Ras Qattara, North Bahariya and El Divur blocks. However, after reassessing the prospect for future production from each of these blocks, Enap Sipetrol sold its interests in the El Diyur block in March 2007 and in the North Bahariya block in March The sale of our stake in these two blocks allowed Enap Sipetrol to achieve a nearly 20% return on initial investment allocated for exploration and production in Egypt, and to focus its efforts on two new exploration concessions (Sidi Abd El Rahman or SAER and Rommana) awarded to ENAP by the Egyptian Oil State Company (EGPC), in September Enap Sipetrol owns a 30% participation interest in the SAER block. The Thai company PPT Exploration and Production Public Company (PTTEP) holds the remaining interests while the Italian company Edison Oil Company acts as the operator of the concession. In Rommana, Enap Sipetrol holds a 40.0% interest and acts as operator of the concession and our partners are the British company Centrica and PTTEP. We have budgeted approximately U.S.$70 million for investment in these two blocks. In 2009, the first commitment well was drilled in the SAER block, resulting in a non- 72

78 economic oil discovery; we intend to drill a second well during the second half of We intend to commence drilling in Rommana during the second half of 2010 after we obtain and analyze a 330 square kilometer three-dimensional seismic survey. We are currently analyzing, evaluating and pursuing new exploration and development opportunities in the East Ras Qattara block, which is located in the Western Desert basin and is managed by a joint venture called Petroshad with the EGPC. There have been seven oil discoveries in this block as of Ecuador Enap Sipetrol has also strengthened its operations within Ecuador, particularly its working relationship with Petroecuador. Our 2002 services contract with Petroecuador required us to invest U.S.$88.2 million over the following four years to develop and produce reserves in the Mauro Dávalos Cordero and Paraíso Biguno Huachito blocks. We used the investment to drill seventeen wells and build new facilities to increase production. Enap Sipetrol extended its contract with Petroecuador in 2006 and committed to invest an additional U.S.$38.4 million to drill five additional wells. We expect these wells to increase reserve recovery capacity through the contract by approximately 25 million barrels. In 2008, we partnered in a joint venture with Petroecuador to create a company called Petroenap, of which we own 40.0% and Petroecuador owns 60.0%, aimed at exploring and exploiting hydrocarbon resources in Ecuador. Both companies are currently negotiating the terms and conditions for expanding the joint venture s operations into an offshore area called block 40. Currently, we are negotiating with the Ecuador Ministry of Energy on an exploration works program and related hydrocarbon commercial terms. Total exploration commitments on behalf of ENAP are estimated at U.S.$80.0 million. In addition, we intend to negotiate a third Mauro Dávalos Cordero contract extension with Petroecuador for U.S.$60.0 million. Argentina From 2001 to 2009, we focused on developing reserves with respect to our Pampa del Castillo project. During that period, our reserve replacement ratio (RRR) was 80%. Beginning in 2007, we have increased our investment in production projects in Argentina, including Pampa del Castillo, in order to capture the benefits of increases in the price of oil. In January 2006, Enap Sipetrol signed an agreement with YPF and Energía Argentina S.A. (Enarsa) to initiate the development of two exploratory offshore wells in the Austral Basin, in the block referred to as E2, in the next two years. In 2008, we started drilling the exploratory wells in block E2. During 2009, we ended that drilling campaign after the three wells drilled turned out to be dry. We are currently evaluating other exploratory prospects in the E2 area. We did not undertake any drilling campaigns in our Campamento Central Cañadón Perdido project in 2008 or We instead focused our activities on well repairs and optimization activities. In 2010, we plan to drill eight development wells and to continue to optimize our reservoir operations. Due to the unstable political and economic environment in Argentina, we have temporarily suspended the development of additional new ventures in that country. Iran Oil discovered in the Mehr block in Iran through drilling well BKH-2 encouraged Enap Sipetrol and its two partners, YPF and OMV Oil and Gas, to advance with additional exploration and to commence the negotiation of a development plan with the National Iranian Oil Company (NIOC). Negotiations with NIOC reached an apparent impasse and we and our partners decided to surrender the area to NIOC. In early 2009, the consortium decided to stop the negotiations with NIOC because no suitable agreement could be reached. We invested approximately U.S.$43.4 million in Iran, but we believe that, in accordance with the terms of our exploration agreement, the Iranian government must return U.S.$27.3 million of our investment to us. We have established a provision for that amount on our balance sheet and have taken a write down for the remainder of the U.S.$43.4 million total investment NIOC has conducted several audits of the investments made by the consortium in the Mehr block since we have stopped our negotiations. It remains uncertain whether the efforts of the consortium to recover its investment in the Mehr block will be successful. 73

79 Domestic Exploration In 2004, in response to Argentina s adoption of gas export restrictions and our expectation of a steady increase in gas prices, we began expanding our exploration activities within Chile s Magallanes region. We are currently carrying out exploration programs in the Dorado Riquelme, Arenal and Intracampos blocks. Since Argentina s adoption of gas export restrictions, we have worked with our primary gas customer, Methanex, to find collaborative solutions to bolster the supply of gas in Chile. In 2008 we signed a provisional agreement with Methanex and in 2009, we entered into a joint venture agreement with Methanex pursuant to which we receive investments from Methanex to finance our exploration of gas wells in Dorado Riquelme region. We have a total investment of U.S.$107.1 million, in which ENAP and Methanex have invested equally. We have discovered two commercial gas fields, Palenque and Tropilla, which are currently under development. Currently, Dorado Riquelme produces an average of 850 thousand cubic meters of gas per day, which partly offsets the declining gas production from our traditional fields in Magallanes. We have committed to selling any gas that these wells produce to Methanex. We have conducted a three-dimensional seismic survey over a 1,850 square kilometer area and drilled a total of 37 wells, which have produced million cubic meters of natural gas. In Intracampos, we conducted a three-dimensional seismic survey over a 960 square kilometer area for a total investment of U.S.$16.4 million and we have invested U.S.$7.0 million to drill two exploratory wells. One of those wells turned out to be dry and the other resulted in a non-commercial discovery. A four-well drilling campaign is being carried out in In Arenal, we conducted a three-dimensional seismic survey over a 1,000 square kilometer area for a total investment of U.S.$12.0 million. We have invested U.S.$6.1 million to drill three development wells in the Chañarcillo gas field and one exploration well, which turned out to be dry. In 2010, we commenced a new U.S.$7.6-million four-well drilling campaign in Arenal. Preliminary results indicate that the first well contains gas In addition, we have developed other sources of gas production in Chile outside the Magallanes region. In 2008, ENAP conducted a three-dimensional seismic offshore study of over 960 square kilometers in an area located within the Valdivia Basin of the Temuco province of Chile for a total investment of U.S.$12.8 million. Our objective in exploring this area is to determine whether to drill exploration wells to test for commercial gas reserves. We have analyzed data from these seismic surveys, defined our exploratory prospects portfolio and are currently looking for a strategic partner to drill the first two wells in the area. We are planning other new ventures in Magallanes to reinvigorate gas production using unconventional exploration technologies. We believe that gas production in Magallanes may provide us with increased opportunities with Methanex, similar to the joint venture agreement signed in 2009 and described above. Consequently, we have budgeted U.S.$12.8 million to assess the exploitation of Coal Bed Methane (CBM) in Magallanes and to identify a strategic partner for development. Additionally, we are evaluating the shale gas potential of Magallanes Basin together with Chesapeake Energy Corporation, an American company with experience and expertise in these kinds of unconventional gas resources. In 2007, due to challenges we confront in exploiting the gas supply in the Magallanes region, including the distance from the development site to a natural gas distribution facility, and the shortage of natural gas available to our two biggest natural gas customers, Gasco, which distributes gas to the city of Punta Arenas, and Methanex, the Chilean Ministry of Mining and we solicited bids from international oil companies for the exploration of ten blocks pursuant to Contratos Especiales de Operación Petrolera (Special Petroleum Operation Contracts or CEOPs). Nine of the blocks were awarded to international companies, including Wintershall (Germany), Apache (U.S.), Greymouth (New Zealand) and Panamerican (Argentina). We hold a 50% participation interest in three of these concession areas, namely Coirón, Caupolicán and Lenga. The exploration commitment in the Coirón and Lenga concessions are financed by Pan American and Apache, respectively. Exploration drilling started in 2009 in Lenga block, where Apache drilled two wells. One of those wells resulted in an oil discovery that is currently in long-term production testing in order to determine its commercial viability. Exploration drilling in Coirón has recently commenced, with the drilling of the first well (Dinamarqueros 1) in May of Reserves Proved oil and natural gas reserves are those quantities of crude oil, natural gas and natural gas liquids that, based on geological and engineering data, are estimated to be recoverable in future years from known reserves under existing 74

80 economic and operating conditions i.e., prices and costs as of the date of estimation. Our technical staff estimates our proved reserves, and their estimates are audited by third parties. We estimate our reserves using standard geological and engineering methods generally accepted by the petroleum industry, namely the methods utilized by the Society of Petroleum Engineers and the World Petroleum Congress. The choice of method or combinations of methods employed in the analysis of each reservoir is determined by: experience in the area, stage of development, quality and completeness of basic data, and production and pressure past performance. Our total proved developed and undeveloped reserves of crude oil and condensate decreased by 17% in 2009, from 52.2 million barrels of oil at December 31, 2008 to 43.5 million barrels of oil at December 31, Our dry gas reserves decreased by 12.5%, from 17,078 million cubic meters at December 31, 2008 to 14,939 million cubic meters at December 31, The following tables of crude oil and dry gas reserves set forth our estimates of proved reserves for the periods indicated. Crude Oil Reserves by Geographic Area At December 31, At March 31, (in millions of barrels) Chile Argentina Colombia Ecuador Egypt Total Natural Gas Reserves by Geographic Area At December 31, At March 31, (in millions of cubic meters) Chile... 22,269 18,863 15,453 13,733 12,245 13,526 11,892 Argentina... 5,513 4,554 4,254 3,345 2,694 3,247 2,648 Colombia Total... 28,152 23,417 19,707 17,078 14,939 16,773 14,540 Oil and Natural Gas Reserves by Geographic Area At December 31, At March 31, (in millions of barrels of oil equivalent) Chile Argentina Colombia Ecuador Egypt Total The reserve data set forth above are only estimates. Reserve valuation is a subjective process of estimating underground accumulations of crude oil and natural gas taking into account reservoir historical performances, well production, geological interpretation and reservoir pressure drops, among other technical factors. The accuracy of any reserve estimate 75

81 depends on the quality of available data and how that data is interpreted. In addition, the results of drilling, testing and production subsequent to the date of an estimate may result in a revision of an estimate. Lower market prices, increased cash production costs, reduced recovery rates and other factors may also render proven reserves uneconomic to exploit and may result in revision of reserve data from time to time. Reserve estimates are not conclusive but indicative to forecast operations. Refining and Logistics The Refining and Logistics division is our principal business, accounting for a substantial majority of our gross revenues. During the last decade we have invested heavily in our refineries and related terminals in order to improve the quality of our products and to increase our refining and conversion capacity. We have undertaken these investments with the goal of improving the profitability of our Refining and Logistics division and maintaining our position as the market leader in the Chilean petroleum fuels market. The operating results of our Refining and Logistics division depend substantially on our gross refining margin, which is the difference between the average price of the refined products produced from a barrel of crude oil and the price of a barrel of crude oil. Historically, our gross refining margin has fluctuated widely because of factors beyond our control, such as fluctuations in the international price of crude oil and the demand for refined oil products. Our refining margins differ from those of comparable refineries on the U.S. Gulf Coast, primarily as a result of: the fact that our refineries produce fuels (gasoline and diesel fuel) that are priced by the market to reflect a greater premium per barrel than the grades produced and sold by U.S. Gulf Coast refineries with similar production capabilities, and the fact that our product prices are set according to an import parity formula based on the prices charged in U.S. Gulf Coast refineries (plus shipping cost, insurance, vapor losses, ship demurrages cost and associated terminal costs), but do not take into account the transport period of our crude oil shipments, which has a positive impact during upwards trends in prices and a negative impact during downward trends. The Refining and Logistics division is composed of our wholly-owned subsidiary ERSA and our R&L Magallanes subdivision. ERSA (which was created in 2004 from the merger of our subsidiaries Petrox S.A., Refinerías de Petróleos and Refinería de Petróleos Concón (RPC S.A.)) carries out the majority of our refining and logistics activities through our Aconcagua and Bío Bío refineries and our Pipelines and Storage division. R&L Magallanes operates our Cabo Negro liquid fractioning plant and manages our Gregorio Magallanes refinery, which are both owned directly by us. As of December 31, 2009, the refining capacity of our refineries, defined as total atmospheric distillation, was thousand barrels per day and in 2009 the capacity utilization of our refineries, defined as crude oil refinery runs divided by atmospheric distillation refining capacity, was 83.7%. Crude Oil Supply In June 2010, we established new purchase relationships that allow us to purchase crude oil directly from producers rather than from commodity traders. By purchasing directly from producers we have been able to avoid paying additional price mark-ups charged by the commodity traders and ensure the availability of supply from preferred regional grades of crude oil (i.e., Ecuador, Colombia and Brazil). Our goal is to try to purchase both spot and trade oil directly from producers as much as possible in order to continue decreasing our costs. We depend on a small number of suppliers to obtain a substantial majority of our crude oil. In 2009, our main crude oil suppliers were Mercuria (24.2% of crude oil supply), Vitol (13.0%), Glencore (12.5%), Petroecuador (11.8%), Petróleo Brasileiro S.A. (Petrobras) (10.5%) and Shell (9.0%). In the first quarter of 2010, our main suppliers were Shell (21.5% of our crude oil supply), Vitol (20.8%), Glencore (14.0%), Petroecuador (11.9%), Chevron (10.1%) and Petrobras (9.9%). The total crude oil provided by third party suppliers accounted for approximately 98.4% of the total crude oil we refined in 2009, while 1.6% of crude oil we refined was supplied by our own exploration and production operations. Our new purchase relationships have allowed us to purchase the majority of our crude oil supply from suppliers in countries closer in proximity to Chile, which has decreased the costs of our transactions due to reduced freight charges and reduced our supply risk. We pay our suppliers variable amounts per barrel of crude oil sold to us. The price paid is mostly pegged to the WTI and on occasion to DTD Brent crude spot prices, adjusted to take into account the quality of the crude oil, plus transportation costs. The prices we paid our suppliers in 2009 ranged from WTI less U.S.$21.00 per barrel to WTI plus U.S.$4.20 per 76

82 barrel and from DTD less U.S.$1.50 per barrel to DTD plus U.S.$3.80 per barrel. For the month of June 2010, the average WTI crude spot price was U.S.$75.40 per barrel, and the price we paid our suppliers ranged from WTI less U.S.$1.50 per barrel to WTI less U.S.$4.00 per barrel. Approximately 21.8% of the crude oil supply we imported in 2009 was purchased through supply contracts, while the remainder was purchased through one-time purchase agreements. We cannot assure you that we will be able to successfully negotiate and execute long-term crude oil supply agreements with these suppliers. Refineries Our three refineries are the only refining facilities in Chile. Our refineries produce a full range of refined petroleum products including LPG, olefins, gasoline, jet fuel, diesel fuel, fuel oil, and pitch (which is used to make asphalt). We distribute and market most of these products domestically. Bío Bío The Bío Bío refinery, located next to the coastal city of Talcahuano, refines crude oil into gasoline, diesel fuel, jet fuel, kerosene and other crude-oil derivates, mostly for southern and central Chile, including Santiago. Bío Bío also provides raw material for petrochemical companies located near the refinery, including Petroquim S.A. (Petroquim), which produces polypropylene plastics, and Petroquímica Dow, S.A., which produces low density polyethylene. Since the opening of the Petropower facility in 1998, Bío Bío has focused on producing higher margin products. Bío Bío is ISO certified. As of December 2009, Bío Bío s refining capacity was 107 thousand barrels of crude oil per day. The February 27, 2010 earthquake caused serious damage to several of the installations at the Bío Bío refinery, including the water intake tank. The total amount of physical damage to the Bío Bío refinery was recorded at U.S.$68 million. Bío Bío was shutdown in the immediate wake of the earthquake. The Bío Bío refinery became fully operational on June 22, 2010, with the exception of our co-generation facility, Petropower, a special purposes entity which we expect to become fully operational by January Due to the shutdown of Petropower, the cogeneration facility located at the Bío Bío refinery, we are required to purchase electricity from the SIC to meet Bío Bío s energy requirements until Petropower becomes fully operational, which we expect to occur in January Aconcagua The Aconcagua refinery is located in Concón, approximately 60 miles east of Santiago, near the city of Viña del Mar. The refinery is the primary supplier of gasoline, diesel fuel, jet fuel, kerosene and other crude oil derivatives for the city of Santiago. Aconcagua is ISO certified and the main supplier of gasoline, bunker fuel and pitch in Chile. As of December 2009, Aconcagua s refining capacity was 107 thousand barrels of crude oil per day. Aconcagua suffered minor damages due to February 27, 2010, earthquake. Although Aconcagua was shut down immediately after the earthquake, we initiated the start up process shortly thereafter and Aconcagua was fully operational within fifteen days. Gregorio Magallanes Gregorio Magallanes, a small refinery located near the city of Punta Arenas in Southern Chile, produces base components for diesel fuel, gasoline and kerosene blending and is the main supplier of crude oil derivatives in Argentina and in the austral zone of Chile. As of December 2009, the refining capacity of Gregorio Magallanes was 14.5 thousand barrels of crude oil per day. Additionally, the refining facilities in the Gregorio Magallanes refinery include our liquid fractionation plant in Cabo Negro near Punta Arenas, which has a capacity of 18.5 thousand barrels per day of liquids separated from natural gas. At Cabo Negro we are able to extract liquids from wet gas including propane, butane and natural gas. This refinery also houses our maritime terminal facilities, which we use for the shipping of LPGs. Special Purpose Entities A number of facilities that we use for crude oil processing at our Aconcagua and Bío Bío refineries are owned by affiliated entities, with which we have entered into operating and supply contracts. All of these facilities are fully integrated within our refineries. At the expiration of these contracts, we typically have the right or, in some cases, obligation to buy most of these special purpose entities. 77

83 Several of our special purposes entities suffered damages in the February 27, 2010, earthquake. Of the entities located in Bío Bío, with the exception of Petropower, we estimate that total damages amounted to U.S.$3.6 million, and of the entities located in Aconcagua we estimate that total damages amounted to U.S.$1.0 million. However, each of these figures are based on preliminary estimates and may be subject to revision in the future. In addition, Petropower suffered significant damages due to the February 27, 2010, earthquake; however we have not yet received an estimate of the total damages incurred. Each of the special purposes entities carries its own insurance policy and, in those cases where the damage exceeds the applicable deductible, expects to receive payments to cover the cost of repairs. Our special purpose entities are as follows: Petropower is a Chilean limited partnership that owns a delayed coking and hydrotreatment plant at the Bío Bío refinery, which processes heavy crude oil residues into higher priced products, such as gasoline and diesel fuel, and also owns a cogeneration plant, which produces steam, electricity and demineralized water. We own 15% of Petropower and our partner in the joint venture, Energía Holdings LLC, a subsidiary of Foster Wheeler, owns the remaining interest. Prodisa is a Chilean corporation created for the construction and operation of a mild hydrocracking plant at the Bío Bío refinery that provides gas oil processing services for the production of high quality diesel fuel. We own 45.0% of Prodisa and the remaining interest is owned by Técnicas Reunidas Metalúrgicas (27.5%) and DSD Construcciones y Montajes (27.5%). Enercón is a Chilean corporation created to build and operate a delayed coker complex at the Aconcagua refinery and to provide crude oil barrel bottom processing services. We own 49.0% of Enercón. The remaining interest is owned by a consortium integrated by Foster Wheeler Iberia, Técnicas Reunidas Metalúrgicas and Man Ferrostaal. We make payments to Enercón for the right to process our heavy streams (vacuum residues) in the plant. Etalsa is a Chilean corporation that owns and operates a DIPF (an oxygenated compound for gasoline) plant located at the Aconcagua refinery. Etalsa is owned by Ferrostaal A.G. (41.7%), Sociedad de Inversiones Concón S.A. (6.5%) (which in turn is owned by employees of ERSA), Fundación Empresarial Comunidad Europea-Chile (10.0%) and us (41.7%). Petrosul is a Chilean corporation that constructed and manages a sulfur plant at Aconcagua and another at Bío Bío. Petrosul is owned by us (47.4%), Man Ferrostaal A.G. (44.5%), Sociedad de Inversiones Concón S.A. (6.4%) and Inversiones Lenga S.A. (1.7%). Refining Processes and Capacity In recent years we have upgraded by adding new processes designed to meet more stringent local product specifications and to enable us to produce a wider array of higher margin products. This has helped us improve our refining margin and better serve the requirements of our customers, whose demand for increasingly sophisticated refined oil products has grown in recent years. The increase in complexity has been important in helping us to maintain our market position in Chile and comply with the demanding environmental specifications for refined products. See Regulatory Framework Environmental Matters. Some of the more notable conversion processes that we have installed, are: delayed coking, which is a thermal cracking process that uses either heat, pressure and/or a catalytic agent to increase light product yields from crude oil, which permits us to process a greater volume of heavy crude oils (which are cheaper) and produce greater quantities of higher priced fuels, hydrocracking and hydrotreatment, which are processes that combine a catalyst with hydrogen at high temperature and pressure to remove sulfur, nitrogen and some aromatic compounds, which allows us to reduce the levels of sulfur in our products so that we can meet increasingly stringent environmental standards, and reforming and catalytic cracking, which are processes that use a catalytic agent to increase gasoline yields from crude oil, which allows us to increase our production of high-octane gasoline. In addition, we are developing a new alkylation unit at the Aconcagua refinery that will allow us to increase high octane gasoline production at Aconcagua over the next five years. By shifting our production of gasoline to 78

84 higher octane fuel, we improve the margin we earn on our gasoline production and increase the portion of our gasoline production that we sell in the Chilean market (which demands more high octane fuel). The following table sets forth our total refining production capacity as of the dates indicated. Refining Capacity by Production Process At December 31, (in thousands of average barrels per day) Production Process Atmospheric distillation Vacuum distillation Catalytic and thermal cracking Visbreaking Reforming Diesel Hydrotreatment (1) FCC Gasoline Hydrotreatment Delayed coker Alkylation Hydrocracking (1) Natural gas liquid fractionation (1) In 2009 we began utilizing a diesel hydrotreating unit as a mild hydrocracking unit at the Aconcagua refinery. Production We produce a wide range of products derived from crude oil and natural gas, including LPG, gasoline, jet fuel, diesel fuel, fuel oil, asphalts, and other refined oil and natural gas products. We produced an average of thousand barrels of refined products per day in From March 31, 2009, to March 31, 2010, production of refined products decreased by 59.3 thousand barrels per day, or 26.8%, from thousand barrels per day to thousand barrels per day. 79

85 The following table sets forth, by category, our production of refined products for the periods indicated: Refining Production Three Months Ended Year Ended December 31, March 31, (in thousands of barrels per day) Refinery runs Crude oil Liquids (1) (2) Total refinery runs Refined products Diesel Gasoline Unleaded Aviation fuels Others Total Fuel oil LPG (1) Kerosenes Jet fuel Other kerosenes Total Other refined products (2) Total refined products (1) Includes processing of imported raw product from Austral basin in Argentina. (2) Includes intermediate products transferred among refineries. Diesel, gasoline and fuel oil represented the bulk of our production. In 2009, diesel fuel accounted for the largest portion of our refined products and petrochemical sales by volume (41.7%), followed by gasoline (25.2%), fuel oil (13.8%), LPG (8.6%), kerosene (6.7%) and other industrial products (4.0%). The remainder of our production consisted of a variety of other refined products. During 2010, we began to reap the benefits of investments in new operations made in previous years, especially the delayed coker in Aconcagua, which improved the quality of our product line by increasing diesel fuel and reducing fuel oil as a proportion of total production. Due to efforts to curb air pollution, all petroleum products sold in the Santiago area are required to meet increasingly stringent environmental regulations. The refined products from Aconcagua and Bío Bío refineries currently meet the Metropolitan Region s environmental regulations. Over the next few years, we also intend to improve the quality of our products to meet international environmental standards. Cleaner burning fuels could generally be sold at higher prices and with higher margins than comparable products in the international market. Because our pricing policy is based on import parity pricing, we are able to charge premium prices for these products in Chile. As a result of our strategy of investing in technology to improve the quality of our fuels, we increased our production of low sulfur low benzene unleaded gasoline from 2004 to The average content of sulfur in our diesel fuel has fallen from 1000 ppm in 2001 to 50 ppm in 2006 in the Santiago area and from 3,000 ppm in 2004 to 50 ppm in 2010 for the other regions of Chile. Sales Our main domestic customers are wholesalers who own distribution networks and distribute our refined products to retail customers. Copec, Chile s largest petroleum fuels retailer, is our largest client, accounting for 42.7% of our total sales of refined petroleum products by volume in the three months ended March 31, Shell-Chile, a subsidiary of the Royal Dutch/Shell Group, is our second largest client, accounting for 16.6% of our total sales of refined petroleum products by volume in the three months ended March 31, Petrobras Chile is our third largest client, accounting for 11.5% of our total sales of refined petroleum products by volume in the three months ended March 31, 2010, and Terpel Chile is our fourth largest client, accounting for 11.1% of our total sales of refined petroleum products by volume in the three months 80

86 ended March 31, On May 14, 2010, Copec informed the Chilean SVS, the Chilean securities regulator, that it had acquired two companies that directly control Terpel Chile. The purchase of Terpel Chile by Copec raised the prospect of the further consolidation of our customer base. See Risk Factors We depend on a small number of customers with short-term contracts for a significant portion of our sales. None of our major clients owns its own refineries in Chile. However, each has access to or owns facilities through which they could directly import refined products into Chile, which they do periodically. The remaining 24% of our total sales of refined petroleum products by volume in 2009 were to a combination of wholesale distributors, domestic clients in the petrochemical and industrial sectors and exports to foreign wholesalers. We price our refined products based on an import parity pricing mechanism, which is calculated by reference to the prices charged by U.S. Gulf Coast refineries for the product and the costs of delivering that product from the U.S. Gulf Coast to the relevant market, including transportation expenses, taxes, hedging expenses, and terminalling. Although we are the only refinery in Chile that prices its refined products based on an import parity pricing mechanism, that has proven to be a competitive advantage for us, allowing us to maintain 70 to 90% market share in the domestic fuels market in Chile for the last five years. While ENAP has historically maintained 85 to 90% market share in the domestic fuels market in Chile, the energy crises Chile suffered in 2007, 2008, and 2009 resulted in a reduction in our market share, primarily due to an abrupt decrease in the supply of natural gas from Argentina and subsequent 52% increase in the demand for diesel in Chile. The increase in demand for diesel fuel required us to import diesel fuels. We have since been able to partially offset the effects of that change by way of our operations at GNL Quintero, which have reduced the demand for diesel, normalized the supply of natural gas and increased ENAP s market share back to historical levels. See Management s Discussion and Analysis of Financial Condition and Results of Operations Access to Natural Gas. We do not produce sufficient diesel fuel to meet the full demand of the Chilean market, and in the normal course of our business we need to import approximately 25% of the diesel fuel we sell (primarily from the United States and Asia) in order to satisfy the demand of our domestic and foreign customers. During 2009, the elevated demand for fuel by thermoelectric power generators in Chile, although less than in 2008, required us to import approximately 37% of the diesel fuel we sold. Most countries in South America do not produce sufficient diesel fuel to fulfill the demands of their domestic markets, which makes the region a net importer of diesel fuel. We sell regular and premium grades of unleaded gasoline throughout Chile. In 2009, our market share in the domestic market for gasoline was 94%. The volume of our domestic gasoline sales increased by 4.2% in 2009 as compared to 2008, from 54.2 thousand barrels per day in 2008 to 56.5 thousand barrels per day in However, total sales of gasoline fell by 1.9%, from 68.6 thousand to 67.4 thousand barrels per day, because exports decreased due to our shift in focus from sales to low-margin markets to sales to prime export markets. During the same period, the volume of diesel fuel sales decreased by 10.9%, from thousand barrels per day in 2008 to thousand barrels per day in 2009, due to a reduction in demand of diesel fuel from thermoelectric power companies. In 2009, exports represented 8.9% of our total consolidated sales by volume. They consisted primarily of gasoline sales to Central America, Ecuador and Peru and diesel sales to Peru and Ecuador. Sales Contracts In December 2009, we instituted new sales contracts with our wholesale distributor customers, including Copec, Shell- Chile, Petrobras and Terpel Chile, our primary customers. These contracts establish a more rigid sales program that allows us to streamline our operational resources and better predict our sales by volume for any given month. For customers that are able to place their orders at least 45 days in advance of delivery, we price our refined products using an import parity pricing mechanism that passes on to our final customers costs related to hedging various risks, including the exchange rate risk incurred as a result of the 15 days of interest-free credit that we provide to these customers as well as the risk of price fluctuations. Customers are now incentivized to enter into twelve-month contracts based on their expected annual purchases by volume. These contracts are priced as previously described but allow customers to qualify for a rebate if their purchased volume falls within 10% of an order where the customer purchased less volume than previously expected and within 20% of an order where the customer purchased more volume than previously expected. The rebates are paid for with savings we generate by having longer-term volume projections, which allows us to significantly increase the efficiency of our inventory management and refining processes. Purchase orders that are not placed at least 45 days in advance of the contracted delivery date are priced on a spot basis and are subject to supply availability. These orders are priced using the same mechanism as other contracts, but we also 81

87 pass on to our customers the increased import costs and additional supply costs that we incur. This allows us to better hedge against price fluctuations and carrying costs and to adequately serve the power companies unpredictable demands for diesel fuel. Transportation and Distribution Currently, we benefit from our extensive network for the transportation, storage and distribution of crude oil, natural gas and refined products in Chile. Our pipelines connect crude oil and natural gas producing centers with the Gregorio Magallanes refinery and marine terminal and also with our natural gas processing centers in Magallanes. We also receive and deliver crude oil and refined products via maritime port terminals at Quintero (for the Aconcagua Refinery) and San Vicente (for the Bío Bío refinery). We believe that our extensive transportation and distribution network provides us with a significant competitive advantage over current and potential competing importers of refined products in Chile. Transportation and Distribution of Natural Gas Our most significant gas pipeline is Gasoducto del Pacífico, which was built to transport natural gas from Argentina to Chile and is owned by a consortium in which we hold a 25.0% interest. The other participants in the consortium are TransCanada Pipelines Limited (30% interest), Gasco (30.0% interest) and Repsol-YPF (10% interest). The 555-kilometer pipeline, which began operations in 1999, has a nine million cubic meter per day capacity and ends in two branches, one near the town of Penco, in Region VIII, and the other in the city of Los Angeles, Region VIII. We also own interests in two gas pipelines in central Chile. The 50-kilometer Innergy pipeline, which opened in 1999, is connected to the Gasoducto de Pacífico pipeline and has the capacity to transport and distribute three million cubic meters of natural gas per day to the south of Chile. This pipeline is owned by a consortium consisting of ENAP (25%), TransCanada Pipelines Limited (30%), Gasco S.A. (30%) and Trigas S.A. (15%). For a discussion of the expenses we have incurred as a result of our guarantees of Innergy s obligations under agreements with Gasoducto del Pacífico and certain natural gas suppliers, see Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Off-Balance Sheet Arrangements. The second pipeline, the 145-kilometer long Electrogás pipeline, was designed to transport and distribute 4.1 million cubic meters per day from Santiago to Concón. The Electrogás pipeline is owned by a consortium comprised of Empresa Nacional de Electricidad S.A. (Endesa) (42.5%), Colbún S.A. (42.5%) and ENAP (15.0%) and now connects the LNG regasification Terminal in Quintero with the power plants located in Quillota and the Metropolitan Region. In Magallanes, we fully own two gas pipelines that connect our customers in Cabo Negro to sources. The approximately 178-kilometer Posesión-Cabo Negro pipeline (comprised of two side by side pipelines) has a capacity of approximately 14 million cubic meters per day. The Posesión-Cabo Negro pipeline transports all the gas that is sold to Methanex at the Cabo Negro Industrial Park near Punta Arenas (approximately 3.0 million cubic meters per day) and the remaining gas that supplies the city of Punta Arenas (approximately 1.5 million cubic meters per day). The approximately 133-kilometer long San Sebastián-Posesión pipeline has two tranches: San Sebastián Cullen, with a capacity of 2.8 million cubic meters per day, and Cullen Posesión, with a capacity of 4.0 million cubic meters per day. The San Sebastián pipeline generally transports gas from Argentine sources, which is added to the gas produced at the Cullen facilities in Tierra del Fuego, and is primarily used to fuel Methanex s methanol plant in Tierra del Fuego. However, the San Sebastián Cullen tranche is currently unused and we are not receiving gas from Argentine sources at the moment. Transportation and Distribution of Crude Oil During 2009, we transported approximately 10.8 million cubic meters of crude oil to be processed at our refineries, which was slightly lower than the volume we transported to our refineries in As of December 31, 2009, our crude oil transportation and distribution infrastructure consisted of: crude oil storage facilities with an aggregate storage capacity of approximately one million cubic meters, marine terminals adjacent to the Aconcagua and Bío Bío refineries with the capacity to receive 100% of the refineries crude oil requirements, the 260-mile Transandino Pipeline (of which we own 36%) that, although currently idle due to a lack of crude oil imports from Argentina, connects the Bío Bío refinery with the Neuquén Basin in Argentina and has the capacity to transport 50% of Chile s crude oil requirements (the pipeline s other owners include Unocal Argentina Ltd. (28%), Repsol-YPF (18%) and EnCana Corporation (36%)), and 82

88 pipelines in Magallanes connecting crude oil producing wells with the Gregorio Magallanes refinery and marine terminals at Aconcagua and Bío Bío. Transportation and Distribution of Refined Products We own several storage facilities for refined products with a total capacity of approximately 1.5 million cubic meters. Our principal storage facilities are located at Aconcagua (500,000 cubic meters), Bío Bío (306,000 cubic meters) and in Santiago (200,000 cubic meters). We own several smaller storage facilities throughout Chile. We hold a 42.0% interest in Norgas S.A., a Chilean company that owns gas storage facilities in the north of Chile. In addition, we have a 10.1% interest in Sonacol S.A. pipeline facilities, a national joint venture that owns several refined petroleum product pipelines in Chile. One of Sonacol s pipelines transports refined petroleum products from San Fernando to Santiago (133 kilometers), which connects with our pipeline that runs from Bío Bío refinery to San Fernando, and two parallel Sonacol s pipelines transport refined petroleum products from Concón to Santiago (132 kilometers) connecting the Aconcagua refinery with this market. Other Sonacol pipeline transports refined petroleum products from Quintero to Concón (23 kilometers). We also hold a 13.0% interest in Sonamar S.A., which provides maritime fuels transport services. None of these storage facilities was affected by the February 27, 2010 earthquake. Distribution and Retail We have begun increasing the placement of our products in other regional markets, including at the retail level. We have operated in Perú since Our wholly owned subsidiary Manu Perú Holding S.A. imports products into Peru (principally from our refineries in Chile) and sells in the local market, primarily to Primax, a fuel distribution company in which we hold a 49% interest. Primax engages in retail distribution through a chain of service stations and in the wholesale market through supply relationships with industrial customers in mining, fishing, foodstuffs and transportation. In 2009, Primax had a total sales volume of 1.7 million cubic meters of refined products, representing 23.8% of the retail market share in Peru. In 2006, we entered the Ecuadorian distribution market when Primax Holdings, in which we hold a 49% interest, acquired the service station chain of Shell in Ecuador and formed Primax Ecuador S.A (Primax Ecuador). In 2008, Primax Ecuador sold 417,000 cubic meters of refined products, an estimated 8% of the Ecuadorian retail market share. In 2008, Primax Ecuador acquired the fuels and lubricants retail business of Repsol-YPF in Ecuador, adding 123 additional service stations to the 62 it previously owned. Other Business Areas Natural Gas Imports We own a 20% equity interest in GNL Quintero, a company that has built, developed and owns South America s first LNG re-gasification terminal in Quintero Bay, Chile. The plant, located on the coast of Chile, north of Santiago (near our Aconcagua refinery), is capable of receiving liquid natural gas from tankers and transforming it back into natural gas for delivery into the pipeline to Chile s central zone. In September 2009, the re-gasification facility and the first of three storage tanks, with a storage capacity of 10,000 cubic meters of LNG, were completed and GNL Quintero became operational. During this first stage of operations, GNL Quintero received shipments of LNG every fifteen (15) days, using ships in the terminal in part to store additional gas, and produced an average of approximately 5 million cubic meters of LNG per day. In April 2010, a second storage tank, with a storage capacity of 160,000 cubic meters, became operational. In the immediate wake of the February earthquake, we were temporarily able to increase output at GNL Quintero up to 6.5 million cubic meters of natural gas per day. This increase in the supply of natural gas allowed power generators in Chile to conserve and reduce their reliance on diesel fuel, which was at risk of running scarce as a result of the shutdown of our Bío Bío and Aconcagua refineries. We expect that the final liquid gas storage facility at the terminal, also with a storage capacity of 160,000 cubic meters, will be completed and the terminal will commence operating at full capacity in August Once fully operational, we expect that GNL Quintero will gasify an average of 10 million cubic meters of natural gas per day. The other investors in GNL Quintero are BG (40%), Metrogas (20%) and Endesa (20%). Metrogas, Endesa and ENAP also own an equal share in GNL Chile S.A. (GNL Chile), which has the sole right to use the unloading, storage and regasification services provided by GNL Quintero and has entered into an LNG sale and purchase agreement with BG. We have entered into a 20-year take-or-pay gas purchase agreement (expiring 2030) with GNL Chile for up to one-third of the total contract quantities established in the Flexible LNG Sale and Purchase Agreement and one-third of the total regasification capacity from the Quintero facility. We cannot quantify the amount of these obligations, as they are dependent upon international natural gas prices and the annual delivery programs agreed to by the parties. 83

89 Geothermal We have begun exploration of geothermal energy sources in Chile, seeking to develop alternative forms of energy that contribute to the sustainability and diversification of the Chilean energy matrix. In 2004, we collaborated with the Italian energy company Enel SpA (Enel) in the creation of a geothermal energy company, Empresa Nacional de Geotermia. We hold a 49% interest and Enel holds a 51% interest in this company. In 2008, we obtained a 40% equity interest in a second geothermal company, Energía Andina S.A., which we founded with the Chilean mining company Antofagasta Minerals S.A. We also hold a 48.11% stake in Sociedad Geotérmica del Norte S.A. The other investors in this company are Enel (51%) and Corporación Nacional del Cobre (Codelco) (0.89%). Through these three companies we have invested a total of U.S.$37.5 million in the exploration of geothermal energy resources. In 2009, we partnered with Enel in Chile s first geothermal exploration, located in the Apacheta concession in the Chilean north grid system. Two wells were successfully drilled at the Apacheta concession and both wells produced preliminary indications of the existence of a geothermal field, the first of which achieved an initial productivity of 10 megawatts of power. Property, Plant and Equipment We own substantially all of the equipment and production facilities relating to our business activities with the exception of certain plants described in Business Refining and Logistics Refineries Special Purpose Entities. We hold, directly or through joint ventures, production licenses covering all of our interests in developed and undeveloped acreage and productive crude oil and natural gas wells. The location, character, utilization and productive capacity of our exploration, drilling, refining, petrochemical feedstock production, transportation and storage facilities are described above. For a description of our environmental regulations, see Regulatory Framework. Pursuant to the Chilean constitution, the Republic of Chile owns all mining properties, including hydrocarbon sources and reserves. Employees and Labor Relations The following table sets forth our number of employees and their category of activity and geographic location as of the dates indicated. As of December 31, As of March 31, Category of activity Non-executive employees... 3,101 3,187 3,182 3,218 3,204 Executives Geographic location Chile... 3,030 3,067 3,067 3,093 3,084 Latin America (excluding Chile) Other Total number of employees... 3,298 3,382 3,380 3,409 3,401 As of December 31, 2009, we employed 3,380 individuals, 94.9% of whom are members of unions. We believe that we have a good relationship with our employees. As of December 31, 2009, most of our employees were employed full-time, and not on a temporary basis. Legal Proceedings We are sometimes involved in certain legal proceedings that are incidental to the normal conduct of our business, including environmental, labor and tax disputes. Some of our subsidiaries have also become involved in similar disputes in foreign jurisdictions. From time to time we are also subject to fines, penalties and remediation costs related to environmental damages incidental to our business. We do not expect any of these suits, fines, penalties or remediation costs to have a material adverse effect on our business, results of our operations, cash flow or financial condition, except in the case of an unfavorable resolution of the civil suits and/or the imposition of damages substantially in excess of our insurance coverage with respect to the San Vicente Bay matters discussed below. 84

90 Environmental Claims Relating to Oil Spill in San Vicente Bay On May 25, 2007, an oil spill occurred in San Vicente Bay due to a rupture in one of our pipelines during the unloading of a ship at Terminal B of our Bío Bío refinery. As a result, we were ordered by the Comisión Nacional del Medio Ambiente (National Commission on the Environment, or CONAMA), the Chilean administrative environmental authority responsible for proposing environmental policies, enforcing environmental regulations and approving environmental impact studies, to take actions intended to lessen the impact of the spill and remediate the resulting damages. We complied with these orders and we believe that the remediation is complete. Nevertheless, we are waiting for a final assessment report to be issued by Universidad de Concepción, which CONAMA has charged with monitoring and verifying the completion of the remedial action. We sought reimbursement from our insurance company, Mapfre, for our total expenditures in relation to the oil spill, which amounted to U.S.$21.1 million. We reached a settlement agreement with Mapfre whereby they reimbursed us U.S.$15.5 million for these claims, which we received in various payments in the aggregate amount of U.S.$5.0 million between January 2009 and April 2009 and in various payments in the aggregate amount of U.S.$10.3 million between January 2010 and May In addition, we are moving forward with plans, in place before the oil spill, to build a new above-water jetty and docking facility at the Bío Bío refinery. We have invested U.S.$93.3 million in the construction of the new facility. Due to delays brought about by the February 27, 2010 earthquake, we now expect construction to be completed by the end of the first quarter of As a result of the oil spill in San Vicente Bay, fishermen and other individuals, as well as the governmental CDE, have filed various suits against us and ERSA in the city of Concepción and in nearby Talcahuano alleging environmental and other damages caused by the oil spill in the aggregate amount of approximately U.S.$484 million. Additional claims amounting to approximately U.S.$299 million have been filed against us to date, although we have not yet received service of process. Based on the advice of our legal counsel, claims for which we did not receive service of process by May 25, 2010, the day the statute of limitations expired, will be barred. New claims against us can no longer be filed without special permission of the court. The claims filed by the fishermen and other individuals allege property damages, loss of earnings and/or moral damages, including emotional pain and suffering. We have filed and won various motions to consolidate the claims against us into a single court proceeding. As of the date of this offering memorandum, the suit by the Council is still pending and we intend to commence settlement negotiations in the near future. We cannot provide any assurances that those settlement negotiations will, in fact, take place or what the outcome may be if they proceed. Under Chilean law we are strictly liable for any damages caused by the spill. Based on the advice of our legal counsel, however, we believe that the damages sought in these claims far exceed the actual or compensable losses suffered by plaintiffs. We believe that insurance coverage held by ENAP and ERSA against third party liability is available to indemnify us against the costs of defense and some of the damages alleged by plaintiffs. Our insurer has disputed coverage for certain types of economic and emotional damages alleged by plaintiffs. In addition, our policy has a cap of U.S.$100 million. Although we intend to vigorously pursue recovery from our insurers for these claims, there can be no assurance that insurance coverage will be available to cover any portion of these claims. Similarly, although we intend to vigorously defend our interests in these matters, an unfavorable resolution of these civil suits and/or the imposition of damages in excess of our insurance coverage could have a material adverse effect on our business, financial condition, cash flow or the results of our operations. Several administrative governmental bodies are also seeking, or may in the future seek, to impose monetary penalties or other sanctions, such as permit modifications, as a result of this oil spill. The aggregate fines imposed on us to date amount to U.S.$723,000, consisting of a fine of U.S.$254,000 by the Dirección General del Territorio Marítimo y de la Marina Mercante (General Office of Maritime Territory and Commercial Shipping, Maritime Authority or Directemar), a fine of U.S.$450,000 by the Superintendencia de Electricidad y Combustibles (Superintendency of Electricity and Fuels or SEC) and a fine of U.S.$19,000 by the Servicio de Salud (Health Authority). We are currently appealing the fines imposed by Directemar and SEC. Our insurance policy does not cover any governmental fines that arise from the spill. Nevertheless, we do not believe that payment of any of these fines by ENAP or ERSA will have a material adverse effect on our business, financial condition, cash flow or results of our operations. In addition, criminal proceedings have been brought under the Ley General de Pesca (General Fishing Law) in the Juzgado de Garantía de Talcahuano (the Criminal Court) against three of our employees for matters related to the oil spill. In April 2008, these proceedings were conditionally suspended, pending completion of the elevated water jetty and docking facility to replace the underwater network formerly used by ERSA, and payment by ERSA of U.S.$514,000 into a fund established for the rehabilitation of birds and marine fauna. ENAP is required to contribute Ch$1.0 million to this fund on an yearly basis until April We intend to meet all requirements imposed by the Criminal Court as conditions of the suspension and, once completion is certified by the Criminal Court, would expect the criminal proceedings against our employees to be fully dismissed. 85

91 Other Environmental Claims We are currently the defendant in a lawsuit seeking an injunction for environmental remediation and payment of damages related to historical oil leaks from our pipelines on private land. The lawsuit against us has been dismissed by the trial court and court of appeals but the plaintiff is seeking a final decision from the Supreme Court. If we are unsuccessful in defending ourselves against these claims, we may be held liable for the cost of remediation and damages of up to U.S.$20.6 million. Once the Supreme Court reaches its decision there can be no further appeals on the matter. Insurance Claims Relating to Chilean Earthquake and Subsequent Tsunami ENAP has filed more than U.S.$154 million in insurance claims as a result of the February 27, 2010 earthquake and subsequent tsunami. Of this amount, U.S.$76 million is the result of physical damage to our refineries, plants and installations and U.S.$78 million corresponds to business interruption losses. Of the U.S.$76 million in physical damages, U.S.$64 million corresponds to the value of the assets damaged and U.S.$12 million corresponds to the value-added taxes related to those assets. As a result, our financial statements for the three-month period ended March 31, 2010, record a loss of U.S.$64 million associated with the physical damage from the earthquake. We may submit additional claims related to business interruption losses at our Bío Bío facility, which is now fully operational, with the exception of Petropower, which we expect to become fully operational by January However, we estimate that additional business operation losses at the Bío Bío facility will be included in the above mentioned amount. Our insurance policies are with a panel of reinsurers led by Chartis. Our insurance policies cover property damage, business interruption losses and third party liability. Our policies carry deductibles that will not be recovered, including U.S.$5 million deductible for physical damages and a 60-day business interruption deductible (which we calculate to be U.S.$44 million). In addition, our insurance coverage for business interruption is subject to an 18-month cap, which we do not expect to exceed. In total, we believe we will be reimbursed roughly U.S.$64 million for the losses associated with physical damages and U.S.$20 million for losses associated with business interruptions. In our financial statements for the three-month period ended March 31, 2010, we recognized U.S.$64 million in losses associated with the physical damage from the earthquake. We believe that our insurance policy covers us for U.S.$84 million in damages, U.S.$64 million related to physical damages and U.S.$20 million to business interruption coverage. In April and May we received three payments in the aggregate amount of U.S.$10 million from our insurance company. We expect certain costs due to the earthquake will not be covered by insurance. For example, we incurred higher financing costs related to our increased short-term borrowing immediately after the earthquake that are not covered by our insurance policy. We expect to receive all recoverable insurance proceeds by the end of See Management s Discussion and Analysis of Financial Condition and Results of Operations Impact of the February 27, 2010 Earthquake and Subsequent Tsunami on Our Operations. Tax, Customs and Currency Control Disputes in Argentina Our subsidiary Enap Sipetrol Argentina is currently involved in a number of disputes regarding the taxation of its operations and the imposition of customs duties in Argentina. The most relevant claims are disputes with the Argentine Tax and Customs Authorities regarding supplementary liquidations on export duties, income tax and oil royalties and involve controversies valued at U.S.$12.0 million, U.S.$1.3 million and U.S.$1.7 million, respectively. Enap Sipetrol Argentina has appealed the Argentine government s position on these matters before several Argentine courts, including the Argentine Supreme Court of Justice. Without prejudice of final judicial resolutions, we do not believe payment of any of these export duties, income taxes and/or royalties by us will have a material impact on our financial condition or results of operations. Enap Sipetrol Argentina was also subject to another claim by the Argentine tax authorities regarding the nonpayment of value-added taxes (VAT) on the import of certain goods used to construct an offshore platform. The Argentine government alleged that Enap Sipetrol Argentina failed to pay VAT from October 1997 to December 2004 and brought tax claims against it (including fines, penalties and accrued interest) that amounted to U.S.$7.5 million in the aggregate. In June 2009, Enap Sipetrol Argentina applied for a moratorium on these VAT that was subsequently granted. The moratorium affords Enap Sipetrol Argentina the ability to pay lower fines, penalties and accrued interest amounts on the approximately U.S.$2.4 million in VAT owed and to spread such payments over a ten year period. Enap Sipetrol Argentina is facing various fines by Argentine authorities relating to alleged violations of currency controls in Argentina. Our external counsel has advised us that Enap Sipetrol Argentina s maximum potential liability for these claims under Argentine law is U.S.$45.3 million. Enap Sipetrol Argentina is facing additional fines for alleged violations of currency controls in connection with the operations of our joint venture with YPF in Argentina. Our external counsel has advised us that the maximum potential liability for these claims under Argentine law is U.S.$37.3 million, of which 86

92 each YPF of and Enap Sipetrol Argentina would be responsible for fifty percent. Former executives of Enap Sipetrol Argentina are facing criminal charges in connection with these alleged currency control violations. Any potential liability of Enap Sipetrol Argentina in connection with these criminal charges is included in the maximum fines referenced above. We are vigorously defending ourselves in each of these actions. The external lawyers representing us in these claims have advised us that any adverse decision would likely result in a lesser fine that the maximum potential liability. Tax Disputes in Ecuador Enap Sipetrol, (Ecuadorian Branch) has also been involved in income tax disputes in relation to its operations in Ecuador. The most significant of these claims arises from a dispute with the Ecuadorian government regarding whether interest paid by Enap Sipetrol (Ecuadorian Branch) to the ENAP head office or related subsidiaries is a tax deductable expense. According to the government of Ecuador, Enap Sipetrol (Ecuadorian Branch) owes back income tax payments on U.S.$10.6 million. We are currently litigating this claim in the Ecuadorian courts and we expect that the issue will not be resolved for several years. Congressional Investigation into 2008 Losses In April 2009, the Chilean Cámara de Diputados (House of Representatives) of the Chilean Congress created a comisión investigadora (special committee) to investigate our management structure and operating challenges and their relationship to our financial performance in 2008, particularly the large operating and net losses we incurred that year. We cooperated fully with the investigation and several members of our senior management and board of directors testified before the committee. The Committee issued a final majority report with its findings on September 9, 2009, which concluded that ENAP s 2008 losses were due to a series of factors outside of ENAP s control, including the scarcity of natural gas, drought conditions in Chile during 2008, record high prices of crude oil and refined products followed by a subsequent sharp decline and a decrease in demand resulting from the global economic crisis. The report further acknowledged that there had been no irregularities in any of the operations or conduct of ENAP. Competition The Chilean refined petroleum products market has been fully open to international trade since prices were deregulated in Chile does not have any special duties on hydrocarbon imports. Consequently, absent a free trade agreement or other treaty, hydrocarbon imports (including those imported by us) are subject to the 6% general duty applicable to all goods imported into Chile. Since 1996, duties on hydrocarbons imported from countries that are members of the Mercado Común del Sur (Common Market of the South or MERCOSUR), have been gradually reduced. These reductions in MERCOSUR tariffs have not had a significant impact on our market share. Tariffs on crude oil and natural gas and on refined products from MERCOSUR countries were entirely eliminated in 2004 and 2007, respectively. These tariff reductions have permitted our competitors based in MERCOSUR countries to export hydrocarbons and refined products into Chile without paying any duties. Additionally, Chile has a free trade agreement with the United States, which extends to hydrocarbons. Given that import-parity pricing is based on U.S. Gulf Coast prices (including the costs of importing refined products from the U.S. Gulf Coast into Chile), the reduction in tariffs on hydrocarbons imported from the United States into Chile resulted in a parallel reduction in the price at which we sell refined oil products in Chile. In 2008, Chilean consumption of oil-derived fuels increased 4.6%. This increase in demand for diesel fuels, which was driven largely by Chilean power generators greater need for diesel fuel as a result of the drought experienced in Chile and restrictions on natural gas imports imposed by Argentina, exceeded our import capacity. As a result, ENAP s diesel fuel market share decreased to 66.1% in 2008 from 70.6% in 2007 and the domestic supply of diesel was largely met by imports provided by Copec, the major private distribution company in Chile. Demand continued to exceed our import capacity in 2009, with our domestic sales of diesel fuel totaling 5.9 million cubic meters and our diesel fuel market share decreasing slightly to 65.3% for the year. Chilean demand for gasoline continued to increase in 2008 and 2009, growing by 3.8% in 2008 over the Chilean GDP growth for the same year and by 7.2% in 2009 over the Chilean GDP growth for the same year. These respective increases were consistent with the growth of Chile s car industry for 2008 and ENAP s gasoline market share remained at approximately 94% during 2008 and 2009 and we were able meet the domestic demand for gasoline primarily through our gasoline refineries. ENAP continues to be the main supplier of fuel in the Chilean market. Most of the fuel that we supply comes from our Aconcagua and Bío Bío refineries and is distributed by four major distributors (Copec, Shell, Terpel Chile, and Petrobras). Copec s market share for the distribution of refined products in Chile increased to over 63.5% in Even though the Chilean fuel industry grew by approximately 3% during 2009, the fact that the market consists of two major players, 87

93 ENAP as the main supplier and Copec as the main distributor, means that there has historically been little industry interest in investing in a new refinery or distribution brand. Together, ENAP and Copec have access to fuel tanks, shipping terminals and transportation logistics that make the Chilean market competitive. We believe that potential competitors face significant economic barriers to entry into the Chilean market, including the substantial costs and investments that would be required to establish a refining and/or transportation network of the size and complexity needed to meet Chile s refined petroleum product and natural gas needs. None of our competitors owns refineries in Chile. Additionally, the continued strengthening of environmental legislation in Chile makes it increasingly difficult for our regional competitors to sell their products in Chile. We expect that this trend will continue. 88

94 REGULATORY FRAMEWORK Regulatory Regime As a state-owned enterprise, we are subject to specific laws applicable to government entities and state-owned enterprises. In addition, we are generally subject to the commercial laws applicable to private enterprises in Chile. Pursuant to a recent ruling by the Office of the General Comptroller of the Republic, our relationship with the Chilean government is now managed through the Ministry of Energy. In June 2010, the Chilean government sent a bill to the Chamber of Deputies, the lower house of the Chilean congress, that would overrule the ruling by the General Comptroller of the Republic and reinstate the Ministry of Mining as the entity through which our relationship is managed. This bill is currently being considered by the Chamber of Deputies. We can provide no assurances as to the passage of this bill by the Chilean Congress. Under the current regulatory scheme, the Minister of Energy serves as Chairman of our board of directors and the composition of our board of directors is determined by the Law 9,618 of See Management. In 2008, the President of the Republic of Chile proposed a legislative bill to the Chilean Congress that would establish an autonomous public entity referred to as the Council on State Owned Enterprises with authority to appoint the majority of board members of state owned enterprises, but specifically excluding us. We cannot provide any assurances that the new administration, which took office on March 11, 2010 and is led by President Sebastian Piñera, will continue to pursue this legislative bill. Our budget and financial statements are subject to both internal and external controls. Our board of directors is responsible for monitoring our operations, and we retain both an internal controller and independent auditors to audit and review our finances, accounting and administration. Chilean law requires that we obtain the approval of the Ministry of Finance and the Ministry of the Economy before we assume any indebtedness, either directly or indirectly, through guarantees or in any other manner. We must submit our financial statements to the CORFO and the House of Representatives. In addition, we are under the financial and accounting control of the Office of the General Comptroller of the Republic. Chilean laws governing state-owned entities require us to obtain the approval of the Ministry of Finance, the Ministry of Planning and the Ministry of Economy for our investment programs. On October 4, 2002, we were registered on the Securities Register of the SVS, Chile s securities regulator, as emisor de valores (issuers of publicly traded securities) in Chile. As a result, we are subject to the regulations of the SVS and are required to disclose any material events as soon as they occur. In addition, we are required to keep our accounting records according to the same standards applicable to publicly traded stock corporations in Chile. Since our principal subsidiaries are not issuers of publicly traded securities, they are registered on the Special Register of the SVS, which was created by Circular No. 600 on April 28, Entities registered on this Special Register are subject to special disclosure rules of the SVS. In accordance with the law that governs access to information on public entities, Law No. 20,285, which became effective in April 2009, we are required to provide the public with access, through our website, to information regarding matters such as the regulations that govern our operations, our organizational structure and internal organization, financial statements and payments to our board members. Fuel Prices Stabilization Consumers in Chile are partially protected from fluctuations in the domestic prices of fuels (including motor vehicle gasoline, diesel oil, LPG, kerosene and LNG). From 2005 until June 2010, fuel price stabilization was provided through the FEPC. The FEPC applied to all domestic sales of fuels, including both the sales of fuels produced and imported by ENAP and the sales of refined products imported by distribution companies. The FEPC established a price band that imposes a price ceiling and floor on the prices that consumers pay for each fuel. The Comisión Nacional de Energía (National Commission on Energy or CNE) calculated the price band based on the long-term moving average of the import parity price of each fuel from a relevant international market, usually the U.S. Gulf Coast. The CNE also calculated a weekly import parity price for each fuel. If the import parity price for a certain week was higher than the ceiling established in the price band for that fuel, the FEPC provided ENAP and other importing distribution companies with a credit, equal to the difference, which we were required to pass on to our customers. We recovered this credit from the FEPC at a later date. If the import parity price for a certain week was lower than the floor established by the price band for that fuel, then ENAP and other importing distribution companies were required to tax our consumers for the difference. We then paid this collected tax to the FEPC at a later date. Credits and taxes were U.S. dollar denominated. 89

95 Until June 2008, we accounted for our accumulated FEPC credits and taxes in our financial statements under Other Current Assets and applied any FEPC credits toward the payment of taxes and dividends owed by us to the Chilean government. In 2008, however, the Chilean Congress provided a special authorization allowing us to recover the balance of the FEPC credits accumulated in the first half of 2008 in one-lump sum cash payment. The balance of the FEPC credits accumulated in the first half of 2008 was unusually high given the increased price of crude oil during that period. As a result of the authorization, in November 2008, we received a payment of U.S.$472 million from the Chilean government. In June 2008, the Chilean Congress amended the law governing the FEPC to provide for the recovery of any FEPC credits due to us and the payment of any FEPC taxes owed by us on a monthly basis in cash. The FEPC expired on June 30, 2010 and was replaced by the FEPP, which had been suspended for the duration of the FEPC. FEPP utilizes a tax and credit system similar to that of the FEPC, but, due to lack of funds in the FEPP, increases the range within which the price can fluctuate before the tax reductions are triggered. The expiration of the FEPC did not have an adverse effect on our business, financial condition, cash flow and/or the results of our operations. In July 2010 the Ministry of Finance proposed that the FEPP be replaced by a new mechanism, the SIPCO. The adoption of SIPCO requires Congressional approval and a bill, which was sent to Congress to seek such approval on July 13, 2010, is currently under discussion. As proposed by the Ministry of Finance, SIPCO would utilize a system of taxes and credits similar to those utilized by the FEPC. Under SIPCO, the consumer price for fuel would be permitted to fluctuate within a band of 12.5% above and below the long-term moving average of the import parity price of each fuel. The Ministry of Finance expects the SIPCO to have no fiscal cost for the Chilean government. As the exact details of SIPCO and its potential effects on our business are still unknown, we cannot assure you that SIPCO will not have an adverse effect on our business, financial condition, cash flow and the results of our operations if SIPCO is adopted by Congress. Hydrocarbons Regulation Under the Chilean Constitution, the Chilean State is the exclusive owner of all mineral and fossil substances, including hydrocarbons, regardless of who owns the land on which such reserves are located. The exploration and exploitation of hydrocarbons may be carried out by the Chilean State, companies owned by the Chilean State or by private persons through administrative concessions granted by the President of Chile by Supreme Decree or by special operating contracts executed by the Minister of Energy. Hydrocarbon exploration and exploitation are regulated by the Ministry of Energy. Environmental Matters We are subject to numerous national, regional and local environmental laws and regulations as well as international conventions concerning our exploration and production operations, the processing, storage and handling of petroleum and petrochemical feedstock products and other related activities. In particular, these laws and regulations: require that environmental evaluation reports be submitted and approved prior to the commencement of any new exploration, production, refining and chemical projects, restrict the type, quantities and concentration of various substances that can be released into the environment in connection with drilling, production and refining activities, limit or prohibit activities on certain lands lying within protected areas, and impose criminal and civil liabilities for pollution, including obligations to remediate contamination, resulting from crude oil, natural gas, refining and petrochemical operations. Our policy is to maintain high standards of environmental performance and to comply with all applicable environmental laws and regulations. Although we believe that we are currently in material compliance with the requirements of applicable environmental laws and regulations, from time to time we may not be in compliance with all such requirements at all of our locations. Violations of these laws and regulations could result in substantial costs or liabilities, including claims for damages or civil or criminal penalties or sanctions ranging from fines to closure orders in the event of material violations. Pollution resulting from current and past waste disposal, emissions or other operating practices may occur, requiring us to remediate contamination or to retrofit our facilities at substantial cost. We are not aware of any actual or potential violations or liabilities that would have a material adverse effect on our business, financial condition or results of operations, except if there were to occur, with respect to the San Vicente litigation, an unfavorable resolution in the civil suits and/or an imposition of damages substantially in excess of our insurance coverage. See Business Legal Proceedings Environmental Claims Relating to Oil Spill in San Vicente Bay. 90

96 Our capital expenditures on environmental programs in 2007, 2008, 2009 and for the first three months of 2010 totaled approximately U.S.$54.0 million, U.S.$38.0 million, U.S.$60.5 million and U.S.$7.9 million, respectively. During 2009, our most significant investments were related to a new alkylation unit in the Aconcagua refinery and improvements in the production processes of low sulfur diesel fuel. We believe that expenditures on environmental management and improvement programs can be expected to increase in the future. Chile In Chile, where most of our refining operations are conducted, we are subject to numerous national and local environmental laws, regulations, decrees and municipal ordinances concerning, among other things, protection of the environment and human health, the handling and disposal of solid and hazardous wastes and discharges into the air and water. Chilean environmental regulations have become increasingly stringent in recent years, particularly for the approval of new projects, and this trend is likely to continue. We have made, and will continue to make, significant expenditures to comply with such environmental laws, regulations, decrees and ordinances. The Chilean Environmental Law, which became effective in 1994, created the CONAMA and Comisiones Regionales del Medio Ambiente (the Regional Environmental Commissions or COREMAs), which are responsible for, among other things, coordinating existing environmental regulations and the management of the environmental impact assessment system. Under this law, we are required to conduct environmental impact studies of any future projects that may affect the environment. The regulations issued pursuant to this law establish procedures for private citizens to object to the plans or studies submitted by project owners. In addition to the evaluation of environmental impact studies, CONAMA and the COREMAs also oversee the implementation of projects in accordance with their environmental impact statements. Under the Chilean Environmental Law, affected persons, including private citizens, as well as public agencies and local governmental authorities can sue to enforce environmental compliance. Potential remedies include temporary or permanent closure of facilities and fines. In January 2010, the Chilean government created the Ministerio de Medio Ambiente (Ministry for the Environment), the main purpose of which is leading and coordinating the government s environmental policy. The Ministry of the Environment is also tasked with establishing clear standards and rules and the appropriate legal framework to govern environmental infractions, implementing efficient management and control instruments and conducting oversight functions on environmental issues. While the Ministry for the Environment is responsible for defining policy and regulatory mandates, three other institutions are tasked with carrying out those mandates: the Superintendecia del Medio Ambiente (Superintendency for the Environment), which acts as the primary oversight agency; the Servicio de Evaluación Ambiental (Environmental Assessment Service), which is in charge of management issues; and the Consejo de Ministros para la Sustentabilidad (Council of Ministers for Sustainability), which acts as the organization for political deliberation on environmental matters. Although these institutions were created in January 2010 and were expected to become effective in March 2010, the latter process has been delayed as a result of the February 27, 2010 earthquake and subsequent tsunami. Further, the creation of a Tribunal Ambiental (an Environmental Tribunal) to adjudicate claims of environmental infractions is currently pending before Congress. In addition, the Chilean Law of Navigation imposes strict liability for damages caused by spills, such as the one in San Vicente Bay described in Business Legal Proceedings Environmental Claims Relating to the Oil Spill in San Vicente Bay. The Chilean Environmental Law also holds that Chilean companies are responsible for the environmental damage caused by their negligence and may be subject to monetary fines as a result. Chilean law provides for the recovery of compensatory damages by any person who suffered injury caused by such environmental damage. Consequently, we could be subject to fines, or could be required to restore the environment or pay compensation for damages caused by our operations. See Business Legal Proceedings Environmental Claims Relating to the Oil Spill in San Vicente Bay. Enforceability of Obligations Except for applicable bankruptcy and insolvency laws, our commercial obligations are fully enforceable in the same manner as those of any privately owned company in Chile. Even though we are a state-owned enterprise, we are subject to the same laws and regulations applicable to all private Chilean companies with respect to the enforceability of such obligations. In particular, the Chilean Constitution provides that if the Republic of Chile carries out commercial activities, it will be governed by all legislation applicable to private persons, in respect to such activities, unless a specific law approved by an absolute majority of both chambers of the Chilean Congress dictates otherwise. No such law has been passed with respect to us. In addition, Decreto Ley (Law) No. 2,349 of 1978 expressly authorizes state-owned companies to waive their immunity from lawsuits and we have done so with respect to these notes. 91

97 MANAGEMENT Board of Directors The Chilean government and its agencies closely regulate and supervise our operations. Pursuant to a recent ruling by the Office of the General Comptroller of the Republic, our relationship with the Chilean government is now through the Ministry of Energy. In June 2010, the Chilean government sent a bill to the Chamber of Deputies, the lower house of the Chilean congress, that would overrule this ruling by the General Comptroller of the Republic that put the Ministry of Energy in charge of managing our relationship with the Chilean government and reinstate the Ministry of Mining as the entity through which our relationship is managed. This bill is currently being considered by the Chamber of Deputies. We can provide no assurances as to the passage of this bill by the Chilean Congress. Under the current supervisory scheme, the Minister of Energy serves as the Chairman of our board of directors, and the Vice President of the CORFO, serves as the Vice Chairman. We have six other board members that are chosen from the public and private sectors. Of these, CORFO selects three board members, and three private trade organizations, the Sociedad Nacional de Minería (the National Mining Society), the Manufacturing Development Society and the Institute of Mining Engineers, each select a board member. Our board of directors elects our Chief Executive Officer. The business address of each of the board members and the executive officers is Empresa Nacional del Petróleo, Avenida Vitacura 2736, Piso 10, Las Condes, Santiago, Chile. Our current directors are as follows: Directors Position Date Appointed Ricardo Rainieri Bernain Chairman May 27, 2010 Hernán Cheyre Valenzuela Vice Chairman March 29, 2010 Ramón Jara Araya Director October 28, 2004 Rodolfo Krause Lubascher Director June 1, 2008 Jorge Matute Matute Director August 31, 2001 Laurence Golborne Riveros Director July 2, 2010 Iván Pérez Pavez Director March 31, 2008 Francisco Gana Eguiguren Director July 2, 2010 Ricardo Rainieri Bernain is the current Minister of Energy. He holds a degree in Commercial Engineering and mention in Economics from the Pontificia Universidad Católica de Chile. He obtained both a Masters and Doctorate degree in Economics at the University of Minnesota. He has also been a Professor and investigator within the Industrial and Systems Engineering Department at the Universidad Católica de Chile. He has been published in a number of Chilean and international academic journals and has been recognized as a leader in the energy and other regulated sectors. He has served as a member of the Energy Commission of the Chilean Engineer s Institute and participated in many international forums related to the energy sector, including the Asociación Internacional de Economía de la Energía (International Association of Energy Economics or IAEE). Mr. Rainieri previously worked at Grupo Tantauco, where he coordinated both their energy and renewable energy sectors. Additionally, he is currently a member of several professional organizations, including the International Association of Energy Economics (IAEE), Colegio de Ingenieros de Chile, Corporate Governance Network and Comisión de Telecomunicaciones del Colegio de Ingenieros de Chile. Hernán Cheyre Valenzuela is currently the Executive Vice President and Vice President of the board of directors at CORFO. As such, he also serves as Vice Chairman of our board of directors. He holds degrees in Economics and Commercial Engineering from the Pontificia Universidad Católica de Chile. He also holds a Masters in Economics from the University of Chicago, during which he concentrated his studies on Public Financing and Economic Development. Prior to joining CORFO, Mr. Cheyre served as General Manager for Fitch Chile, a risk-assessment company, until 2004 and then founded and was President of Econsult, a consulting company. In his capacity as consultant for the World Bank and for foreign governments, Mr. Cheyre has taught several university-level courses in public finance, social evaluations of projects and microfinance. He has also served as a member of the board of directors for various companies and is a member of the Consejo de Políticas Públicas del Instituto Libertad y Desarrollo, a public policy think-tank. Ramón Jara Araya is the Vice President of the National Mining Society, and represents this entity as one of our directors. He has a law degree from Pontificia Universidad Católica de Chile and serves as a Legal Advisor for Estudio Jurídico Jara and Del Favero Abogados. He is a director of several companies, including Antofagasta Minerals S.A., Antofagasta PLC, Antofagasta Railway PLC, Ferrocarril Andino S.A. (Bolivia), Aguas de Antofagasta S.A., Minera Los Pelambres, Minera El Tesoro, Antofagasta Terminal Internacional S.A., Fundación Minera Los Pelambres and Fundación Andrónico Luksic. 92

98 Rodolfo Krause Lubascher is a member of the Manufacturing Development Society Council (Sociedad de Fomento Fabril, or SOFOFA) and represents this entity as one of our directors. He currently serves as a director of Air Liquide Chile S.A., Cemento Polpaico S.A. and CAP S.A. He holds a degree in Chemical Civil Engineering from Universidad de Concepción and a Master s Degree in Business Administration from Pontificia Universidad Católica de Chile. He has served as President of the Asociación de Industriales Químicos (Chemical Industrial Association), the Canadian Chamber of Commerce and Atlas Methanol in Trinidad and Tobago. In addition, he was a director of Gas Andes and Titan Methanol, a subsidiary of Methanex in Trinidad and Tobago. He is currently also serving as a director of Air Liquide Chile S.A. Jorge Matute Matute is the President of the Federación Nacional de Trabajadores del Petróleo de Chile (the National Federation of Petroleum Workers of Chile) and the former President of our workers union at Bío Bío. He also works as an operations technician at Bío Bío s ethylene plant and has studied Business Administration at the Pontificia Universidad Católica de Chile. Laurence Golborne Riveros is the Minister of Mining. He was appointed as one of our directors by CORFO. He holds a Industrial Civil Engineering degree from the Pontificia Unversidad Católica de Chile and has studied Business Administration at Northwestern University and Stanford University. Until 2009, he was Chief Executive Officer of Cencosud S.A., a retail company that has operations in Chile, Argentina, Brazil, Peru and Colombia. He has served as a director of several organizations and was a member of the Advisory Board of Havas Media Group for Chile, Peru and Bolivia. Iván Pérez Pavez is a member of the Instituto de Ingenieros de Minas de Chile (Institute of Mining Engineers), and represents this entity as one of our directors. He holds a Mining Civil Engineering degree from Universidad de Chile and has completed postgraduate studies in Business Administration at Universidad de Chile. He has held several executive positions at Cemento Melón (currently Lafarge Chile) and Codelco, División Andina. He is currently Mining Manager of Arcadis Geotécnica of the Netherlands. Francisco Gana Eguiguren has been appointed to our board by CORFO. He holds an Industrial Civil Engineering degree from the Pontificia Universidad Católica de Chile. Mr. Gana worked at Soprole S.A., a company focused on producing milk, for 26 years, serving as its Chief Executive Officer from 1993 until He is a director of several companies and not-for-profit organizations. Audit Committee Our audit committee is comprised of three members of our board of directors Krause, Matute and Jara and, as invited members, our Chief Executive Officer, General Counsel and internal auditor. Our audit committee s primary responsibility is to support the board of directors in continuously improving our system of internal controls, which includes reviewing the work of both the external auditors and the internal audit department. The committee is also responsible for analyzing observations made by Chilean regulatory entities about us and for recommending measures to be taken by our management in response, as well as for the preliminary approval of our quarterly financial statements. The external auditors are recommended by the audit committee to our board of directors and appointed by our shareholders at the annual shareholders meeting. Executive Officers Senior Manager Position Date Appointed Rodrigo Azócar Hidalgo Chief Executive Officer January 2009 David Jana Bitrán Chief Financial Officer April 2009 Rodrigo Bloomfield Sandoval Interim President of Exploration July 2010 and Production Carlos Cabeza Faúndez President of Refining, Logistics February 2009 Patricio Véliz Möller General Counsel December, 2009 Pedro Barría Schulz Deputy Corporate Planning and June 2009 Administration Manager Julio Bertrand Planella Commercial Manager December, 2009 Christian Kúsulas Cervelló Corporate Human Resources Manager June 2007 Rodrigo Azócar Hidalgo became ENAP s Chief Executive Officer (CEO) on January 2, 2009 and was re-confirmed as such on July 19, 2010 by a unanimous vote of our board of directors. Before assuming this role, he was President of the Sistema de Empresas Públicas (SEP, or Public Entities System) as well as a Director of Aguas Andinas (a subsidiary of 93

99 Suez) and Prolesur S.A. He began his professional career in 1981 at Banco de Chile as a Credit Analyst and was gradually promoted to Deputy Manager, the head of one of the bank s divisions. Later he joined CORFO, where he served as Administration and Finance Manager and then as Financial Intermediation Manager until Between 1995 and 1997 he worked for Banco del Estado de Chile as General Manager of the Loans Division. Between 1997 and 2006 he was Chief Executive Officer of Metro S.A., the state-owned company that runs the subway in Santiago, where he led a vigorous expansion of the subway system. Mr. Azócar holds degrees in Civil Industrial Engineering from Universidad de Chile and Finance from Universidad Adolfo Ibáñez. He has served as a professor at Universidad de Chile, as Pro- Chancellor for Universidad de Viña del Mar, and as an Advisor to the Ministry of Economy and the Inter-American Development Bank (IDB). David Jana Bitrán became ENAP s Chief Financial Officer (CFO) in March He previously held this role from 2003 to Before he first joined ENAP in 2003, Mr. Jana was employed in the banking industry, first at Chase Manhattan Bank and later at BankBoston. In 1994, he was transferred to Boston, Massachusetts, where he assumed the position of Vice President of Investment Banking for Emerging Markets. In 1998 he led BankBoston Brazil s Corporate Finance and Specialized Industries sections. Before returning to ENAP in 2009, and since September 2006, Mr. Jana was responsible for the entirety of Calyon Bank s operations in Brazil, as both Senior Country Officer and CEO. Mr. Jana holds a Bachelor s Degree in Economics from Pontificia Universidad Católica de Chile. Rodrigo Bloomfield Sandoval became ENAP s interim President of Exploration and Production in July He holds a degree in Civil Engineering, a Masters in Engineering Sciences and a Certificate in Mechanical Engineering from the Pontificia Universidad Católica de Chile. Before he joined ENAP, Mr. Bloomfield worked at Bank Boston. In 1999, Mr. Bloomfield joined Enap Sipetrol, where he first served as a Logistics Manager and eventually held the title of General Manager of Logistics and Operations for Enap Sipetrol Argentina. In 2008, Mr. Bloomfield became Director of Investments for the Exploration and Production division of ENAP. In February 2010, he became the head of ENAP s Business Development for the Exploration and Production division. Carlos Cabeza Faúndez is the current President of Refining and Logistics for ENAP and General Manager of ENAP Refinerías S.A. Mr. Cabeza first joined ENAP in 1979, and has since held several positions including the Head of Maintenance, the Head of the Engineering and Construction Department, and the Operations Manager for Refinería Bío Bío. He became the first General Manager of ERSA when it was formed in January 2004, and previously served as Operations Manager of the Refining and Logistics division. Mr. Cabeza has a degree in Mechanical Civil Engineering from the Universidad de Concepción, where he has also studied management development. Patricio Véliz Möller became ENAP s General Counsel in December He holds a Law Degree from the Pontificia Universidad Católica de Chile, a Master in Corporate Law from the Universidad de los Andes, and a Postgraduate Diploma in Antitrust Law. Before joining ENAP, Mr. Véliz was General Counsel for Cemento Polpaico (a Chilean listed company subsidiary of Swiss cement group Holcim). Before assuming this position, he was in private practice and acted as Secretary of the board of directors and legal advisor for Metro S.A.; and as legal advisor for Channel 11 (a Chilean TV station). Pedro Barría Schulz is Deputy Corporate Planning and Administration Manager for ENAP. In addition, he has served as General Manager of ForEnergy S.A., an affiliated company working towards the development of biodiesel in Chile. Mr. Barría joined ENAP in 1990 as a Studies Engineer. In 1992 he was appointed to become Head of the Processes and Systems Division. In 1996 he became Studies Coordinator for the Strategic Planning Division. In 2000 he was appointed as Director of the Strategic Planning. In 2006 he was appointed as Director of Renewable Energies, both divisions of ENAP s Planning and Administration Management Division. He held both positions until June Mr. Barría received a Masters in Business Administration (MBA) from the Hult Business School in Boston, Massachusetts as well as a Degree in Management Development from the Universidad de Chile. Julio Bertrand Planella joined ENAP s subsidiary, Sipetrol S.A., in 1996 as a Planning Engineer where he then went on to serve various managerial roles and was finally promoted to Strategy, Planning and Business Development Manager. He was appointed Chief Marketing Officer in December 2009, a role in which he successfully directed the first fuel commercial policy implementation in Chile. Bertrand has served on the Board of a number of Sipetrol s new ventures and family businesses. Currently, Mr. Bertrand is an Associate Professor at the Pontificia Universidad Católica in the area of Business Strategy and Economic Valuation. He holds a degree in Civil Industrial Engineering from the Pontificia Universidad Católica de Chile and a bachelor in Mechanical Engineering as well as a Masters in Science from the same University. Christian Kúsulas Cervelló is ENAP s Corporate Human Resources Manager, a position he has held since June He originally joined ENAP in 2004 as Human Resources Manager for the Magallanes Division. From 2000 to 2004 he was 94

100 Human Resources Director for Codelco s Chuquicamata division. From 1996 to 2000 he was Human Resources Manager for TVX Gold Co. Normandym, an auriferous mining company with operations in Greece. He has both an Undergraduate Degree in Economics with a focus on Business Administration and a Master s degree in Human Resources from the University of Athens in Greece. Compensation of Directors and Officers For the year ended December 31, 2009, we paid our directors and principal executive officers for services in all capacities an aggregate compensation of approximately U.S.$2.8 million. 95

101 RELATED PARTY TRANSACTIONS In the ordinary course of our business, we engage in a variety of transactions on arm s-length terms with certain related parties. Given the fact that substantially all our affiliates are incorporated in Chile, all our transactions with such related parties are subject to Articles 89 and 93 of the Chilean Companies Act, which provide that any such transaction must be carried out at an arm s-length basis. For information concerning these transactions see note 24 to our financial statements. For a description of transactions with our affiliates, see Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Off-Balance Sheet Arrangements, and Business Refining and Logistics Refineries Special Purpose Entities and Business Refining and Logistics Transportation and Distribution. In addition to the foregoing, the operations of our subsidiaries, affiliates, and stock corporations (whether registered or not with the SVS) in which we have an ownership interest are governed by Article 44 of the Chilean Companies Act which provides that any transaction in which a director has a personal interest or is acting on behalf of a third party must be approved by the board of directors of the relevant company and must contain terms similar to those prevailing in the market. When it is not possible to determine comparable market terms, the board of directors (with the abstention of the interested director) may appoint two independent advisors to assist it in approving or rejecting the transaction. The resolution of the board of directors must be disclosed at the following shareholders meeting. The violation of Articles 44, 89 and 93 of the Chilean Companies Act does not affect the validity of the transaction. However, directors and executive officers of companies that violate such provisions may face administrative sanctions, criminal prosecution and may be liable for losses resulting from such violation. 96

102 DESCRIPTION OF THE NOTES The notes will be issued under an indenture as of November 1, 2002, between us and The Bank of New York Mellon (as successor to JP Morgan Chase Bank), as trustee, as supplemented by a supplemental indenture entered into between us and the trustee as of July 8, 2009 (the indenture and the supplemental indenture, collectively, the indenture ). General The notes will be issued directly by us. The notes are being issued in an aggregate principal amount of U.S.$500,000,000. Notes may be issued under the indenture from time to time in one or more series. Under the indenture, we are permitted to issue additional notes (which may, in the case of additional notes of the same series as the notes offered by this offering memorandum, have the same terms, including interest rate, maturity and redemption provisions, as the notes). The notes will mature on August 10, The full principal amount of the notes shall be paid at maturity. The notes will bear interest at the rate per annum set forth on the front cover page of this offering memorandum from August 10, 2010, or from the most recent date on which interest was payable and for which interest has been paid or provided. Interest on the notes will be payable semiannually on February 10 and August 10 of each year, commencing on February 10, 2011, to the person in whose name a note is registered at the close of business on the preceding January 26 or July 26, as the case may be. Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months. The notes will be our direct, unconditional and unsecured general obligations and will, other than in the case of certain obligations granted preferential treatment pursuant to Chilean law, at all times rank pari passu in right of payment with all of our other unsecured obligations that are not, by their terms, expressly subordinated in right of payment to the notes. The notes will be effectively subordinated to all of our secured indebtedness with respect to the value of our assets securing that indebtedness and to all of the existing and future liabilities, including trade payables, of our subsidiaries. The indenture does not limit the amount of indebtedness or other obligations that may be incurred by us. Although we are wholly owned by the Republic of Chile, the Republic of Chile is not liable for our obligations under the notes, nor do such obligations form any part of the public debt of the Republic of Chile. The trustee will initially act as paying agent and registrar for the notes. The notes may be presented for registration of transfer and exchange at the offices of the registrar for the notes. There will be no service charge for any registration of transfer or exchange of notes, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in that connection. The notes will be issued only in fully registered book-entry form, without coupons, with a minimum denomination of U.S.$100,000 and integral multiples of U.S.$1,000 in excess thereof. Notes sold to qualified institutional buyers and sold offshore in reliance on Regulation S will be issued in the form of global notes as more fully described below under Book-Entry System; Delivery and Form. Book-Entry System; Delivery and Form The notes are being offered and sold in connection with the initial offering thereof solely to qualified institutional buyers, as that term is defined in Rule 144A under the Securities Act of 1933, as amended, pursuant to Rule 144A, and in offshore transactions to persons other than U.S. persons, as defined in Regulation S under the Securities Act, in reliance on Regulation S. Following the initial offering of the notes, the notes may be resold to qualified institutional buyers pursuant to Rule 144A, non-u.s. persons in reliance on Regulation S and pursuant to Rule 144 under the Securities Act, as described under Transfer Restrictions. The Global Notes Rule 144A Global Note Notes offered and sold to qualified institutional buyers pursuant to Rule 144A will initially be issued in the form of one or more registered notes in global form, without interest coupons. The Rule 144A global note will be deposited on the date of the closing of the sale of the notes with, or on behalf of, the Depository Trust Company, or DTC, and registered in the name of Cede & Co., as nominee of DTC, or will remain in the custody of the trustee pursuant to the FAST Balance Certificate Agreement between DTC and the trustee. Interests in the Rule 144A global note will be available for purchase only by qualified institutional buyers. 97

103 Regulation S Global Note Notes offered and sold in offshore transactions to non-u.s. persons in reliance on Regulation S under the Securities Act will initially be issued in the form of one or more registered notes in global form, without interest coupons. The Regulation S global note will be deposited upon issuance with, or on behalf of, a custodian for DTC in the manner described in the preceding paragraph for credit to the respective accounts of the purchasers, or to such other accounts as they may direct, at Euroclear Bank S.A./N.V., as operator of the Euroclear System, or Clearstream Banking, société anonyme. Investors may hold their interests in the Regulation S global note directly through Euroclear or Clearstream, if they are participants in such systems, or indirectly through organizations which are participants in such systems. After the expiration of the restricted period (defined below under Exchanges Among the Global Notes ), investors may also hold such interests through organizations other than Euroclear or Clearstream that are participants in the DTC system. Euroclear and Clearstream will hold such interests in the Regulation S global note on behalf of their participants through customers securities accounts in their respective names on the books of their respective depositaries. Such depositaries, in turn, will hold such interests in the Regulation S global note in customers securities accounts in the depositaries names on the books of DTC. Except as set forth below, the Rule 144A global note and the Regulation S global note, collectively referred to in this section as the global notes, may be transferred, in whole and not in part, solely to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the global notes may not be exchanged for notes in physical, certificated form (referred to as certificated notes ) except in the limited circumstances described below. The notes will be subject to certain restrictions on transfer and will bear a restrictive legend as set forth under Transfer Restrictions. All interests in the global notes, including those held through Euroclear or Clearstream, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject to the procedures and requirements of such systems. Exchanges Among the Global Notes Prior to the 40th day after the later of the commencement of the offering of the notes and the date of the closing of the sale of the notes (the period through and including the 40th day, the restricted period ), transfers by an owner of a beneficial interest in the Regulation S global note to a transferee who takes delivery of this interest through the Rule 144A global note will be made only in accordance with applicable procedures and upon receipt by the trustee of a written certification from the transferor of the beneficial interest in the form provided in the indenture to the effect that such transfer is being made to a person whom the transferor reasonably believes is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A. Such written certification will no longer be required after the expiration of the restricted period. Transfers by an owner of a beneficial interest in the Rule 144A global note to a transferee who takes delivery of such interest through the Regulation S global note, whether before or after the expiration of the restricted period, will be made only upon receipt by the trustee of a certification from the transferor to the effect that such transfer is being made in accordance with Regulation S or (if available) Rule 144 under the Securities Act and that, if such transfer is being made prior to the expiration of the restricted period, the interest transferred will be held immediately thereafter through Euroclear or Clearstream. Any beneficial interest in one of the global notes that is transferred to a person who takes delivery in the form of an interest in another global note will, upon transfer, cease to be an interest in such global note and become an interest in the other global note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other global note for as long as it remains such an interest. Certain Book-Entry Procedures for the Global Notes The descriptions of the operations and procedures of DTC, Euroclear and Clearstream set forth below are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to change by them from time to time. Neither we nor the initial purchasers take any responsibility for these operations or procedures, and investors are urged to contact the relevant system or its participants directly to discuss these matters. 98

104 DTC has advised us that it is (i) a limited purpose trust company organized under the laws of the State of New York, (ii) a banking organization within the meaning of the New York Banking Law, (iii) a member of the Federal Reserve System, (iv) a clearing corporation within the meaning of the Uniform Commercial Code, as amended, and (v) a clearing agency registered pursuant to Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitates the clearance and settlement of securities transactions between participants through electronic book-entry changes to the accounts of its participants, thereby eliminating the need for physical transfer and delivery of certificates. DTC s participants include securities brokers and dealers (including the initial purchasers), banks and trust companies, clearing corporations and certain other organizations. Indirect access to DTC s system is also available to other entities such as banks, brokers, dealers and trust companies, or indirect participants that clear through or maintain a custodial relationship with a participant, either directly or indirectly. Investors who are not participants may beneficially own securities held by or on behalf of DTC only through participants or indirect participants. We expect that pursuant to procedures established by DTC (i) upon deposit of each global note, DTC will credit the accounts of participants designated by the initial purchasers with an interest in the global note and (ii) ownership of the notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the interests of participants) and the records of participants and the indirect participants (with respect to the interests of persons other than participants). The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Accordingly, the ability to transfer interests in the notes represented by a global note to such persons may be limited. In addition, because DTC can act only on behalf of its participants, who in turn act on behalf of persons who hold interests through participants, the ability of a person having an interest in notes represented by a global note to pledge or transfer such interest to persons or entities that do not participate in DTC s system, or to otherwise take actions in respect of such interest, may be affected by the lack of a physical definitive security in respect of such interest. So long as DTC or its nominee is the registered owner of a global note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the notes represented by the global note for all purposes under the indenture. Except as provided below, owners of beneficial interests in a global note will not be entitled to have notes represented by such global note registered in their names, will not receive or be entitled to receive physical delivery of certificated notes, and will not be considered the owners or holders thereof under the indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the trustee thereunder. Accordingly, each holder owning a beneficial interest in a global note must rely on the procedures of DTC and, if such holder is not a participant or an indirect participant, on the procedures of the participant through which such holder owns its interest, to exercise any rights of a holder of notes under the indenture or such global note. We understand that under existing industry practice, in the event that we request any action of holders of notes, or a holder that is an owner of a beneficial interest in a global note desires to take any action that DTC, as the holder of such global note, is entitled to take, DTC would authorize the participants to take such action and the participants would authorize holders owning through such participants to take such action or would otherwise act upon the instruction of such holders. Neither we nor the trustee will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, notes by DTC, or for maintaining, supervising or reviewing any records of DTC relating to such notes. Payments with respect to the principal of, premium, if any, liquidated damages, if any, and interest on any notes represented by a global note registered in the name of DTC or its nominee on the applicable record date will be payable by the trustee to or at the direction of DTC or its nominee in its capacity as the registered holder of the global note representing such notes under the indenture. Under the terms of the indenture, we and the trustee may treat the persons in whose names the notes, including the global notes, are registered as the owners thereof for the purpose of receiving payment thereon and for any and all other purposes whatsoever. Accordingly, neither we nor the trustee has or will have any responsibility or liability for the payment of such amounts to owners of beneficial interests in a global note (including principal, premium, if any, liquidated damages, if any, and interest). Payments by the participants and the indirect participants to the owners of beneficial interests in a global note will be governed by standing instructions and customary industry practice and will be the responsibility of the participants or the indirect participants and DTC. Transfers between participants in DTC will be effected in accordance with DTC s procedures, and will be settled in sameday funds. Transfers between participants in Euroclear or Clearstream will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the notes, cross-market transfers between the participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC s rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary. However, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may 99

105 be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant global notes in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream. Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a global note from a participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. Cash received in Euroclear or Clearstream as a result of sales of interest in a global security by or through a Euroclear or Clearstream participant to a participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC s settlement date. Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of interests in the global notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither we nor the trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Notes If (i) we notify the trustee in writing that DTC is no longer willing or able to act as a depositary or DTC ceases to be registered as a clearing agency under the Exchange Act and a successor depositary is not appointed within 90 days of such notice or cessation, (ii) we, at our option, notify the trustee in writing that we elect to cause the issuance of notes in definitive form under the indenture or (iii) upon the occurrence of certain other events as provided in the indenture, then, upon surrender by DTC of the global notes, certificated notes will be issued to each person that DTC identifies as the beneficial owner of the notes represented by the global notes. Upon any such issuance, the trustee is required to register such certificated notes in the name of such person or persons (or the nominee of any thereof) and cause the same to be delivered thereto. Neither we nor the trustee shall be liable for any delay by DTC or any participant or indirect participant in identifying the beneficial owners of the related notes and we and the trustee may conclusively rely on, and shall be protected in relying on, instructions from DTC for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the notes to be issued). Notices Notice to holders of the notes will be given by mail to the addresses of such holders as they appear in the security register and will be published on the website of the Luxembourg Stock Exchange at Replacement of Notes In case of mutilated, destroyed, lost or stolen notes, application for replacement thereof may be made to the trustee or us. Any such note shall be replaced by the trustee in compliance with such procedures, and on such terms as to evidence and indemnification, as the trustee or we may require and subject to any applicable law or regulation. All such costs as may be incurred in connection with the replacement of any notes shall be borne by the applicant. Mutilated notes must be surrendered before new ones will be issued. Change of Control Upon the occurrence of a Change of Control Event, you will have the right to require that we purchase all or a portion of your notes at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). Within 30 days following the occurrence of a Change of Control Event we will mail a notice to each holder with a copy to the trustee (the Change of Control Offer ) stating: 100

106 (i) (ii) (iii) (iv) that a Change of Control Event has occurred and that such holder has the right to require us to purchase all or a portion of such holder s notes at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest on the relevant interest payment date); the circumstances and relevant facts regarding such Change of Control Event; the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and the instructions, as determined by us, consistent with the covenant described hereunder, that a noteholder must follow in order to have its notes purchased. We will not be required to make a Change of Control Offer following a Change of Control Event if a third party makes a Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer and purchases all notes validly tendered and not withdrawn under such Change of Control Offer. We will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of notes as a result of a Change of Control Event. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described hereunder, we will comply with the applicable securities laws and regulations and shall not be deemed to have breached our obligations under the covenant described hereunder by virtue of our compliance with such securities laws or regulations. Subject to the limitations discussed below, we could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control Event under the indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings. However, the indenture will not contain any covenants or provisions that would afford holders of the notes protection in the event of any such transaction. Our existing indebtedness contains, and future indebtedness that we may incur may contain, provisions that restrict our ability to take actions that would constitute a Change of Control or that require the repurchase of such indebtedness upon a change of control. Moreover, the exercise by the holders of their right to require us to repurchase the notes could cause a default under such indebtedness, even if the Change of Control Event itself does not, due to the financial effect of such repurchase on us. Finally, our ability to pay cash to the holders of notes following the occurrence of a Change of Control Event may be limited by our then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. The definition of Change of Control includes a disposition of all or substantially all of our assets to any person. Although there is a limited body of case law interpreting the phrase substantially all, there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve a disposition of all or substantially all of our assets. As a result, it may be unclear as to whether a Change of Control Event has occurred and whether a holder may require us to make an offer to repurchase the notes as described above. The provisions under the indenture relative to our obligation to make an offer to repurchase the notes as a result of a Change of Control Event may be waived or modified with the written consent of the holders of a majority in principal amount of the notes. Definitions A Change of Control shall occur if the Republic of Chile, together with its Affiliates, shall fail to (i) be the sole beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a majority of our equity or the equity of any other persons which succeed to all or substantially all of our assets (whether through a merger or consolidation, or a sale, distribution or other transfer of our assets), (ii) be entitled to name a majority of the members of our board of directors or the board of directors of any other persons that succeed to all or substantially all of our assets (whether through a merger or consolidation, or a sale, distribution or other transfer of our assets), and (iii) at any time that our equity is represented by capital stock with voting rights, be the sole beneficial owner, directly or indirectly, of a majority of the voting power of our capital stock or of the capital stock of any other persons which succeed to all or 101

107 substantially all of our assets (whether through a merger or consolidation, or a sale, distribution or other transfer of our assets). Change of Control Event means (i) the occurrence of a Change of Control; and (ii) the reduction in the rating of the notes, or, in the absence of such rating, our general corporate credit rating for dollar-denominated senior unsecured longterm debt, by either Rating Agency within the 60-day period following the occurrence of such Change of Control which period will be extended following the occurrence of such Change of Control, for so long as any Rating Agency has publicly announced during such 60-day period that it is considering a change or withdrawal, such extended period ending on such later day that the Rating Agency announces its decision, if such reduced rating is lower than BBB by Standard & Poor s Rating Group, Inc. or A3 by Moody s Investors Service, Inc. Rating Agency means Standard & Poor s Rating Group, Inc. and Moody s Investors Service, Inc. or if Standard & Poor s Rating Group, Inc. or Moody s Investors Service, Inc. or both shall not make publicly available a rating of the notes or a rating of our corporate credit for dollar-denominated senior unsecured long-term debt generally, an internationally recognized statistical rating agency or agencies, as the case may be, selected by us (as certified by a resolution of our board of directors) which shall be substituted for Standard & Poor s Ratings Group, Inc. or Moody s Investors Service, Inc. or both, as the case may be. Covenants We have agreed to restrictions on our activities for the benefit of holders of the notes. The following restrictions will apply to the notes: Limitation on Liens The indenture provides that we will not, nor will we permit any Subsidiary to, issue, assume or guarantee any indebtedness for money borrowed ( Debt ) if such Debt is secured by a lien upon, or directly or indirectly secure any outstanding Debt by a lien upon, any Principal Property or upon any shares of stock of, or indebtedness of, any Subsidiary, now owned or hereafter acquired, without effectively providing that the notes shall be secured equally and ratably with such Debt. The foregoing restrictions shall not apply to: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) liens on any Principal Property acquired, constructed or improved after the date of the indenture to secure or provide for the payment of the purchase price or cost of construction or improvements (including costs such as increased costs due to escalation, interest during construction and finance costs) thereof incurred after the date of the indenture, provided such liens shall not apply to any property theretofore owned by us or any Subsidiary other than the applicable theretofore unimproved real property, liens on any Principal Property acquired from a corporation merged with or into us or into a Subsidiary, liens to secure Debt of a Subsidiary to us or another Subsidiary, liens over any property existing at the time of the acquisition of such property by us or any of our Subsidiaries and not created in connection with such acquisition, liens in existence on the date of the offering of the notes, liens on deposits to secure, or any lien otherwise securing, the performance of bids, statutory obligations, surety bonds, appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business, liens created on any property to secure Debt incurred in connection with the financing of such property, the repayment of which Debt is to be made from the revenues arising out of, or other proceeds of realization from, such property, with recourse to those revenues and proceeds and other property used in connection with, or forming the subject matter of, such property, but without recourse to any other of our property or of any Subsidiary, and any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any lien referred to in the foregoing clauses (i), (ii), (iv), (v) or (vii), inclusive of any Debt secured thereby, provided that the principal amount of Debt so secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or replacement and that such extension, renewal or 102

108 replacement lien shall be limited to all or part of the property which secured the lien extended, renewed or replaced (plus improvements on or additions to such property). Notwithstanding the foregoing, we and one or more Subsidiaries may issue, assume or guarantee Debt secured by liens which would otherwise be subject to the foregoing restrictions without equally and ratably securing the notes, if the aggregate principal amount of such Debt, together with the aggregate principal amount of all other Debt otherwise subject to the foregoing restrictions (not including Debt permitted to be secured under any of clauses (i) through (viii) above) and the aggregate value of the sale and lease-back transactions described under Limitation on Sale and Lease-Back Transactions below (other than sale and lease-back transactions the proceeds of which have been applied as provided in clause (b) under Limitation on Sale and Lease-Back Transactions below), does not at the time of issuance, assumption or guarantee thereof exceed 10% of Consolidated Total Assets. Limitations on Sale and Lease-Back Transactions The indenture provides that neither we nor any Restricted Subsidiary will enter into any Sale and Lease-Back Transaction with respect to any Principal Property unless either: (i) (ii) we or such Restricted Subsidiary would be entitled, pursuant to the provisions described under Limitation on Liens above, to incur Debt in a principal amount equal to or exceeding the value of such Sale and Leaseback Transaction, secured by a lien on the property or assets to be leased, without equally and ratably securing the notes, or during, or immediately after the expiration of, the six months after the effective date of such transaction (whether made by us or a Restricted Subsidiary), we apply to the voluntary retirement of our indebtedness (including the notes) maturing by its terms more than one year after the original creation thereof ( Funded Debt ) an amount equal to the value of such transaction, less an amount equal to the sum of (i) the principal amount of notes delivered, within six months after the effective date of such arrangement, to the trustee for retirement and cancellation and (ii) the principal amount of other Funded Debt voluntarily retired by us within such six-month period, in each case excluding retirements of notes and other Funded Debt as a result of conversions or pursuant to mandatory sinking fund or mandatory prepayment provisions or by payment at maturity. Consolidation, Merger, Sale or Conveyance We may not consolidate with or merge into any other corporation or convey or transfer our properties and assets substantially as an entirety to any person, unless: (i) (ii) (iii) the successor corporation shall be a corporation organized and existing under the laws of Chile, and shall expressly assume by a supplemental indenture the due and punctual payment of the principal of and interest and additional amounts, if any, on all the outstanding notes and the performance of every covenant in the indenture on our part to be performed or observed, immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing, and we shall have delivered to the trustee an officers certificate and an opinion of counsel, each stating that such consolidation, merger, conveyance or transfer and such supplemental indenture comply with the foregoing provisions relating to such transaction and with the requirements of the following sentence. In case of any consolidation, merger, conveyance or transfer, the successor corporation will succeed to and be substituted for us as obligor on the notes, with the same effect as if it had been named as the company party to the indenture. Periodic Reports We will furnish to the noteholders and to prospective purchasers of notes any information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so long as the notes are not freely transferable under the Securities Act. 103

109 Covenant Definitions Affiliate means, with respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For purposes of this definition, control, when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing. Consolidated Total Assets means our consolidated total assets appearing on our consolidated balance sheet or statement of financial position. Lien means any mortgage, pledge, lien, security interest, charge or other encumbrance (including any conditional sale or other title retention agreement or lease in the nature thereof other than a title retention agreement in connection with the purchase of goods in the ordinary course of business). Principal Property means any oil or natural gas reserves, drilling or production equipment (including offshore platforms), refinery, storage facility, distribution asset (including any pipeline, transportation equipment or maritime terminal), real property (or interest in any extraction, concession or other rights related thereto), and any interest in any person holding any of the foregoing, in each case owned by us or any Subsidiary, except any such property which the board of directors declares is not material, individually or in the aggregate, to our business and that of our Subsidiaries taken as a whole. Restricted Subsidiary means (a) any Subsidiary which owns, directly or indirectly, any Principal Property, and (b) any Subsidiary which owns, directly or indirectly, any stock or debt of a Restricted Subsidiary. Sale and Leaseback Transaction means any transaction or series of related transactions pursuant to which we or any Subsidiary sells or transfers any property to any person with the intention of taking back a lease of such property pursuant to which the rental payments are calculated to amortize the purchase price of such property substantially over the useful life thereof and such property is in fact so leased. Subsidiary means any corporation or other business entity of which we own or control (either directly or through one or more other Subsidiaries) more than 50% of the issued share capital or other ownership interests, in each case having ordinary voting power to elect or appoint directors, managers or trustees of such corporation or other business entity (whether or not capital stock or other ownership interests or any other class or classes shall or might have voting power upon the occurrence of any contingency). Events of Default An Event of Default, with respect to the notes, is defined in the indenture as: (i) (ii) (iii) (iv) a failure of us to pay any principal of the notes, when due and payable, whether at maturity, upon redemption or otherwise, or a failure by us to purchase the notes when required pursuant to the terms of the indenture or the notes, or a failure of us for 30 days to pay interest or any additional amounts when due and payable on any notes, or a failure of us to perform or observe any other term, covenant, warranty or obligation in the notes or the indenture, not otherwise expressly included as an Event of Default in (i) or (ii) above, and the continuance of such default for more than 60 days after written notice of such default has been given to us by the trustee or the holders of at least 33 1 / 3 % in aggregate principal amount of the notes then outstanding, or a default by us or any Subsidiary in the payment of the principal of any bond, debenture, note or other evidence of indebtedness for money borrowed, or under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed, having an aggregate principal amount exceeding U.S.$30 million (or its equivalent in any other currency or currencies) when such indebtedness becomes due and payable (whether at maturity, upon redemption or acceleration or otherwise), if such default shall continue unremedied for more than 30 business days and within such 30 business days the time for payment of such amount has not been expressly extended, or 104

110 (v) certain events of bankruptcy or insolvency with respect to us or a Subsidiary, the total assets of which exceed 10% of our total assets and the total assets of our Subsidiaries on a consolidated basis as of the end of the most recently completed fiscal year. The indenture provides that (i) if an Event of Default (other than an Event of Default described in clause (v) above) shall have occurred and be continuing with respect to the notes, either the trustee or the holders of not less than 33 1 / 3 % of the total principal amount of the notes then outstanding may declare the principal of all such outstanding notes and the interest accrued thereon, if any, to be due and payable immediately and (ii) if an Event of Default described in clause (v) above shall have occurred, the principal of all such outstanding notes and the interest accrued thereon, if any, shall become and be immediately due and payable without any declaration or other act on the part of the trustee or any holder of such notes. The indenture provides that the notes owned by us or any of our Affiliates shall be deemed not to be outstanding for, among other purposes, declaring the acceleration of the maturity of the notes. Upon the satisfaction by us of certain conditions, including, but not limited to, the payment of all fees and expenses of the Trustee, the declaration described in clause (i) of this paragraph may be annulled by the holders of a majority of the total principal amount of the notes then outstanding. Past defaults, other than non-payment of principal, interest and compliance with certain covenants, may be waived by the holders of a majority of the total principal amount of the notes outstanding. The trustee must give to the holders of the notes notice of all uncured defaults known to it with respect to the notes within 30 days after a responsible officer of the trustee becomes aware of such a default (unless such default shall have been cured); provided, however, that, except in the case of default in the payment of principal, interest or additional amounts, the trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interest of the holders of the notes. No holder of notes may institute any action under the indenture unless (a) such holder shall have given the trustee written notice of a continuing Event of Default with respect to the notes, (b) the holders of not less that 33 1 / 3 % of the total principal amount of the notes then outstanding shall have made written request to the trustee to institute proceedings in respect of the Event of Default, (c) such holder or holders shall have offered the trustee such reasonable indemnity as the trustee may require, (d) the trustee shall have failed to institute an action for 60 days thereafter and (e) no inconsistent direction shall have been given to the trustee during such 60-day period by the holders of a majority of the total principal amount of the notes. Such limitations, however, do not apply to any suit instituted by a holder of a note for enforcement of payment of the principal or interest on the notes on or after the respective due dates expressed in such notes. The indenture provides that, subject to the duty of the trustee during default to act with the required standard of care, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request or direction of any holders of the notes, unless such holders shall have offered to the trustee reasonable indemnity. We are required to furnish to the trustee annually a statement as to the performance by us of certain of our obligations under the indenture and as to any default in such performance. Payment of Additional Amounts We are required to make all payments in respect of principal, interest, and premium, if any, on the notes free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, fines, penalties, assessments or other governmental charges of whatever nature (or interest on those taxes, duties, fines, penalties, assessments or other governmental charges), imposed, levied, collected, withheld or assessed by, within or on behalf of the Republic of Chile or any political subdivision or governmental authority thereof ( Taxes ), unless such withholding or deduction is required by law. In such event, we are required to pay to the holder of the notes such additional amounts ( additional amounts ) as may be necessary to ensure that the net amounts received by the holders of the notes, including additional amounts, after such withholding or deduction of Taxes shall equal the amounts which would have been receivable in respect of the notes in the absence of such withholding or deduction. No additional amounts shall be payable in respect of a note: (i) in the case of payments for which presentation of a note is required, presentment for payment more than 30 days after the later of: (a) (b) the date on which such payment first became due, and if the full amount payable has not been received in the place of payment of the trustee on or prior to such due date, the date on which, the full amount having been so received, notice to that effect shall have been given to the holder by the trustee, except to the extent that such holder would have been 105

111 entitled to such additional amounts on presenting such notes for payment on the last day of such period of 30 days, (ii) (iii) (iv) held by or on behalf or a holder who is liable for taxes, duties, fines, penalties, assessments or other governmental charges relating to the notes, because the holder has some present or former, direct or indirect, connection with the Republic of Chile or any political subdivision or governmental authority thereof, other than the holding of the notes or the receipt of payments in respect thereof, or any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure by the holder or the beneficial owner of a note to comply, after reasonable notice, with our request, addressed to the holder (x) to provide information concerning the nationality, residence, identity or connection with the Republic of Chile or any political subdivision or governmental authority thereof or therein, of the holder or such beneficial owner or (y) to make any declaration or other similar claim to satisfy any information or reporting requirement, which in the case of (x) or (y), is required or imposed by a statute, treaty, regulation or administrative practice of the Republic of Chile or any political subdivision or governmental authority thereof or therein, as a precondition to exemption from all or part of such tax, assessment or other governmental charge, provided, however, that the exclusion set forth in this clause (iii) shall not apply in respect of any certification, identification, information, documentation or other reporting requirement if such requirement would be materially more onerous, in form, in procedure or in the substance of information disclosed, to the holder than comparable information or other reporting requirements imposed under U.S. tax law, regulation and administrative practice (such as IRS Forms W-8BEN and W-9), or any combination of (i), (ii) and (iii). If we pay additional amounts in respect of the Chilean withholding tax on payments of interest, any refunds of such withholding tax will be for our account. References to principal, interest, premium or other amounts payable in respect of the notes shall be deemed also to refer to any additional amounts which may be payable. We will pay any present or future stamp, court or documentary taxes or any excise or property taxes, charges or similar levies which arise in any jurisdiction from the execution, delivery, enforcement or registration of the notes or any other document or instrument relating thereto, excluding any such taxes, charges or similar levies imposed by any jurisdiction outside the Republic of Chile. Redemption for Taxation Reasons We may redeem the notes at our option in whole, but not in part, at any time, upon giving not less than 30 nor more than 60 days notice to the holders of the notes, at 100% of their principal amount outstanding, together with interest accrued to the date fixed for redemption, if (i) (ii) we certify to the trustee (in the manner prescribed below) immediately prior to the giving of such notice that we have or will become obligated to pay additional amounts with respect to such notes in excess of the additional amounts that would be payable were payments of interest on such notes subject to a 4.0% withholding tax as a result of any generally applicable change in or amendment to the laws or regulations of the Republic of Chile or any political subdivision or governmental authority thereof or therein having power to tax, or any generally applicable change in the application or official interpretation of such laws or regulations, which change or amendment occurs after the date of issuance of the notes, and such obligation cannot be avoided by us taking reasonable measures available to it; provided, however, that the notice of redemption shall not be given earlier than 60 days before the earliest date on which we would be obligated to pay such additional amounts if a payment in respect of the notes were then due. Before giving notice of redemption, we shall deliver to the trustee an officers certificate stating that we are entitled to effect such redemption in accordance with the terms of the indenture and stating the facts relating thereto. The statement shall be accompanied by a written opinion of counsel to the effect: (i) (ii) that we have or will become obligated to pay the additional amounts, that we cannot avoid payment of the additional amounts by taking reasonable measures available to us, and 106

112 (iii) that all governmental approvals necessary for us to effect the redemption have been obtained and are in full force and effect or specifying any such necessary approvals that as of the date of such opinion have not been obtained. Redemption We cannot redeem the notes prior to maturity, except as described above under Redemption for Taxation Reasons. Modification of the Indenture We and the trustee may, without the consent of the holders of notes, amend, waive or supplement the indenture or the notes for certain specified purposes, including among other things: (i) (ii) (iii) to evidence our succession by another corporation, and the assumption by such party of our obligations; to add to our covenants or surrender any of our rights or powers for the benefit of all or any series of notes; to cure any ambiguity, defect or inconsistency in the indenture; (iv) to add any provisions as may be expressly permitted by the Trust Indenture Act of 1939; (v) (vi) (vii) (viii) (ix) to provide for the issuance of any new series of securities, and/or add to the rights of any holders of any series of notes; to provide for the appointment of a successor trustee; to add any additional Events of Default for the benefit of any or all series; to provide for the issuance of securities in bearer form; and making any other change to the indenture as shall not adversely affect the interests of any holder of the notes. In addition, with certain exceptions, the indenture and the notes may be modified by us and the trustee with the consent of the holders of a majority in aggregate principal amount of the notes affected thereby then outstanding, but no such modification may be made without the consent of the holder of each outstanding note affected by the modification which would: (i) (ii) (iii) change the maturity of any principal of, or any premium on, or any installment of interest on, any note, or reduce the principal amount thereof or the rate of interest or any premium (or additional amounts, if any) payable thereon, or change the method of computing the amount of principal thereof or interest or premium (or additional amounts, if any) payable thereon on any date, or change any place of payment where, or the coin or currency in which, the principal or interest (including additional amounts) on any note are payable, or impair the right of holders to institute suit for the enforcement of any such payment on or after the date when due, reduce the percentage in aggregate principal amount of outstanding notes, where the consent of holders is required for any such modification or for any waiver of compliance with certain provisions of the indenture or certain defaults thereunder and their consequences provided for in the indenture, or modify provisions relating to waiver of certain defaults, waiver of certain covenants and the provisions summarized in this paragraph, except to increase any such percentage or to provide that certain other provisions of the indenture cannot be modified or waived without the consent of the holder of each outstanding note affected by the modification. The indenture provides that the notes owned by us or any of our affiliates shall be deemed not to be outstanding for, among other purposes, consent to any such modification. Defeasance and Covenant Defeasance We may, at our option, at any time upon the satisfaction of certain conditions described below, elect to be discharged from our obligations with respect to the notes (a Defeasance ). In general, upon a Defeasance, we shall be deemed to have 107

113 paid and discharged the entire indebtedness represented by the notes and to have satisfied all of our obligations under the notes, except for: (i) (ii) (iii) (iv) the rights of holders of notes to receive, solely from the trust fund established for such purposes as described below, payments in respect of the principal of, and interest, and additional amounts, if any, on the notes when such payments are due, certain provisions relating to ownership, registration and transfer of the notes, the covenant relating to the maintenance of an office or agency in New York City, and certain provisions relating to the rights, powers, trusts, duties and immunities of the trustee. In addition, we may, at our option, at any time, upon the satisfaction of certain conditions described below, elect to be released with respect to the notes from the covenants of the indenture described above under captions Limitation on Liens, Limitations on Sale and Lease-Back Transactions and Consolidation, Merger, Sale or Conveyance ( Covenant Defeasance ). Following such Covenant Defeasance, the occurrence of a breach or violation of any such covenant with respect to the notes will not constitute an Event of Default under the indenture, and certain other events (not including, among other things, nonpayment of other obligations or certain bankruptcy and insolvency events) described under Events of Default also will not constitute Events of Default. In order to cause a Defeasance or Covenant Defeasance with respect to the notes, we will be required to satisfy, among other conditions, the following: (i) (ii) we shall have irrevocably deposited with the trustee in trust cash or U.S. government obligations, or a combination thereof, sufficient, in the opinion of an internationally recognized firm of independent public accountants, to pay and discharge the principal of, premium, if any, and each installment of interest on (including additional amounts) the notes on the stated maturity of such principal or installment of interest in accordance with the terms of the notes, in the case of a Defeasance, we shall have delivered to the trustee an opinion of counsel stating that: (x) we have received from, or there has been published by, the Internal Revenue Service a ruling or (y) since the date of the indenture there has been a change in the applicable United States Federal income tax statutes or regulations, in either case to the effect that, and based thereon such opinion shall confirm that, the holders of the notes will not recognize gain or loss for United States Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to United States Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, (iii) (iv) (v) in the case of a Covenant Defeasance, we shall have delivered to the trustee an opinion of counsel to the effect that the holders of the notes will not recognize gain or loss for United States Federal income tax purposes as a result of such deposit and covenant defeasance and will be subject to United States Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and covenant defeasance had not occurred, no Event of Default, or event which with notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing with respect to the notes, including, with respect to certain events of bankruptcy or insolvency, at any time during the period ending on the 121st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period), and we shall have delivered to the trustee an opinion of counsel to the effect that payments of amounts deposited in trust with the trustee, as described above, will not be subject to future taxes, duties, fines, penalties, assessments or other governmental charges imposed, levied, collected, withheld or assessed by, within or on behalf of the Republic of Chile or any political subdivision or governmental authority thereof or therein having power to tax, except to the extent that additional amounts in respect thereof shall have been deposited in trust with the trustee as described above. 108

114 The Trustee The Bank of New York Mellon is the trustee under the indenture and has been appointed by us as registrar, listing and paying agent with respect to the notes. The address of the trustee is 101 Barclay Street, Floor 4E, New York, New York The Trustee may resign with respect to the notes at any time or may be removed with respect to the notes at any time by a majority of the holders of the notes. No resignation or removal of the Trustee and no appointment of a successor Trustee will become effective until the acceptance of appointment by the successor Trustee. Governing Law The indenture provides that it and the notes will be governed by, and be construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflict of laws. We have irrevocably consented to the nonexclusive jurisdiction of any court of the State of New York or any United States Federal court sitting in the Borough of Manhattan, The City of New York, New York, United States, and any appellate court from any of these courts, and have waived any immunity from the jurisdiction of these courts over any suit, action or proceeding that may be brought in connection with the indenture and the notes. We will appoint the Consul General of Chile in The City of New York, as initial authorized agent upon which all writs, process and summonses may be served in any suit, action or proceeding brought in connection with the indenture or the notes against us in any such court and have agreed that such appointment shall be irrevocable so long as any of the notes remain outstanding or until the irrevocable appointment by us of a successor in The City of New York as its authorized agent for such purpose and the acceptance of such appointment by such successor. 109

115 TAXATION General The following is a summary of certain Chilean tax and U.S. federal income tax considerations relating to the purchase, ownership and disposition of notes. The summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase notes, nor does the summary describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than the United States and Chile. This summary is based on the tax laws of Chile and the United States as in effect on the date of this offering memorandum, as well as regulations, rulings and decisions of Chile and the United States available on or before such date and now in effect. All of the foregoing is subject to change, which change could apply retroactively and could affect the continued validity of this summary. Prospective purchasers of the notes should consult their own tax advisors as to the Chilean, United States or other tax consequences of the purchase, ownership and disposition of the notes, including, in particular, the application to their particular situations of the tax considerations discussed below, as well as the application of state, local, foreign or other tax. There currently is no tax treaty between the United States and Chile. United States Taxation This summary of U.S. federal income tax considerations deals principally with U.S. Holders that will hold notes as capital assets and whose functional currency is the United States dollar. It does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular investor s decision to purchase notes and generally does not address the tax treatment of U.S. Holders that may be subject to special tax rules, such as banks, tax-exempt entities, insurance companies, dealers in securities, or persons that will hold notes as part of an integrated investment (including a straddle ) consisting of the notes and one or more other positions, nor does it address the tax treatment of U.S. Holders that do not acquire notes as part of the initial distribution. It does not address the tax treatment of a partner in a partnership or entity treated as a partnership for U.S. tax purposes. If a partnership holds notes, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. As used in this section United States Taxation, the term U.S. Holder means a beneficial owner of a note that is a citizen or resident of the United States or, a U.S. domestic corporation, an estate or trust whose worldwide income is subject to U.S. federal income tax, or that otherwise will be subject to U.S. federal income taxation on a net income basis in respect of the notes. This discussion does not cover state, local or foreign law. However, see below for certain Chilean tax consequences. Taxation of Interest and Additional Amounts U.S. Treasury Circular 230 Notice. The tax discussions contained in this offering memorandum were written to support the promotion or marketing of the transactions or matters addressed in this offering memorandum. These discussions were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. tax penalties. Investors should consult their own tax advisers in determining the tax consequences to them of purchasing, owning, and disposing of the Notes, including the application in their particular circumstances of the U.S. tax considerations discussed below, as well as the application of state, local, foreign, or other tax laws and possible changes in tax laws. A U.S. Holder will treat the gross amount of interest (including additional amounts, if any) as ordinary interest income in respect of the notes, at the time the interest is received or accrued, depending on the holder s method of accounting for tax purposes. When additional amounts are paid with respect to Chilean withholding tax, U.S. Holders will be treated as having actually received an amount equal to the amount of such tax and as having paid such amount to the relevant taxing authority. As a result, the amount of interest income included in gross income by a U.S. Holder will be greater than the amount of cash actually received by the U.S. Holder. Amounts treated as having been paid to the relevant taxing authority will be treated as a foreign income tax eligible (i) for credit against such U.S. Holder s U.S. federal income tax liability, subject to generally applicable limitations and conditions, or (ii) at the election of such U.S. Holder, for deduction in computing such U.S. Holder s taxable income. Interest and additional amounts will constitute income from sources without the United States for foreign tax credit purposes. Such income generally will constitute passive category income or, in the case of certain U.S. Holders, general category income. The calculation of foreign tax credits and, in the case of a U.S. Holder that elects to deduct foreign taxes, the availability of such deduction, involves the application of rules that depend on a U.S. Holder s particular circumstances. U.S. Holders 110

116 should consult their own tax advisors regarding the availability of foreign tax credits and the treatment of additional amounts. A Holder of notes that is, with respect to the United States, a foreign corporation or a nonresident alien individual (a Non-U.S. Holder) generally will not be subject to U.S. federal income or withholding tax on interest income or additional amounts earned in respect of notes, unless such income is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States. Taxation of Dispositions Gain or loss realized by a U.S. Holder on the sale, redemption or other disposition of notes generally will be capital gain or loss. Capital gain realized by an individual U.S. Holder with respect to property held for more than one year generally will be taxed at a lower rate than ordinary income or short-term capital gain. Gain realized by a U.S. Holder generally will be treated as received from sources within the United States for U.S. foreign tax credit purposes. If a U.S. Holder sells the note between interest payment dates, the amount the U.S. Holder receives reflects interest that has accrued on the note but has not yet been paid by the sale date. That amount is treated as ordinary interest income and not as sale proceeds. A Non-U.S. Holder will not be subject to U.S. federal income or withholding tax on gain realized on the sale or other disposition of notes unless (i) such gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States or (ii) in the case of gain realized by an individual Non-U.S. Holder, such Non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met. Backup Withholding and Information Reporting If a U.S. Holder holds notes through a broker or other securities intermediary, the intermediary must provide information to the IRS and to the holder concerning interest and retirement proceeds on the notes, unless an exemption applies. A U.S. Holder may, under certain circumstances, be subject to backup withholding with respect to certain payments to such U.S. Holder, unless such holder (i) is a corporation or comes within certain other exempt categories, and demonstrates this fact when so required, or (ii) provides a correct taxpayer identification number, certifies that it is not subject to backup withholding and otherwise complies with applicable requirements of the backup withholding rules. Any amount withheld under these rules will be creditable against the U.S. Holder s U.S. federal income tax liability. While Non-U.S. Holders generally are exempt from backup withholding, a Non-U.S. Holder may, in certain circumstances, be required to comply with certain information and identification procedures in order to prove entitlement to this exemption. Chilean Taxation The following is a general summary of the material consequences under Chilean tax law, as currently in effect, of an investment in the notes made by a foreign holder. It is based on the laws of Chile as in effect on the date of this offering memorandum, as well as regulations, ruling and decisions of Chile available on or before such date and now in effect. All of the foregoing is subject to change. Under Chilean law, provisions contained in statutes such as tax rates applicable to foreign investors, the computation of taxable income for Chilean purposes and the manner in which Chilean taxes are imposed and collected may be amended only by another law. In addition, the Chilean tax authorities enact rulings and regulations of either general or specific application and interpret the provisions of Chilean tax law. Chilean tax law may not be assessed retroactively against taxpayers who act in good faith relying on rulings addressing identical situations, but Chilean tax authorities may change their rulings, regulations or interpretations prospectively or retroactively, provided that the retroactive interpretation may not be assessed retroactively against taxpayers who act in good faith relying on such rulings, regulations or interpretations. For the purposes of this summary, the term foreign holder means either (i) in the case of an individual, a person who is not a resident or domiciliary of Chile (for purposes of Chilean taxation, (a) an individual holder is resident in Chile if he or she has resided in Chile for more than six months in one calendar year, or a total of more than six months in two consecutive fiscal years or (b) an individual is domiciled in Chile if he or she resides in Chile with the purpose of staying (such purpose to be evidenced by circumstances such as the acceptance of employment within Chile or the relocation of the individual s family to Chile)), or (ii) in the case of a legal entity, a legal entity that is not organized under the laws of Chile, unless the notes are assigned to a branch or a permanent establishment of such entity in Chile. Under the Ley de Impuesto a la Renta (the Income Tax Law), payment of interest to a foreign holder in respect of the notes will generally be subject to a 4% Chilean withholding tax. However, the same interest that qualified for the 4% withholding tax rate will be subject to a 35% tax, with the difference between the 4% withholding tax and the 35% tax 111

117 being borne by us, on the part attributable to the portion of indebtedness deemed to be excessive when such interest is paid to related entities pursuant to the terms of the Income Tax Law. Under existing Chilean law and regulations, a foreign holder will not be subject to any Chilean taxes in respect of payments of principal made by us with respect to the notes. The Income Tax Law establishes that a foreign holder is subject to income tax on his Chilean source income. For this purpose, Chilean source income means earnings from activities performed in Chile or from the sale or disposition of, or other transactions in connection with, assets or goods located in Chile. Any capital gains realized on the sale or other disposition by a foreign holder of the notes generally will not be subject to any Chilean taxes provided that such sales or other dispositions occur outside of Chile to a foreign holder (except that any premium payable on redemption of the notes will be treated as interest and subject to the Chilean interest withholding tax, as described above). A foreign holder will not be liable for estate, gift, inheritance or similar taxes with respect to its holdings unless notes held by a foreign holder are either located in Chile at the time of such, foreign holder s death, or if the notes are not located in Chile at the time of a foreign holder s death, if such notes were purchased or acquired with monies obtained from Chilean sources. A foreign holder will not be liable for Chilean stamp, registration or similar taxes. The issuance of the notes is subject to a 0.6% stamp tax to be paid by us upon their issuance. If the stamp tax is not paid when due, Chile s Stamp Tax Law imposes a penalty of three times the amount of the tax plus interest. Until such tax (and any penalty) is paid, Chilean courts would not enforce any action brought with respect to the notes. We have agreed to pay any present or future stamp, court or documentary taxes, charges or levies that arise in Chile from the execution, delivery, enforcement or registration of the notes or any other document or instrument in relation thereto and have agreed to indemnify holders of the notes for any such taxes, charges or similar levies paid by holders. 112

118 PLAN OF DISTRIBUTION Subject to the terms and conditions of the purchase agreement among the Company and the initial purchasers, each of the initial purchasers named below has agreed to purchase from us, and we have agreed to sell to each such initial purchaser, the principal amount of notes listed opposite each such initial purchaser s name below at the initial offering price set forth on the cover page of this offering memorandum less discounts and commissions: Initial Purchasers Principal Amount of Notes Banc of America Securities LLC... $125,000,000 BBVA Securities Inc.... $125,000,000 BNP Paribas Securities Corp... $125,000,000 Scotia Capital (USA) Inc... $125,000,000 Total... $500,000,000 The purchase agreement provides that the obligation of the initial purchasers to purchase the notes offered hereby is subject to certain conditions precedent. The initial purchasers have severally and not jointly agreed to purchase all of the notes if any of them are purchased. After the initial offering, the initial purchasers may change the price and other selling terms pursuant to which they may offer and sell the notes in secondary market transactions. We have agreed to indemnify the initial purchasers against some specified types of liabilities, including liabilities under the Securities Act, and to contribute to payments the initial purchasers may be required to make in respect of any of these liabilities. The notes have not been registered under the Securities Act. The initial purchasers have agreed that they will not offer or sell the notes within the United States or to U.S. persons except pursuant to an exemption from the registration requirements of the Securities Act or in transactions not subject to those registration requirements. During the initial distribution of the notes, the initial purchasers will offer or sell notes to qualified institutional buyers in compliance with Rule 144A under the Securities Act and outside the United States in compliance with Regulation S. The notes being offered and sold pursuant to Regulation S may not be offered, sold or delivered in the United States or to, or for the account or benefit of, any U.S. person, unless the notes are registered under the Securities Act or an exemption from the registration requirements thereof is available. Terms used above have the meanings given to them by Regulation S and Rule 144A under the Securities Act. Until the expiration of 40 days after the commencement of the offering, any offer or sale of notes within the United States by a broker-dealer may violate the registration requirements of the Securities Act, unless such offer or sale is made pursuant to Rule 144A under the Securities Act or another available exemption from the registration requirements thereof. We have agreed that, for a period of 30 days from the date of this offering memorandum, other than with respect to the notes and any other non-capital market debt, we will not, without the prior written consent of Banc of America Securities LLC, offer, sell, contract to sell, grant any other option to purchase or otherwise dispose of, directly or indirectly, or announce the offering of, or file a registration statement for, any U.S. dollar denominated debt similar to the notes issued or guaranteed by us or any of our direct or indirect subsidiaries, or enter into any agreement to do any of the foregoing. In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each a Relevant Member State ), each of the initial purchasers has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date ) it has not made and will not make an offer of notes to the public in that Relevant Member State prior to the publication of a prospectus in relation to the notes which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of notes to the public in that Relevant Member State at any time: 113

119 to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000; and (3) an annual net turnover of more than 50,000,000, as show in its last annual or consolidated accounts; or in any other circumstances that do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive. For any purpose of the above, the expression an offer of notes to the public in relation to any notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe for the notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, and the expression Prospectus Directive means Directive 2003/73/EC and includes any relevant implementing measure in each Relevant Member State. The initial purchasers have represented, warranted and agreed that they have (A) complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 with respect to anything done by them in relation to the notes in, from or otherwise involving the United Kingdom; and (B) only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000) received by them in connection with the issue or sale of the notes in circumstances in which Section 21(1) of the Financial Services Markets Act 2000 does not apply to us. The notes are a new issue of securities for which there currently is no market. Application has been made to admit the notes to listing on the Official List of the Luxembourg Stock Exchange and to trading on the Luxembourg Stock Exchange s Euro MTF Market, but there can be no assurance that such listing will be maintained. The initial purchasers have advised us that they intend to continue to make a market in the notes as permitted by applicable law. They are not obliged, however, to make a market in the notes and any market-making may be discontinued at any time at each initial purchaser s sole discretion. Accordingly we can give no assurance as to the development or liquidity of any market for the notes. If an active public trading market for the notes does not develop, the market price and liquidity of the notes may be adversely affected. In connection with the offering, the initial purchasers may purchase and sell the notes in the open market. These transactions may include short sales, purchases to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by an initial purchaser of a greater principal amount of notes than it is required to purchase in the offering. An initial purchaser may close out any short position by purchasing notes in the open market. A short position is more likely to be created if an initial purchaser is concerned that there may be downward pressure on the price of the notes in the open market prior to the completion of the offering. Stabilizing transactions consist of various bids for or purchases of the notes made by an initial purchaser in the open market prior to the completion of the offering. The initial purchasers may impose a penalty bid. This occurs when one initial purchaser repays to the other initial purchaser a portion of the placement discount received by it because the other initial purchaser has repurchased notes sold by or for the account of that initial purchaser in stabilizing or short-covering transactions. Purchases to cover a short position and stabilizing transactions may have the effect of preventing or slowing a decline in the market price of the notes. Additionally, these purchases, along with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the notes. As a result, the price of the notes may be higher than the price that might otherwise exist in the open market. These transactions may be effected in the over-the-counter market or otherwise. Persons who purchase notes from the initial purchasers may be required to pay stamp duty, taxes and other charges in accordance with the law and practice of the country of purchase in addition to the offering price set forth on the cover page of this offering memorandum. 114

120 From time to time, the initial purchasers and their affiliates have provided, and may in the future provide, certain commercial banking, investment banking or advisory services for us for which they have received or may receive customary fees and commissions. Banco Bilbao Vizcaya Argentaria, S.A., New York Branch, an affiliate of BBVA Securities Inc., acts as lender under our U.S.$220,000,000 syndicated loan dated June 14, BNP Paribas acts as lender and administrative agent under our U.S.$100,000,000 senior facility dated June 17, Affiliates of each of the initial purchasers have also agreed to provide us with a term loan facility in an aggregate amount of up to U.S.$500 million to the extent that this offering is not consummated. 115

121 TRANSFER RESTRICTIONS The notes are subject to restrictions on transfer as summarized below. By purchasing notes, you will be deemed to have made the following acknowledgements, representations to and agreements with the initial purchasers and us: 1. You acknowledge that: the notes have not been registered under the Securities Act or any other securities laws and are being offered for resale in transactions that do not require registration under the Securities Act or any other securities laws; and unless so registered, the notes may not be offered, sold or otherwise transferred except under an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any other applicable securities laws, and in each case in compliance with the conditions for transfer set forth in paragraph (4) below. 2. You represent that you are not an affiliate (as defined in Rule 144 under the Securities Act) of ours, that you are not acting on our behalf and that either: you are a qualified institutional buyer (as defined in Rule 144A under the Securities Act) and are purchasing notes for your own account or for the account of another qualified institutional buyer, and you are aware that the initial purchasers are selling the notes to you in reliance on Rule 144A; or you are not a U.S. person (as defined in Regulation S under the Securities Act) or purchasing for the account or benefit of a U.S. person, other than a distributor, and you are purchasing notes in an offshore transaction in accordance with Regulation S. 3. You acknowledge that neither we nor the initial purchasers nor any person representing us or the initial purchasers has made any representation to you with respect to us or the offering of the notes, other than the information contained in this offering memorandum. You represent that you are relying only on this offering memorandum in making your investment decision with respect to the notes. You agree that you have had access to such financial and other information concerning us and the notes as you have deemed necessary in connection with your decision to purchase notes, including an opportunity to ask questions of and request information from us. 4. You represent that you are purchasing notes for your own account, or for one or more investor accounts for which you are acting as a fiduciary or agent, in each case not with a view to, or for offer or sale in connection with, any distribution of the notes in violation of the Securities Act, subject to any requirement of law that the disposition of your property or the property of that investor account or accounts be at all times within your or their control and subject to your or their ability to resell the notes pursuant to Rule 144A or any other available exemption from registration under the Securities Act. You agree on your own behalf and on behalf of any investor account for which you are purchasing notes, and each subsequent holder of the notes by its acceptance of the notes will agree, that until the end of the Resale Restriction Period (as defined below), the notes may be offered, sold or otherwise transferred only: to us; under a registration statement that has been declared effective under the Securities Act; for so long as the notes are eligible for resale under Rule 144A, to a person the seller reasonably believes is a qualified institutional buyer that is purchasing for its own account or for the account of another qualified institutional buyer and to whom notice is given that the transfer is being made in reliance on Rule 144A; through offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act; or under any other available exemption from the registration requirements of the Securities Act; subject in each of the above cases to any requirement of law that the disposition of the seller s property or the property of an investor account or accounts be at all times within the seller s or account s control. 116

122 You also acknowledge that: the above restrictions on resale will apply from the closing date until the date that is one year (in the case of Rule 144A notes) or 40 days (in the case of Regulation S notes) after the later of the closing date and the last date that we or any of our affiliates was the owner of the notes or any predecessor of the notes (the Resale Restriction Period ), and will not apply after the applicable Resale Restriction Period ends; we and the Trustee reserve the right to require in connection with any offer, sale or other transfer of notes under clauses (d) and (e) above the delivery of an opinion of counsel, certifications and/or other information satisfactory to us and the Trustee; and each note will contain a legend substantially to the following effect: THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED NOTES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE RESALE RESTRICTION TERMINATION DATE ) THAT IS [IN THE CASE OF RULE 144A NOTES: ONE YEAR] [IN THE CASE OF REGULATION S NOTES: 40 DAYS] AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT, TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER S AND THE TRUSTEE S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) or (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/ OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. 5. You acknowledge that we, the initial purchasers and others will rely upon the truth and accuracy of the above acknowledgments, representations and agreements. You agree that if any of the acknowledgments, representations or agreements you are deemed to have made by your purchase of notes is no longer accurate, you will promptly notify us and the initial purchasers. If you are purchasing any notes as a fiduciary or agent for one or more investor accounts, you represent that you have sole investment discretion with respect to each of those accounts and that you have full power to make the above acknowledgments, representations and agreements on behalf of each account. 6. Each purchaser represents and covenants that it is not, and is not acquiring the notes with the assets of, or for or on behalf of, any employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended) or other arrangement that is subject to ERISA or Section 4975 of the Code (a Plan ) or any entity whose underlying assets are of a Plan pursuant to 29 C.F.R. Section or otherwise, except to the extent that the acquisition of the notes: (i) is made with the assets of a bank collective investment fund and (ii) satisfies the applicable requirements and conditions of Prohibited Transaction Class Exemptions issued by the Department of Labor; 117

123 (i) is made with the assets of an insurance company pooled separate account and (ii) satisfies the applicable requirements and conditions of Prohibited Transaction Class Exemption 90-1 issued by the Department of Labor; (i) is made with the assets managed by a qualified professional asset manager and (ii) satisfies the applicable requirements and conditions of Prohibited Transaction Class Exemption issued by the Department of Labor; is made with the assets of a governmental plan (as defined in Section 3(32) of ERISA) which is not subject to the provisions of Section 401 of the Code; (i) is made with the assets of an insurance company general account and (ii) satisfies the applicable requirements and conditions of Prohibited Transaction Class Exemption issued by the Department of Labor; and/or (i) is made with the assets managed by an in-house asset manager and (ii) satisfies the applicable requirements and conditions of Prohibited Transaction Class Exemption issued by the Department of Labor. 7. Each purchaser that is acquiring notes pursuant to Regulation S under the Securities Act represents that it is not acquiring the notes with a view to the resale, distribution or other disposition thereof to a U.S. person or in the United States. Authorization: GENERAL INFORMATION The board of directors of ENAP authorized the issuance of the notes on May 31, In accordance with such board resolution, the terms of the notes were established through an Officer s certificate signed on August 10, ENAP has obtained all other consents and authorization necessary under Chilean law for the issuance of the notes. Clearing Systems The notes have been accepted for clearance through Euroclear and Clearstream Banking. In addition, the notes have been accepted for trading in book-entry form by DTC. For the Rule 144A notes, the ISIN number is US29245JAE29, the CUSIP number is 29245JAE2 and the common code is For the Regulation S notes, the ISIN number is USP37110AF39, the CUSIP number is P37110AF3 and the common code is Listing As long as the notes are listed on the Luxembourg Stock Exchange, you may receive free of charge copies of the following documents at the office of the Luxembourg listing agent, paying agent and registrar on any business day: this prospectus; the fiscal agency agreement attaching the forms of the notes; ENAP s Interim Consolidated Financial Statements; English translation of ENAP s Articles of Incorporation; ENAP s statutory documents; and the most recent annual report of ENAP. In addition, you may inspect the indenture at the office of the Luxembourg listing agent, paying agent and registrar on any business day. 118

124 Financial Statements The interim financial statements are those as of March 31, 2010 and the annual reports are those as of December 31, 2008 and The last audited financial statements are those as of December 31, There has been no material adverse change in ENAP s financial condition since the date of the last audited financial statements except as described herein. Litigation Aside from the San Vicente litigation and the tax, customs and currency control disputes in Argentina described under Legal Proceedings Environmental Claims Relating to Oil Spill in San Vicente Bay and Tax, Customs and Currency Control Disputes in Argentina, respectively, ENAP is not involved in any litigation or arbitration proceeding which is material in the context of the issuance of the notes and is not aware of any material litigation or arbitration proceeding that is pending or threatened. LEGAL MATTERS Some legal matters relating to the validity of the notes will be passed upon for us by Cleary Gottlieb Steen & Hamilton LLP, New York, New York, our U.S. special counsel, and Mr. Patricio Véliz Möller, our General Counsel (assisted by Morales & Besa Limitada, Abogados as to matters of Chilean law) and for the initial purchasers, by Cravath, Swaine & Moore LLP, New York, New York, its U.S. special counsel, and Philippi, Yrarrázaval, Pulido & Brunner Limitada, Abogados, Santiago, Chile, its Chilean special counsel. INDEPENDENT AUDITORS The consolidated financial statements as of and for the years ended December 31, 2007, 2008 and 2009 included in this offering memorandum, have been audited by Deloitte Auditores y Consultores Limitada, auditors, as stated in their report appearing herein. The consolidated financial statements as of and for the years ended December 31, 2008 and 2009 prepared in conformity with IFRS and included in this offering memorandum have been audited by Deloitte Auditores y Consultores Limitada, independent auditors, as stated in their report dated January 29, 2010 appearing herein. The consolidated financial statements as of and for the year ended December 31, 2007 and 2008 prepared in conformity with Chilean GAAP and included in this offering memorandum have been audited by Deloitte Auditores y Consultores Limitada, independent auditors, as stated in their report dated February 6, 2009 appearing herein. 119

125 EMPRESA NACIONAL DEL PETRÓLEO AND SUBSIDIARIES Page Interim Consolidated Financial Statements: Index to the Interim Consolidated Financial Statements Interim Consolidated Statements of Financial Position as of March 31, 2010 and December 31, F - 2 Interim Consolidated Comprehensive Income Statements as of and for the three months ended March 31, 2010 and F - 4 Interim Consolidated Statements of Changes in Equity as of and for the three months ended March 31, 2010 and F - 6 Interim Consolidated Cash Flows Statements as of and for the three months ended March 31, 2010 and F - 7 Notes to the Interim Consolidated Financial Statements...F - 8 Independent Accountants Review Report: Index to the Audited Consolidated Financial Statements Audit Report of Deloitte as of and for the years ended December 31, 2009, 2008 and as of January 1, F Audited Consolidated Financial Statements: Consolidated Statements of Financial Position at December 31, 2009, 2008 and January 1, F Consolidated Comprehensive Income for the years ended December 31, 2009 and F Consolidated Statements of Changes in Equity as of and for the years ended December 31, 2009 and F Consolidated Statements of Cash Flows as of and for the years ended December 31, 2009 and F Notes to the Consolidated Financial Statements...F Independent Accountants Review Report: Audit Report of Deloitte as of and for the years ended December 31, 2008, 2007 and F Audited Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2008 and F Consolidated Statements of Income for the three years in the period ended December 31, F Consolidated Statements of Cash Flows for the three years in the period ended December 31, F Notes to the Consolidated Financial Statements...F - 261

126 ENAP AND SUBSIDIARIES CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION AT MARCH 31, 2010 AND DECEMBER 31, 2009 (In thousands of US dollars - ThUS$) ASSETS Note N ThUS$ ThUS$ (unaudited) Current assets: Cash and cash equivalents ,024 76,812 Othr current financial assets 13 52,665 2,824 Other non-financial assets 14,010 13,625 Trade and other receivables , ,276 Due from related companies 24 a) 59,820 57,009 Inventories 14 1,177,296 1,060,353 Current tax assets 23 d) 171, ,510 Total current assets different to the assets or group of assets classified as held for sale or held for distribution among owners 2,733,849 2,231,409 Non current assets or group of assets classified as held for sale 33 1,966 - Total current assets 2,735,815 2,231,409 Non-current assets: Other financial assets 13 15,608 82,266 Other non-financial assets 5,552 5,552 Rights receivable 15 24,489 25,965 Due from related companies 24 a) 12,818 12,964 Investment recorded using the equity method 9 b) 150, ,270 Property, plant and equipment 6 2,513,442 2,598,236 Investment property 8 2,065 2,066 Deferred tax assets 23 c) 463, ,024 Total non-current assets 3,187,807 3,328,343 TOTAL ASSETS 5,923,622 5,559,752 The accompanying notes are an integral part of these consolidated interim financial statements F-2

127 EQUITY AND LIABILITIES Note N ThUS$ ThUS$ (unaudited) Current liabilities: Other current financial liabilities 13 1,309, ,399 Trade debtors and other accounts payable 29 a) 1,215,150 1,378,646 Due to related companies 24 b) 16,916 27,624 Other short-term accruals 18 46,284 57,603 Current tax liabilities 23 e) 27,819 32,500 Current accruals for employee benefits 19 36,502 42,123 Other non-financial liabilities 1,691 1,338 Total current liabilities different from liabilities included in group of assets classified as held for sale 2,653,801 2,151,233 Liabilities included in group of assets classified as held for sale 1,241 - Total current liabilities 2,655,042 2,151,233 Non-current liabilities: Other financial liabilities 13 2,405,065 2,433,572 Non-current liabilities 3,679 3,744 Other long-term accruals 18 80,990 78,504 Deferred tax liabilities 23 c) 274, ,175 Non-current accruals for employee benefits , ,464 Other non-financial liabilities 2,159 2,220 Total non-current liabilities 2,921,920 2,964,679 Total liabilities 5,576,962 5,115,912 Equity: Paid-in capital 16 b) 1,182,700 1,182,700 Accumulated earnings (losses) 16 d) (772,702) (680,044) Other reserves 16 c) (102,032) (96,434) Equity attributable to owners of the Parent Company 307, ,222 Non - controlling interest 17 38,694 37,618 Total equity 346, ,840 TOTAL EQUITY AND LIABILITIES 5,923,622 5,559,752 F-3

128 ENAP AND SUBSIDIARIES CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME AS OF AND FOR THE YEARS ENDED MARCH 31, 2010 AND 2009 (In thousands of US dollars - ThUS$) Note N ThUS$ ThUS$ (unaudited) (unaudited) Revenues from ordinary activities 20 1,937,440 1,564,117 Cost of sales (1,909,807) (1,472,358) Gross margin 27,633 91,759 Other income, per function 4,307 7,828 Administrative expenses (22,643) (23,479) Other expenses, per function (20,138) (6,748) Other losses 7 y 36 (64,368) (273) Financial income ,725 Financial expense 22 (34,933) (43,743) Equity in earnings of associates recorded using the equity method 9 b), c) 9,025 1,632 Exchange differences 34 9,623 (5,354) Loss (loss) before taxes (91,170) 33,347 Income tax expense 23 b) 4,829 (67,000) Loss from continued operations (86,341) (33,653) Income from discontinued operations 31-45,751 Income (loss) (86,341) 12,098 Attributable Income (Loss) Income (loss) attributable to equity holders of parent (89,620) 7,528 Income (loss) attributable to minority interests 17 3,279 4,570 Income (86,341) 12,098 The accompanying notes are an integral part of these consolidated interim financial statements F-4

129 ENAP AND SUBSIDIARIES CONSOLIDATED INTERIM STATEMENTS OF CORMPREHENSIVE INCOME AS OF AND FOR THE YEARS ENDED MARCH 31, 2010 AND 2009 (In thousands of US dollars - ThUS$) Note N ThUS$ ThUS$ (unaudited) (unaudited) Income (loss) (86,341) 12,098 Components from other comprehensive income, before taxes Exchange rate differences for translation - - Adjustments of reclassification in exchange rate differences for translation, before taxes 16 c.ii) (1,136) (371) Other comprehensive income, before taxes exchanger differences for conversion (1,136) (371) Financial Assets Available For Sale Income (loss) from new measurements of financial assets held for sale, before taxes 16 c) (852) - Other comprehensive income, before taxes, financial assets held for sale (852) - Cash Flow Hedges Income (loss) from cash flow hedgers, before taxes 4,065 (4,260) Other comprehensive income, before taxes, cash flow hedges 4,065 (4,260) Other components from other comprehensive income, before taxes 2,077 (4,631) Income taxes related to exchange differences from translation of other comprehensive income Income taxes related to cash flow hedges of other comprehensive income (8,414) 486 Sum of income taxes for components of another comprehensive income (8,414) 486 Other comprehensive income (6,337) (4,145) Total comprehensive income (92,678) 7,953 Comprehensive income attributable to Result of Income Attributable to owners of Parent Company (97,801) 5,757 Result of Income Attributable to non - controlling interes 5,123 2,196 Total comprehensive income (92,678) 7,953 The accompanying notes are an integral part of these consolidated interim financial statement F-5

130 ENAP AND SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY AS OF AND FOR THE YEARS ENDED MARCH 31, 2010 AND 2009 (In thousands of US dollars - ThUS$) (unaudited) Changes in other reservers Reserves of income or Reserves for losses in the Subtotal Retained Net equity exchange Reserves for remediation of Other earnings and attributable to Non - Issued Revaluation differences for cash flow financial assets Other sundry accumulated the owners of the controlling Total capital Surplus translation hedges held for sale reserves reserves losses Parente Company interest Equity ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Notas 16 b) 16 c) 16 c) 16 c) 16 c) 16 c) 16 d) 17 Opening balance at 01/01/2010 1,182, ,770 (70,683) (45,514) - 19,763 99,336 (875,814) 406,222 37, ,840 Increase (decrease) for reclassification - (195,770) (195,770) 195, Restated Initial Balance 1,182,700 - (70,683) (45,514) - 19,763 (96,434) (680,044) 406,222 37, ,840 Comprehensive Income Income (loss) (89,620) (89,620) 3,279 (86,341) Other comprehensive income - - (1,136) (6,193) (852) - (8,181) - (8,181) 1,844 (6,337) Comprehensive Income (97,801) 5,123 (92,678) Increase (decrease) due to transfers and other changes ,583 2,583 (3,038) (455) (4,047) (4,502) Total changes in equity - - (1,136) (6,193) (852) 2,583 (5,598) (92,658) (98,256) 1,076 (97,180) Final balance at 03/31/2010 1,182,700 (71,819) (51,707) (852) 22,346 (102,032) (772,702) 307,966 38, ,660 Opening balance at 01/01/2009 1,182, ,016 (75,396) (36,251) - 25, ,436 (1,109,495) 184,641 11, ,634 Increase (decrease) for correction of errors - (198,016) (198,016) 198, Restated Initial Balance 1,182,700 - (75,396) (36,251) - 25,067 (86,580) (911,479) 184,641 11, ,634 Comprehensive Income Income (loss) ,528 7,528 4,570 12,098 Other comprehensive income - (371) (1,400) - - (1,771) - (1,771) (2,374) (4,145) Comprehensive Income ,757 2,196 7,953 Increase (decrease) due to transfers and other changes ,502 4,502 5,446 9,948 11,829 21,777 Total changes in equity - - (371) (1,400) - 4,502 2,731 12,974 15,705 14,025 29,730 Final balance at 03/31/2009 1,182,700 - (75,767) (37,651) - 29,569 (83,849) (898,505) 200,346 26, ,364 The accompanying notes are an integral part of these consolidated interim financial statement F-6

131 ENAP AND SUBSIDIARIES CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS AS OF AND FOR THE YEARS ENDED MARCH 31, 2010 AND 2009 (In thousands of US dollars - ThUS$) Note N ThUS$ ThUS$ Statement of Cash Flows, Direct (unaudited) (unaudited) Net cash flows provided by (used in) operating activities Types of collections per operating activity Collection from sales of assets and service renderings 2,670,767 2,059,980 Other collections for operating activities ,415 Payments to suppliers for the rendering of assets and services (2,353,239) (2,161,272) Payments to and on behalf of the employees (72,492) (67,462) Other payments for operating activities (387,104) (241,766) Dividends paid (356) - Interest paid (16,085) (20,426) Interest received Income taxes - paid (228) (2,278) Other entries of cash 42,798 25,219 Net cash flows provided by (used in) operating activities (115,797) (378,418) Net cash flows provided by (used in) investment activities: Borrowings to related parties (20,337) - Amounts received from sale of property, plant and equipment - 69,460 Purchases of property, plant and equipment (48,541) (84,151) Purchases of other long-term assets - (2,507) Advance payments and loans granted to third parties 2,980 - Collections from the reimbursement of advance payments and loans granted to third partie - 6,731 Collections to related entities 3,896 - Dividends received Interest received 3 - Net cash flows used in investment activities (61,999) (9,562) Net cash flows provided by (used in) financing activities: Amounts from long-term loans - 339,080 Amounts from short-term loans 1,141, ,165 Total amounts from loans 1,141, ,245 Borrowings from related parties 5,641 - Payments of borrowings (454,859) (408,483) Payment of liabilities for financial lease (517) (433) Payment of borrowings to related parties (1,875) - Interest paid (44,857) (48,005) Other entries of cash - 5,099 Net cash flows provided by financing activities 644, ,423 Net increase (decrease) in the cash and cash equivalents, before the effect of the changes to the exchange rate 466,959 (61,557) Effects of variations in the exchange rate over cash and cash equivalents: Effects of variations in the exchange rate over cash and cash equivalents (3,747) 4,149 Net increase (decrease) in cash and cash equivalents 463,212 (57,408) Cash and cash equivalents at the beginning of the period 26 76, ,459 Cash and cash equivalents at the end of the period ,024 93,051 The accompanying notes are an integral part of these consolidated interim financial statement F-7

132 ENAP AND SUBSIDIARIES NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (In thousands of US dollars - ThUS$) 1. GENERAL INFORMATION The Empresa Nacional del Petróleo (hereinafter ENAP ) is the parent of the group of companies referred to in these interim consolidated financial statements. On October 4, 2002, the Company was registered in the Securities Register of the Superintendency of Securities and Insurances, under number 783. As such, the Company is subject to the regulations of the above Superintendency. ENAP was created through Law 9.618, dated June 19, 1950 and is owned by the State of Chile, and its corporate purpose is the exploration, production and marketing of hydrocarbons and its by-products, the domiciles of the Company are in Santiago: Avenida Vitacura 2736 Floor 10, Las Condes and in Punta Arenas: José Nogueira DESCRIPTION OF THE BUSINESS According to the abovementioned law and its subsequent amendments, its main activity is exploring, exploiting or monetizing ore deposits containing hydrocarbons, which is authorized to be performed both inside as outside the country. ENAP has the following subsidiaries: ENAP Refinerías S.A., ENAP Sipetrol S.A., Petro Servicio Corp. S.A. and Gas de Chile S.A. and it also has branches in Argentina and Ecuador, as well as participations in other special purpose entities as detailed in Note No. 32. The subsidiary Enap Refinerías S.A. ( ERSA ) refines both local petroleum acquired from ENAP and petroleum imported from foreign suppliers. Petroleum and product imports are financed by ENAP through direct payments to suppliers. In addition, it provides reception and storage services for hydrocarbons, through its terminals and storage tanks. The direct subsidiaries Petro Servicio Corp. S.A. and ENAP Sipetrol S.A. execute outside the country one or more of the activities related to the exploration, exploitation or monetization of the hydrocarbon-bearing deposits. ENAP Sipetrol S.A. has branches in Ecuador and Venezuela (the latter without any economic activity) and Associates in Argentina, United Kingdom (UK), Ecuador, Uruguay and its joint business described in the chart of Note 10. ENAP Sipetrol (UK) Limited (United Kingdom) is in the process of closing down its operations, which is expected to be completed in ENAP Sipetrol S.A. has a 100% ownership interest in the capital stock. F-8

133 The subsidiary ENAP Refinerías S.A. is a privately held corporation, voluntarily registered in the Securities Register of the Superintendency of Securities and Insurance on June 25, 2004, under number 833. With the entering into force of Law No of October 2009, the Superintendency of Securities and Insurances proceeded to cancel such records and to register these in the Special Record of Informing Entities on May 9, 2010, under No. s 95 and 187, respectively, with validity as of January 1, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1 Accounting principles These interim consolidated financial statements are stated in thousands of US dollars and were prepared based on the accounting records kept by ENAP and its Subsidiaries and have been prepared in accordance with IFRS, issued by the International Accounting Standard Board (hereinafter IASB ), and were approved by the Board of Directors in a Board meeting held on May 27, Preparation of these consolidated financial statements under IFRS requires the use of estimates and assumptions by the Management of the ENAP Group. These estimates are based on the best knowledge of the management on the amounts reported, events or actions. The detail of the significant accounting estimates is shown in Note 5. Next are described the main accounting policies adopted in the preparation of these interim consolidated financial statements, these policies have been defined according to the valid IAS and IFRS as of March 31, 2010, and have been applied consistently in the years in which these interim consolidated financial statements are presented. a) Bases of preparation and period These interim consolidated financial statements of the ENAP Group includes the statement of financial position as at March 31, 2010 and December 31, 2009, the statement of comprehensive income, of changes in equity and cash flows as of and for the three months period ended March 31, 2010 and 2009, have been prepared in conformity with International Financial Reporting Standards ( IFRS ), which have been adopted in Chile under the following denomination: Normas de Información Financiera de Chile (NIFCH), and they represent the integral, explicit and unreserved adoption of the mentioned international standards. b) Bases of consolidation The interim consolidated financial statements of ENAP ( the parent company and its subsidiaries) include all the assets, liabilities, revenues, expenses and cash flows after eliminating inter-company transactions. F-9

134 i) Subsidiaries The subsidiaries (including the Special Purpose Entities - SPE) are those on which ENAP directly or indirectly exercises control, with the latter being understood to mean the ability to direct the financial and operational policies of a company in order to obtain benefits from its activities. This ability is generally, although not exclusively, evidenced in direct or indirect ownership of 50% or more of the company s ownership rights. Similarly, this method is used to consolidate those entities whose activities are understood to be completed to the company s benefit, while being exposed to all the risks and rewards of a dependent entity, regardless the company not holding an ownership interest of 50% or more. When assessing whether the ENAP Group controls another entity consideration is given to the existence and the effect of the possible voting rights currently exercised. The subsidiaries are consolidated as of the date on which the control is transferred to the Group, and they are excluded from consolidation on the date on which control is not longer exercised. In the attached chart are detailed the direct and indirect subsidiaries (including the Special Purpose Entities SPE), which are included in the consolidation of the ENAP Group. Company Domicile Relationship with the parent Shareholder percentage Enap Refinerías S.A. Chile Direct subsidiary 99,98% 99,98% Petro Servicios Corp. S.A. (Argentina) Argentina Direct subsidiary % % Enap Sipetrol S.A. Chile Direct subsidiary % % Enap Sipetrol Argentina S.A. (Filial de Enap Sipetrol S.A) Argentina Indirect subsidiary % % Enap Sipetrol (UK) Limited (Filial de Enap Sipetrol S.A) Reino Unido Indirect subsidiary % % Sipetrol International S.A. (Uruguay) (Filial de Enap Sipetrol S.A.) Uruguay Indirect subsidiary % % Sociedad Internacional Petrolera Enap Ecuador (filial de Enap Sipetrol S.A.) Ecuador Indirect subsidiary % % Manu Perú Holdings S.A. (Filial de Enap Refinerías S.A.) Perú Indirect subsidiary % % Compañía Hidrógeno del Bío-Bío S.A. Chile Special purpose entity 10.00% 10.00% Energía Cón-Cón S.A. (Enercon) Chile Special purpose entity 49.00% 49.00% Éteres y Alcoholes S.A. (Etalsa) Chile Special purpose entity 41,74% 41,74% Petrosul S.A. Chile Special purpose entity 47,39% 47,39% Productora Diesel S.A. (Prodisa) Chile Special purpose entity 45.00% 45.00% Gas de Chile S.A. (a) Chile Direct subsidiary % % (a) On June 17, 2009 was purchased the remaining 50% of Gas de Chile S.A., through ENAP and Enap Refinerías S.A. (5%), company which as of June 2009 is being consolidated by ENAP ii) Joint Ventures A contract agreement through which two or more parties perform an economic activity which is subject to common control. The joint ventures can take on the form of: (a) jointly controlled operations; (b) jointly controlled assets; or (c) jointly controlled entities. a) Jointly controlled operations: The operation of some joint ventures implies the use of assets and of other resources of the participants, more than the constitution of a company, association or any other entity, or of a financial structure which is separated from the participants themselves. Each participant has its own property, plant and equipment and maintains its own inventories. They also incur in their own expenses and liabilities and they obtain their own funding, which represents their own obligations. The activities of the joint venture can be carried out by the employees of the participant, F-10

135 together with similar activities of the participant. The joint venture agreement usually provides the means to share between the participants the ordinary income from the sale of the joint product and any joint expense incurred. b) Jointly controlled assets: Some joint ventures imply a joint control, and often the joint ownership, by the participants, of one or more contributed assets to, or acquired with the purpose of, the joint venture and dedicated to the purposes of the joint venture. c) Jointly controlled entities: This is the joint venture which implies the constitution of a company, association or other entity in which each participant has an interest. The entity operates in the same manner as other entities, except that the contract agreement between the participants establishes the joint control over the economic activities of the entity. Joint ventures are consolidated using the proportional integration method, which dictates the inclusion in the consolidated financial statements of the proportional assets, liabilities, expenses and income of these companies equivalent to the Company s ownership interest in them. The assets, liabilities, income and expenses corresponding to the joint ventures are stated in the consolidated statement of financial position and in the consolidated statement of comprehensive income in accordance with their specific nature. iii) Associates Associates are those entities over which the ENAP Group is in the position to exercise a significant influence, but not a control or joint control, through the ability of participating in the decisions regarding their operating and financial policies. In conformity with the equity method, the investment in an associate is recorded initially at cost and its book value will increase or decrease in order to recognize the portion corresponding to the investor in income or loss obtained by the entity in which the investment is held, after the acquisition date. The investor will recognize, in his income or loss, the corresponding participation in such income or loss. This requires recording the initial investment at cost for the ENAP Group and afterwards, in subsequent periods, adjusting the book value of the investment to show the participation of the ENAP Group in the results of the associates, less the impairment of goodwill and other changes in the net assets of the associate. The net income (loss) obtained by these companies each year is reflected in the consolidated statement of comprehensive income as Equity in earnings (losses) of associates recorded using the equity method". Losses of the associates attributed to the investor, which exceed the latter s interest in such associates, are not recognized, unless the ENAP Group has an obligation to cover them. F-11

136 iv) Branch A Branch is considered to be an extension of the same company to serve markets outside the area where the ENAP parent company is located. From a legal perspective, the branches main feature is that they are an integral part of the parent company. The branch concept dictates financial and legal dependence on the parent, and ownership resides in the same legal entity with the same treatment under law. It has the same name, maintains the structure of the company, does not have its own capital or any separate liability, although it may have relative administrative autonomy in terms of internal relations. v) Special Purpose Entity ( SPE ) A Special Purpose Entity (SPE) is an entity set up for a specific purpose or limited duration. These SPEs frequently function as agent organizations. Such entities serve to isolate financial risk. Thus, although the ENAP Group s ownership interest in Energía de Con-Con S.A. (hereinafter Enercon ), Éteres y Alcoholes S.A. (hereinafter Etalsa ), Petrosul S.A. (hereinafter "Petrosul ), Productora Diesel S.A. (hereinafter Prodisa ) and Compañía de Hidrógeno del Bío-Bío S.A. (hereinafter CHBB ) is less than 50%, they are considered to be Subsidiaries, because, pursuant to agreements or covenants between shareholders, or as a result of their structure, the ENAP Group directly or indirectly exercises control over the above companies. The minority interests corresponding to the percentage of third party participation in the Subsidiaries has also been recognized. The results of the intercompany operations of the ENAP Group and associates have been eliminated in the participation percentage owned by ENAP in the latter. The accounting principles and procedures used by the ENAP Group s companies were standardized with those of the Parent, in order to present consolidated financial statements based on uniform valuation standards. The financial statements of subsidiaries entities, whose functional currency is different from the Parent, were translated using the following procedures: a) The assets and liabilities are converted at the respective balance sheet s year-end exchange rate. b) Income and expenses are converted at the average exchange rate of the period in which they occurred. c) The net equity is maintained at the historical exchange rate at the acquisition or contribution date, and at the average exchange rate at the generation date in the case of the retained earnings. All exchange rate differences produced as a result of the translation of the financial statements are recognized in the item "Reserves for exchange differences for translation within the Net Equity. F-12

137 When a company with a functional currency other than the US dollar is disposed of, the exchange rate differences deferred as a component of the net equity and related to such company will be recognized in the statement of comprehensive income at the same time that the income arising from such disposal is recognized. The results of businesses acquired during the period will be allocated to the consolidated financial statements as of the actual date of acquisition; the results of businesses sold during the period are included in the consolidated financial statements for the period until the actual date of sale. Gains or losses from the sale are calculated as the difference between the income from the sale (net of expenses) and the assets attributable to the ownership interest sold. vi) Other Investments These correspond to investments not recorded under subsidiaries, associates or joint ventures which are recorded as indicated in note 3.l.iii Current and non-current financial assets. c. Functional currency: The functional currency for each entity of the ENAP Group will be determined as the currency of the main economic environment in which it operates. Transactions other than those performed in the entity s functional currency will be converted at the exchange rate in effect on the date of the transaction. Monetary assets and liabilities denominated in currencies other than the functional one will be converted again at the year end exchange rates. Gains or losses from the reconversion will be included in net income or losses for the year, within other financial items. The functional and presentation currency of the ENAP Group is the US dollar. In the consolidation, entries in the statement of income corresponding to entities with a functional currency other than the US dollar will be translated into the latter currency at average exchange rates. The entries of the statement of financial position have been translated at the year-end exchange rates. Exchange rate differences from the conversion of the net assets of such entities are recorded in equity and recorded in a separate translation reserve. d. Foreign currency translation and indexation - Assets and liabilities denominated in Chilean pesos, in Unidades de Fomento (UF) and other currencies are translated into US dollars Chilean pesos at the closing rates of exchange, as per the following detail: US$ US$ Chilean Pesos 524,46 507,10 Argentine Pesos 3,88 3,80 GBP 0,66 0,62 Unidad de Fomento ,02 Euro 0,74 0,70 e. Offsetting balances and transactions: As a general standard, assets and liabilities, income and expenses, are not offset in the financial standards, except for those cases in which offsetting is required or is allowed by some standard and the presentation is a reflection of the substance of the transaction. F-13

138 Income or expenses originating in transactions, which, for contractual or legal reasons, consider the possibility of offsetting and which the ENAP Group intends to liquidate for their net value or realize the assets and pay the liabilities simultaneously, are stated net in the statement of income. f. Foreign currency: Transactions in a currency other than a company s functional one are considered to be foreign currency transactions and they are recorded in their functional currency at the exchange rate in effect on the date of the operation. At each year end, the balance sheet amounts of monetary items in a foreign currency are valued at the year-end exchange rate, and the exchange rate differences arising from such valuation are recorded in the statement of comprehensive income. Exchange rate differences resulting from long-term financing operations forming part of the net investment in a foreign company are recorded in Translation reserves, in the equity. g. Property, plant and equipment: Property, plant and equipment are recorded at cost, excluding regular maintenance costs and less accumulated depreciation and value impairment losses. The cost of property, plant and equipment includes their purchase price plus all costs directly related to the location of the asset and getting it into an operating condition, as provided for by management, and the initial estimate of any cost involved in dismantling and removing the asset or restoring the physical site where it is located. Financing interest costs directly attributable to the purchase or construction of assets requiring a substantial period of time before being ready for use or sale will also be capitalized as a property, plant and equipment cost. Repair, preservation and maintenance expenses are charged to income for the year in which they occur. Some ENAP Group property, plant and equipment elements require regular inspections. In this regard, elements subject to replacement are recognized separately from the rest of the asset, detailed at such a level that they can be amortized in the period from the current repair to the next one. The exploration operations are recorded in conformity with the standards established in IFRS 6 Exploration for and Evaluation of Mineral Resources. The Hydrocarbon Exploration and Production operations are recorded in conformity with the successful-efforts method. The accounting treatment of the various costs incurred under this method is as follows: i) Costs originating in the acquisition of new rights or interests in areas with proven or unproven reserves are capitalized in Property, Plant and Equipment, when incurred. ii) Costs involved in acquiring interests in exploration areas are capitalized at purchase cost and amortized with a charge to income in Exploration costs, in accordance with the criterion specified. If no reserves are found, these previously capitalized expenses are F-14

139 recorded as expenses in the statement of comprehensive income. If the exploration produces positive results, leading to a commercially workable discovery, the costs are reclassified in Property, Plant and Equipment, at their net book value when so determined. Wells are only classified as commercial, if they are expected to generate sufficient volume of reserves to justify their commercial development. iii) The exploration costs, as for example geology and geophysics expenses, costs associated with maintaining unproven reserves and other exploration-related costs, prior to drilling are charged to income when incurred. Drilling costs incurred in prospecting campaigns, including stratigraphic test wells, are capitalized and presented in the item Property, Plant and Equipment, pending the decision as to whether proven reserves justifying their commercial development were discovered. If no proven reserves have been found, these initially capitalized costs are charged to profit or loss. The drilling costs of wells leading to a positive discovery of commercially workable reserves are capitalized and presented in Property, Plant and Equipment. iv) Development costs incurred in extracting proven reserves and treating and storing the oil and gas (including the drilling costs of production wells and developing dry wells, platforms, recovery improvement systems, etc.) are capitalized and presented in Property, Plant and Equipment. v) Costs for the future abandonment and dismantling of oil fields are calculated on a field by field basis and capitalized at present value. This capitalization is calculated with an offset to Non-current provisions. Investments capitalized according to the above criteria are amortized as follows: a) Investments involved in the acquisition of proven reserves are amortized over the estimated useful life of the field indexed to the existing ratio between the year s production and the field s proven reserves at the start of the amortization period. b) Investments related to unproven reserves or fields in the process of being evaluated are not amortized. These investments are analyzed at least once a year, or earlier if there is any indication of impairment, and in case of impairment, this is recognized and charged to income for the year. c) Costs originating in drillings and subsequent investments made to develop and extract the reserves of hydrocarbons are amortized over the estimated useful life of the field indexed to the existing ratio between the year s production and the field s proven reserves at the start of the amortization period. Changes in estimates of reserves are considered in calculating the amortizations on a prospective basis. F-15

140 At the closing date, or whenever there is an indication that there might be an impairment of the value of the assets, their recoverable value is compared to their net book value. For that purpose, assets are grouped into cash generating units (CGUS) based on separately identifiable and largely independent cash flows. Any impairment or reverse of impairment arising as a result of such a comparison will be recorded and charged or credit to net income for the year, as appropriate. The identification of the environmental investments, whose purpose is to minimize the environmental impacts, the protection and the improvement of the environment, is performed considering the nature, the policies and the performed activities, in accordance with technical criteria related to the issue, in general are considered as guidelines the standards issued by the American Petroleum Institute (AIP). h. Depreciation: Property, plant and equipment, except those related to hydrocarbon exploration and production activities, are amortized using the straight line method by distributing the acquisition cost of the assets less the estimated salvage value over the estimated useful life of the assets. The main components of property, plant and equipment and their useful lives are presented below: Years of usedfull life Buildings 30 y 50 Plants and equipment: Plants 10 y 15 Equipment 10 y 18 Computer equipment 4 y 6 Fixed facilities and accesories 10 y 20 Motor vehicles 7 Improvements to leased assets: Buildings 10 Investments in exploration and production exhaustion installments Other property, plant and equipment 3 and 20 Property, plant and equipment related to hydrocarbon exploration and production activities are amortized using the production unit amortization method (depletion rate). The salvage value and useful life of the fixed assets are reviewed every year and their depreciation begins when the assets are in a condition to be used. Land is recorded separately from any buildings or facilities that may be constructed on it, and has an indefinite useful life; therefore, it is not subject to depreciation. At least every year, the ENAP Group evaluates the existence of any possible impairment in the value of its property, plant and equipment. F-16

141 i. Investment property: The item Investment property includes mainly buildings and land that are used for earning income through leases or an increase in their value when sold. The investment property are stated at their net acquisition value from their corresponding depreciation and the impairment losses that they have experienced. The investment properties, excluding the land, are depreciated by distributing in accordance with the straight-line method the cost of the different elements that make them up between the years of useful life. j. Non current assets or groups of assets held for sale: Non-current assets or groups of assts are classified as available for sale, if their book value is recovered through a sale, not through their continued use. This condition is only considered to be met when the sale is highly probable and the asset is not available for sale immediately in its current state. The sale is considered highly probable, if it will be completed within one year of the classification date. These assets are presented at the lesser of their book value and their fair value less the cost of sale. k. Impairment of other non-financial assets: The policy defined by ENAP is that each time there exists objective evidence, as a result of one or more events occurred after the initial recognition, that the book value cannot be recovered, then impairment tests are performed. An impairment loss is recognized for the excess of book value of the assets over its recoverable amount. The recoverable amount is the higher between the fair value of an asset less its costs of sale and its value in use. In order to evaluate the value impairment losses, the assets are grouped at the lowest level in which there are separately identifiable cash flows (cash generating units). This methodology is applied to the following assets: Fixed assets related to hydrocarbon exploration and production operations. Investments in subsidiaries Accounts receivable l. Other financial assets: Financial assets at their fair value through profit or loss are financial assets held for negotiations. A financial asset is classified in this category if it is acquired mainly with the purpose of selling in it in the short term. The investment in marketable securities are recorded initially at cost and subsequently their values are updated based on their market value (fail value). The investment in shares are recorded at fair value, the results obtained are recorded in other operating income. F-17

142 i) Loans and accounts receivable The loans and accounts receivable are non derivative financial assets with fixed or calculable payments, which are not quoted on an active market. They are included in current assets, except for maturities over 12 months as of the date of the balance sheet that are classified noncurrent assets. The loans and accounts receivable include the commercial debtors and other accounts receivable. ii) Financial assets held to maturity The financial assets held to maturity are non-derivative financial assets with fixed or calculable payments and fixed maturities, which the ENAP Group has the positive intent and ability to hold to maturity. If the Group sells a significant portion of the financial assets held to maturity, the complete category would be reclassified as held for sale. These financial assets are classified under other non-current financial assets, except for those with a maturity of less than 12 months as of the date of the Statement of Financial Position, which are classified as current financial assets. iii) Financial assets available for sale Financial assets available for sale are non-derivative financial assets designated specifically in this category, or not classified in any other category. They are included in non-current assets unless the Management pretends to dispose the investment in the following 12 months after the date of the Statement of Financial Position. iv) Impairment of financial assets Financial assets, other than those valued at fair value through profit and loss, are assessed for indicators of impairment at the date of each statement of financial position. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected negatively. For financial assets carried at amortized cost, the impairment loss corresponds to the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. The financial investments of the ENAP Group are maintained at institutions with the highest credit quality and maintained in the short-term, and therefore they do not present at this date any impairment indicator regarding their book value. Recognition and measurement of financial assets The acquisitions and disposals of financial assets are recognized on the negotiation date, which is the date on which the Group commits itself to acquire or sell an asset. F-18

143 The investments are recognized initially at fair value plus transaction costs for all financial assets not recorded at fair value with changes in net income for the year. The financial assets at fair value with changes in net income for the year are recognized initially by their fair value, and the transaction costs are recorded in net income for the year. The investments are disposed of in the accounting when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and benefits derived from such ownership. The financial assets available for sales and the financial assets at fair value with changes in net income for the year are recorded subsequently by their fair value (with a counterparty in equity and net income for the year, respectively). The loans and accounts receivable, and the financial assets held to maturity are recorded by their amortized costs in accordance with the method of the effective interest rate. Gains or losses from changes in fair value of financial assets at fair value with changes in net income for the year are included in the statement of comprehensive income for the year in which such changes in fair value occurred. The revenues from dividends of financial assets at fair value with changes in net income for the year are recognized in the statement of comprehensive income in the item Other operating income when the rights of the Group to receive the payments from the dividends has been established. The changes in the fair value of financial investments in debt instruments in foreign currency classified as available for sale are separated between exchange rate differences from the modifications in the amortized cost of the instrument and other changes in their book value. The exchange rate differences are recognized in net income (loss) for the year and the other changes in the book value are recognized in net equity, and the latter are the ones presented in conformity with IAS 1 through the statement of comprehensive income. The exchange rate differences over financial investments in equity instruments held at fair value with changes in net income for the year, are presented as part for the income (loss) in fair value. The exchange rate differences over such instruments classified as financial assets available for sale, are included in the net equity in the corresponding reserve account, and are presented in the statement of other comprehensive income. When the value of the instrument classified as available for sale is sold or its value is impaired, the accumulated adjustments for fluctuations in their fair value recognized in equity are reclassified in the statement of income. The interests from the values available for sale calculated using the effective interest method are recognized in the statement of income in the item other ordinary income. The dividends generated by instruments available for sale are recognized in this statement of income in the item other operating income when the right of the Group to receive the payment of the dividends has been established. F-19

144 The fair values of the investments quoted are based on the current purchase prices. In case the market for a financial assets is not active (and for the instruments that are not quoted), the Group establishes the fair value by using valuation techniques that include the use of values observed in recent arm s length transactions, the reference to other substantially similar instruments, the analysis of the discounted cash flows, and the price fixing models of options making maximum use of he market information and relying as least as possible on specific internal information of the Group. In case none of the above techniques can be used to establish the fair value, the investments are recorded at their purchase cost net of impairment loss, as appropriate. The Group evaluates at the date of each Statement of Financial Position whether there exists objective evidence that a financial assets or a group of financial assets may have suffered an impairment loss. In the case of equity instruments classified as available for sale, to determine whether the instruments have suffered impairment losses will be considered whether there has been a significant or extended decrease in the fair value of the instruments below their cost. If there exists any kind of evidence of this kine for the financial assets available for sale, the accumulated loss, determined as the difference between the purchase cost and the current fair value, less any impairment loss of the value in this financial assets previously recognized in net income, is eliminated from net equity and is recognized in the statement of income. The impairment losses of the value recognized in the statement of income for equity instruments are not reversed through the statement of income. m. Derivative and hedging financial instruments: The ENAP Group usually holds derivative financial instruments, such as forward currency contracts and interest rate swaps, to hedge risks associated with fluctuations in the interest rate and exchange rate and Zero Cost Collar options; they all correspond to hedge contracts, and therefore the effects originated due to the changes in the fair value of this kind of instruments, are recorded in hedge assets and liabilities, as long as the hedging of this entry has been stated as effective, in accordance with its hedge purpose. The corresponding unrealized income or loss is recognized in profit or loss for the year in which the contracts are liquidated o when they do not longer comply with hedging characteristics. Such derivative financial instruments are initially recognized at fair value on the date on which the derivative contract is signed, and they are then re-measured to fair value. The method to recognize the loss or gain depends on whether the derivative has been appointed as a hedge instruments and, if so, from the nature of the item that is being hedged. The Group currently hold only instruments appointed as fair value hedges of recognized liabilities (fair value hedges), hedges of an actual risk associated to a recognized liability or an expected highly probable transaction (cash flow hedges). The fair value of the currency forward contracts is calculated in reference to other current forward exchange rates of contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined based on the market values of similar instruments. The total fair value of the hedge derivatives is classified as a non-current asset or liability if the remaining maturity of the hedged item is higher than 12 months and as a current asset or liability if the remaining maturity of the hedged item is lower than 12 months. F-20

145 i) Cash flow hedges The effective portion of the changes in fair value of the derivatives that are assigned and which qualify as cash flow hedges are recognized in equity through the statement of comprehensive income. The income or loss related to the ineffective portion is recognized immediately in the statement of income. The amounts accumulated in net equity are reclassified in the statement of income when the hedged item affects net income (for example, when the hedged forecasted sale occurs or when the hedged flow is executed). However, when the hedged foreseen transaction results in the recognition of a non-financial asset (for example inventories or fixed assets), the gains or losses previousle recognized in net equity are reclassified as part of the initial cost of the asset. The deferred amounts are finally recognized in the costs of goods sold, in case of inventories, or in the depreciation in case of fixed assets. When a hedge instrument matures or when it is sold, or when it does not comply anymore with certain criteria to be recognized through the hedging accounting treatment, any accumulated loss or gain in net equity to this date stays in the net equity and is recognized when the expected transaction affects the statement of income. When a projected transaction is not expected to occur, the accumulated gain or loss in equity is transferred to the statement of income. ii) Embedded derivatives ENAP assesses the existence of embedded derivatives in contracts of financial instruments to determine whether their characteristics and risks are strongly related with the host contract, as long as the host contract is not measured at fair value. Embedded derivatives are separated from the main contract, which is not measured at fair value through profit or loss, when the analysis shows that the financial characteristics and risks of the embedded derivatives are not closely related to the main contract. n. Recognition of income and expenses: Income from sales and services are recognized by the ENAP Group when the relevant risks and benefits of ownership of the products are transferred to the buyer, and the products are delivered to their agreed location. Revenue is measured at the fair value of the consideration received or receivable, and represents the receivable amounts for the rendered services during the ordinary course of operations, net of any discount or related tax. The ENAP Group recognizes income when these can be reliably measured, and it is probable that the future economic benefits will flow towards the Group, as described next: i) Sale of assets: The sales revenues of assets are recognized when the Group has delived the products to the customer and when there exists no pending obligation to be complied with which could affect the acceptance of the products by the customer. The delivery will not occur until the products have been send to the indicated location by the buyer, the obsolescence risks and loss have been transferred to the customer, and the customer has acceptd the products in conformity with the sales contract, the acceptance period has F-21

146 expired, or when the ENAP Group has objective evidence that the necessary acceptance criteria have been complied with. The sales are recognized according to the price established in the sales contract, net of volume discounts and the expected returns at the sales date. It is supposed that there exists no significant financing component, as the sales are performed with a reduced average collection period, which is in line with the normal practices of the market. ii) iii) iv) Sale of services: The revenues from the sales of services are recognized when they can be reliably estimated and in accordance with the services actually provided at the closing date of the financial statements. Income from dividends: Dividends are recognized when the right of the ENAP Group to receive the payment is established. Interest income: Interests are recognized by using the effective interest rate method. v) Deferred income: Deferred income corresponds to income received in advance from a usufruct contract signed. This income is amortized using the straight-line method on an accrual basis. vi) Expenses: Expenses are recognized when there is a reliably measurable reduction in an asset or increase in a liability. o. Inventories: Raw materials, products in progress, finished products and materials are valued initially at cost. After initial recognition, they are valued at the lesser of the net realizable value and cost. The ENAP Group uses the first-in first-out (FIFO) method for all the inventory items, except for materials which are value using the Weighted Average Price method. The net realizable value represents the estimated price of sale at year-end less all estimated finishing costs and costs that will be incurred in the marketing, selling and distributing processes. p. Provision for employee benefits: Costs associated with the employees contractual benefits, related to services rendered by employees during the year, are charged to income for the respective period. The obligations recognized for the concept of severane payments arise as a consequence of the collective agreements signed with the employees of the Group, which states the commitment agreed by the company. The ENAP Group recognizes the cost of employee benefits according to an actuarial calculation, as required by IAS 19 "Employee benefits, which includes variables as for example the life expectation, salary increases, etc. To determine this calculation we have used a discount rate of 5.5% per year. F-22

147 q. Provisions and contingent liabilities: Provisions are recorded for current, legal or assumed obligations arising as a result of a past event, whose payment is expected to involve a disbursement of resources and whose amount and time of payment can be reliably estimated. Contingent liabilities are obligations arising from past events, whose confirmation is subject to the occurrence of events beyond the control of the company, or current obligations arising from past events, whose amount cannot be reliably estimated, or whose payment does not involve a disbursement of resources. The ENAP Group does not record contingent assets or liabilities, except for those stemming from contracts with valuable consideration, which are recorded as a provision and then reviewed at each balance sheet date and, if necessary, adjusted to reflect the best estimate at the time. r. Income taxes and deferred taxes - The Parent Company and its Chilean subsidiaries determine the tax base and calculate their income taxes in conformity with the legal provision in force during each period. In the case of the foreign subsidiaries, these present individually their tax returns, in conformity with current tax standards in the operating country. The deferred taxes generated by temporary differences and other events giving rise to differences between the accounting and tax base of assets and liabilities are recorded according to the indicated in IAS 12 Income Taxes. The income tax is recorded in the Consolidated Profit or Loss Account or in the net equity accounts of the Consolidated Statement of Financial Position according to where the profits or losses originating them were recorded. The differences between the accounting value of the assets and liabilities, and their tax base generate the balances of deferred taxes for assets or liabilities which are calcuted using the tax rates that are expected to be in force when the assets and liabilities are realized. The variations generated in the year in the asset or liability deferred taxes are recorded in the profit or loss account of the Consolidated Statement of Comprehensive Income or directly in the equity accounts of the Statement of Financial Position, as corresponding. The assets for deferred taxes are recognized only when it is expect that the Company will dispose of sufficient future tax income to recover the deductions for temporary differences. s. Other financial liabilities - The loans accruing interests and the bonds payable and the financial liabilities of similar nature are recognized initially at their fair value, net of any transaction costs incurred. Subsequently they are valued at amortized cost and any difference between the funds obtained (net of necessary costs to obtain them), and the reimbursement amount, and they are recognized in the statement of income throughout the useful life of the financial debt instrument, using the effective interest rate method. The financial obligations are classified as current liabilities unless the ENAP Group has the inconditional right to defer its liquidations during at least 12 months after the balance sheet date. F-23

148 t. Financial leases - The policy of the ENAP Group states that when the lessor transfers substantially all the inherent risks and advantages of the ownership of the asset to the lessee. The ownership of the asset, as the case may be, may or may not be transferred. When ENAP acts as lessee of an asset under a finance lease, the cost of the leased assets is presented in the consolidated statement of financial position, according to the nature of the asset referred to in the contract, and, simultaneously, a liability for the same amount is recorded in the statement of financial position. This amount will be the lesser of the fair value of the leased asset and the sum of the current values of the amounts to be paid to the lessor plus, if applicable, the price of exercising the purchase option. These assets are amortized using similar criteria to those applied to the property, plant and equipment used by the Company itself or within the term of the lease, whichever is shorter. Financial expenses arising from the financial review of the liability are charged to Financial expenses in the consolidated statement of comprehensive income. u. Distribution of dividends - The dividend distribution policy used by ENAP is the one established through the official letter and/or Law Decrees issued by the Treasury Department, which constitute the legal obligation that originate their recording. v. Environment The policy of the ENAP Group is to capitalize the environmental expenses associated to the project and to recognize with charge to profit and loss the rest of the disbursements. w. Commercial creditors and other accounts payable - The commercial creditors and other accounts payable are recognized initially at fair value and subsequently at amortized costs by using the method of the effective interest rate and afterwards, when the nominal value of the accounts payable differs significantly from its fair value, the recognition is at nominal value. x. Cash and cash equivalents - The ENAP Group considers liquid financial assets, deposits or liquid financial investments, which may be easily converted into cash within no more than three months and where the risk of a change in their value is insignificant, to be cash equivalents. Operating activities: these are the activities that constitute the main source of ordinary income of the ENAP Group, as well as other activities that can not be classified as investment or financing activities. Investing activities: these correspond to activities of acquisition, sale or disposal through other methods of long-term assets and other investments not included in cash and cash equivalents. Financing activities: these are the activities that cause variations in the composition of the net equity, and of the financial liabilities. F-24

149 3.2 New accounting pronouncements Accounting pronouncements with effective application as of January 1, Reviewed and modified standards Date of compulsory application IFRS 3 (Reviewed) Business Combination Annual periods starting as of July 1, IAS 39 Financial Instruments Recognition and Measurement Elegible Retrospective application for annual hedyed items periods starting on or after July 1, IAS 27 (Reviewed), Consolidated and Individual Financial Statements Annual periods starting as of July 1, Improvements to IFRS set of amendments to twelve International Financial Reporting Standards IFRIC 17 Distribution of non-cash assets to owners Annual periods starting on or after January 1, Annual periods starting on or after July 1, The application of these accounting pronouncements did not have significant effects for the Group. The other accounting criteria applied in 2010 have not varied in relation to those used in Accounting pronouncements with effective application as of January 1, Reviewed and modified standards IAS 32 Classification of Issuance Rights IFRS 9 Financial Instruments: IAS 24 Disclosure of Related Parties IFRIC 19 - Extinguishing financial liabilities with equity instruments IFRIC 14 The limit on a defined benefit asset, minimum funding requirements and their interaction Date of compulsory application Annual periods starting on or after February 1, Annual periods starting on or after January 1, Annual periods starting on or after January 1, Annual periods starting on or after July 1, Annual periods starting on or after January 1, Group Management believes tha the adoption of the above Standards and Interpretations will not have a significant impact on the consolidated financial statements of the Group. F-25

150 4. FINANCIAL RISK MANAGEMENT AND HEDGE DEFINITION During the normal course of its business and financing activities, ENAP is exposed to different financial risks that could have a significant effect on the economic value of its cash flows and assets and, therefore, on its results. The Group has an organization and information systems, managed by the Corporate Finance Management, for identifying such risks, determining their magnitude, proposing mitigating measures to the Board, implementing such measures and controlling their effectiveness. Next is presented a definition of the risks faced by the Company, including their characterization and quantification for ENAP, as well as also a description of the mitigating measures currently being used by the Company, if applicable. a. Market risk This is the possibility that the fluctuations of market variables, such as interest rates, foreign currency exchange rates, prices or indices of crude oil and by-products, etc., may cause financial losses due the devaluation of cash flows or assets or the valuation of liabilities, as a result of their being denominated in, or indexed to, such variables. a.1. Interest rate risk - ENAP s financing structure considers a mixture of sources of funds subject to a fixed rate (mainly bonds) and variable rate (bilateral loans, syndicated loans, notes payable or forfeiting, short-term bank loans and suppliers financing). The portion of financing subject to a variable interest rate, usually consisting of the 3 or 6 month LIBOR floating rate plus a spread, exposes the company to changes in its financial expenses due to fluctuations in the LIBOR rate. ENAP's total financial debt at March 31, 2010 is summarized in the table below, separating the fixed rate debt with the floating rate debt: In millions of U.S. dollars Fixed Rate Floating Rate Total Short term bank debt - 1,196 1,196 Long term bank debt Document subsidiary Financial lease corporate building International bonds Local bonds Total 1,334 2,259 3,593 Note: The data in the attached table correspond solely to the principal, not to any accrued interest or other concepts. The international and local bonds are presented at face value (front page), not at amortized cost as in the balance sheet. As the interest rate is applied at face value of the bonds, such value allows quantifying adequately the exposure of the Group at fixed or variable rate, as observed in this section. The local bonds denominated in UF are presented with their face value equivalent in US$ as at March 31, F-26

151 Risk mitigating instruments: To reduce the variability of its financial expenses, ENAP obtained several hedging instruments for some of the debt items in the above table. Interest rate swaps were obtained to establish the rate associated to the current financial obligation. Interest rate swaps were obtained to transfer US$520 million of the long-term debt bank debt to a fixed rate. Furthermore, interest rate collars were obtained to keep the interest rate on US$150 million of the long-term bank debt within a pre-defined range. The subsidiaries have obtained interest rate swaps to transfer to a fixed rate 100% of its floating rate debt. Residual risk exposure: Considering the existence of the hedge instruments indicated above, the net balance of obligations of the Group whose financing cost is fully subject to fluctuations in the LIBOR rate is US$1,146 million, which amounts to 33% of the total. As such, a 1% increase in the applicable LIBOR rate (quarterly or twice yearly, depending on the type of debt) would generate an annual increase of about US$11,460 million in the company s financial expenses. a.2.- Exchange rate risk The functional currency of the ENAP Group is the US dollar. However, there are some relevant items of the financial statements denominated in local currency (Chilean pesos or UF - inflation index-linked unit of account), as for example the sales invoicing and the financial obligations. These are exposted to changes in their dollar value as a result of fluctuations in the Chilean peso/usd or UF/USD parities. Mitigating measures: The exposure of the exchange rate variations from invoicing is minimized basically via a product pricing policy, based on the parity of the import, a mechanism whereby the local price of sale of the products is recalculated on a weekly basis in accordance with the exchange rate in effect. The main balance sheet items exposed are local bonds (denominated in UF - inflation indexlinked unit of account) and accounts receivable from local sales (denominated in Chilean pesos). ENAP performs hedging operations to mitigate the exchange rate risks associated with both items. F-27

152 The capital owed for ENAP s local bonds at March 31, 2010 is UF 13 million. Based on that amount and the CLP/USD and CLP/UF parities in effect on that date (CLP and CLP20,998.52), a reduction of CLP10 in the CLP/USD exchange rate would produce an increase in value of the bonds measured in US dollars of US$10.1 million. In order to mitigate this risk, ENAP has entered into cross-currency swap contracts, whereby the company receives cash flows in UF from the other parties equal to the cash flows payable to the bond holders and pays them fixed cash flows in US dollars, thereby being free from the above exchange rate risk. The balance of accounts receivable from local sales at March 31, 2010 was US$728,834 million. As such an increase of CLP10 in the exchange rate would produce a reduction of US$13,637 million in the dollar value of the accounts receivable. In order to minimize this risk, ENAP has a hedging policy in place, which consists of entering into weekly forward exchange rate contracts for an amount equivalent to 70% of the estimated sales for the week and for terms corresponding to the estimated collection dates of the respective invoicing. a.3. Commodities price risk The business of ENAP s R & L line consists mainly of buying crude oil on the international market for refining and subsequent sale of its by-products in the domestic market, based on import parity prices. The refining mark-up obtained by ENAP is subject to the fluctuation in the international prices of crude oil, of refined products and the difference between them (international margin or crack ). Considering an average level of refining of 72 million barrels per year, a variation of USD1/barrel in the difference would, ceteris paribus, have an effect on income of US$72 million. As a central strategy for mitigating the risk of variation in the refining mark-up, ENAP has aligned its investments to increase its productive flexibility and the quality of its products. To date, no financial derivatives were obtained to offset the refining mark-up, but the price levels offered by the market are being monitored constantly. Furthermore, given the time between the purchase of the crude oil and the sale of its byproducts, ENAP is also subject to the time spread or risk that the prices of the products when sold will be lower than the prevailing prices when the crude oil was bought. Losses or gains caused as a result of the above increase the volatility of ENAP s operating result. On average, ENAP imports about 6 million barrels of crude oil per month. A drop of USD 1/barrel in the price of the by-product during the refining inventory cycle has an immediate effect of US$6 million on ENAP s refining mark-up. F-28

153 In order to mitigate this risk, ENAP has a hedging strategy in place consisting of entering into option collars for a percentage of its sales designed to protect the price of the respective volume of crude oil by keeping it within a price range. This strategy is complemented by the use of swap sales contracts of refined products. Furthermore, the business of the E&P Line (Exploration and Production) consists mainly in the exploration and exploitaition activities of hydrocarbon reserves and their sales in the international market. Consequently, its results are directly related with the international oil and gas prices. In order to mitigate such risk, ENAP centers its efforts in the constant operational improvement in order to maintain a cost efficient structure. The Company does not use sistematically the derivaties as a hedge mechanism for the sales of its own production, although certain specific operations of this kind have been performed. b. Liquidity risk This risk is associated to the company s ability to amortize or refinance its financial commitments at fair market prices and its ability to implement its business plans with stable financing sources. The table below shows the balance of current financial obligations at March 31, 2010, according to their maturity dates: In millions of U.S. dollars and Total more Short term bank debt 1, ,196 Long term bank debt Document payable Financial lease corporate building International bonds Local bonds Total 1, ,145 3,593 In order to minimize the liquidity risk, ENAP holds a mixture of short and long-term debts in its financing structure, diversified by type of creditor and market, and makes arrangements in advance to refinance its short term obligations. F-29

154 c. Credit risk This risk refers to the ability of third parties to fulfill their financial obligations towards ENAP. There are 3 different categories: c.1 Financial assets - These are the balances of cash and cash equivalent, time deposits, operations with repurchase agreements and marketable securities as a whole. ENAP s ability to recover these funds at maturity depends on the creditworthiness of the bank in which they are deposited. In order to mitigate this risk, ENAP has a finance policy specifying the creditworthiness parameters that must be met by financial institutions in order to be considered eligible as a depositary of the above products, as well as each institution s concentration ceilings. c.2 Obligations of the other parties in derivatives - These are the favorable ENAP market values of current derivative contracts with banks. In order to mitigate this risk, ENAP has a derivative management policy specifying creditworthiness parameters that must be met by financial institutions in order to be considered eligible as the other parties to derivative contracts. c.3 Trade debtors - The risk of uncollectibility of ENAP s trade debtors is significantly low, insofar as nearly all local sales (>95%) are invoiced to the 4 main fuel distributors or liquefied gas distributing companies. The incorporation of new clients is subject to an analysis of their financial creditworthiness and their approval by ENAP s Credit Committee. This committee coordinates the collection actions required, if payments are delinquent, with Credit and Collection Units of ENAP and Enap Refinerías S.A.. As at March 31, 2010, the total exposure of the Group to the accounts receivable amounts to ThUS$718,406, as indicated in Note 15. There are no guarantees for significant amounts to cover such exposure, because as indicated above, almost all sales correspond to distributing companies of fuel or liquefied gas, with whom the Group operates based on credit sales without guarantees. The estimation of the doubtful accounts as at amounts to ThUS$1.282, which implies 0.2% of the total amount. F-30

155 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Responsibility for the information and estimates made The Senior Management of the ENAP Group is responsible for the information contained in these interim consolidated financial statements. In these interim consolidated financial statements the Senior Management of the ENAP Group and its consolidated entities have used estimates to quantify some of the assets, liabilities, income, expenses and commitments recorded therein. Regardless of the fact that these estimates were made with the best information available at the time, they may possibly need to be revised in future years as a result of future events; this would be done prospectively, as stipulated in IAS 8, by recognizing the effect of the change in the estimate in the respective comprehensive income statement. In applying the accounting policies of the ENAP Group, which are described in Note 3, management makes future estimates and judgments regarding the book values of its assets and liabilities. The estimates and associated judgments are based on past experience and on other factors considered relevant. Actual results could differ from these estimates. The Company should make estimates and judgments that have significant effects on the figures presented in the financial statements. The changes in assumptions and estimations could have a significant impact on the financial statements. Next are detailed the estimation and critial judgements used by the management: 1. Impairment of assets - At the closure date of each year, or on such date on which it is considered necessary, we analyzed the value of the assets to determine whether there exists any sign that such assets had suffered an impairment loss. In case there exists any sign an estimation will be performed of the recoverable amount of such asset to determine, in each case, the amount of the necessary correction. In case of identifiable assets that do not generate independent cash flows, the recovery of the Cash Generating Unit to which the asset belongs is estimated. In the case of the Cash Generating Units to which tangible or intangible assets have been assigned with an indefenite useful life, the recovery analysis is performed automatically by the system at year-end or under circumstances considered necessary to perform such analysis. The recoverable amount is the higher of the market value less the necessary cost for its sale and the usage value, understanding by this the actual value of the estimated future cash flows. For the calculation of the recovery value of inmobilized material, the usage value is the criterion used by ENAP. F-31

156 To estimate the usage value, the Group prepares the future cash flows provisions before taxes as of the most recent budgets approved by Company Management. These budgets incorporate the best available estimations of income and expensees of the Cash Generating Units using the best estimates, the prior experience and the future expectations. These flows are discounted to calculate the current value at a certain rate, before taxes, considered by the cost of business capital in which the Company operates. For its calculation is considered the current cost of money and risk premiums used in general by the business. In the case the recoverable amount is lower than the net carrying amount of the assets, the corresponding provision for impairment loss is recorded for the difference, charged to the Profit or Loss Account. The impairment losses recognized in an asset in prior years are reversed when a change occurs in the estimations over the recoverable amount increasing the value of the assets with a credit to profit or loss with the limit of the carrying amount that the assets would have had, had the impairment not been performed. 2. Useful lives of Property, Plant and Equipment - Group Management ENAP determines the estimated useful lives and respective depreciation charges for its fixed assets. This estimate is based on the projected life cycles of the products for its high technology segment. This could change significantly as a result of technical innovations in response to severe sector cycles. Management will increase the charge for depreciation when the useful lives are less than the estimate or depreciate or eliminate technically obsolete assets that were abandoned or sold. The ENAP Group reviews the estimated useful lives of its property, plant and equipment assets at the end of each annual financial reporting year. 3. Reserves of crude oil and gas - Estimates of reserves of crude oil and gas are an integral part of the ENAP Group's decision-making process. The volume of reserves of crude oil and gas is used for calculating the depreciation, using the production unit ratios, and also for evaluating the recoverability of the investment in Exploration and Production assets. 4. Fair value of derivative instruments and other financial instruments - The fair value of the financial instruments not traded in an active market is determined using valuation techniques. The ENAP Group uses its judgment to select a variety of methods and make assumptions based mainly on existing market conditions at each balance sheet date. The assumptions for derivative financial instruments are based on market rates quoted and adjusted to the specific characteristics of the instrument. Other financial instruments are valued using the discounted cash flow analysis based on assumptions supported, whenever possible, by observed market prices or rates. F-32

157 5. Provisions for litigation and other contingencies - The final cost for claims and lawsuits could vary due to estimates based on different interpretations of the regulations, opinions and final evaluations of the amount of the damages. Therefore, any change in the circumstances involved in this contingency could have a significant effect on the amount of the contingency provision recorded. The ENAP Group makes estimates and relies on its judgment when recording costs and stipulating provisions for environmental remediation and clean-up. These estimates and judgments are based on current information about expected remediation costs and plans. The costs of environmental provisions could differ from the estimates due to changes in laws and regulations, the discovery and analysis of the conditions at the location, and also changes in clean-up technology. Therefore, any change in the factors or circumstances involved in this provision, and also in the standards and regulations, could have a significant effect on the provisions recorded for such costs. 6. Calculation of taxes on deferred tax benefits and assets - Proper valuation of the taxes on benefits depends on several factors, including rate estimates and the realization of deferred tax assets and the timeliness of the payments of taxes on benefits. Current charges and payments could differ materially from such estimates due to changes in tax regulations and unforeseen future transactions having an impact on the Group s tax balance sheets. F-33

158 6. PROPERTY, PLANT AND EQUIPMENT Changes in property, plant and equipment items at March 31, 2010 and December 31, 2009 are presented below: Current Period Construction in Progress Land Buildings, Net Plant and Equipment, Net Information Techonology Equipment, Net Fixed Installations and Accessories, Net Motor Vehicles, Net Other Property Plant and Equipment, Net Inv. In Exploration and Production ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Total Initial balance at , ,547 20, ,468 1,436 31,567 1, , ,395 2,598,236 Additions 35, ,775 10,927 60,252 Transfers of non-current assets and disappropiation groups (1,966) (1,966) Withdrawals - - (686) - - (9,436) (10,122) Depreciation expenses - - (453) (19,476) (256) (899) (77) (13,765) (32,770) (67,696) Other increases (decreases) (9,482) - (55,687) (93) (65,262) Other (Changes) 25,804 - (367) (75,690) (244) (899) (70) (11,485) (21,843) (84,794) Ending Balance at , ,547 20, ,778 1,192 30,668 1, , ,552 2,513,442 Prior Period Construction in Progress Land Buildings, Net Plant and Equipment, Net Information Techonology Equipment, Net Fixed Installations and Accessories, Net Motor Vehicles, Net Other Property Plant and Equipment, Net Inv. In Exploration and Production ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Total Initial balance at , ,340 14, ,869 2,343 30,060 1, , ,608 2,464,227 Additions 265,781 20,535 3,822 23, , , , ,947 Transfers of non-current assets and disappropiation groups (6,202) (6,202) Withdrawals (64,660) (4,328) (17) - (81) (13,461) (57,227) (139,040) Depreciation expenses - - (1,709) (74,017) (1,051) (3,402) (273) (55,550) (89,420) (225,422) Other increases (decreases) (103,754) - 4,221 54, , ,458 38,454 (1,274) Other (Changes) 97,367 16,207 6,334 4,599 (907) 1,507 (64) 13,179 (4,213) 134,009 Ending Balance at , ,547 20, ,468 1,436 31,567 1, , ,395 2,598,236 F-34

159 The balances of the item as at March 31, 2010 and December 31, 2009 are presented below: Property Plant and Equipment, Gross ThUS$ ThUS$ Construction in Progress 422, ,927 Land 231, ,547 Buildings 69,389 69,303 Plant and Equipment 1,256,828 1,312,955 Information Techonology Equipment 12,069 8,793 Fixed Installations and Accessories 66,033 66,032 Motor Vehicles 4,637 4,643 Other Property Plant and Equipment 941, ,425 Inv. In Exploration and Production 3,003,037 2,992,265 Total 6,007,948 6,025,890 Property Plant and Equipmen, Acumulated Depreciation ThUS$ ThUS$ Construction in Progress - - Land - - Buildings 48,933 48,480 Plant and Equipment 825, ,487 Information Techonology Equipment 10,877 7,357 Fixed Installations and Accessories 35,365 34,465 Motor Vehicles 3,318 3,254 Other Property Plant and Equipment 207, ,741 Inv. In Exploration and Production 2,363,485 2,330,870 Total 3,494,506 3,427,654 Property Plant and Equipment, Net ThUS$ ThUS$ Construction in Progress 422, ,927 Land 231, ,547 Buildings 20,456 20,823 Plant and Equipment 431, ,468 Information Techonology Equipment 1,192 1,436 Fixed Installations and Accessories 30,668 31,567 Motor Vehicles 1,319 1,389 Other Property Plant and Equipment 734, ,684 Inv. In Exploration and Production 639, ,395 Total 2,513,442 2,598,236 There exist no assets corresponding to the property, plant and equipment granted in guarantee, whether as mortgage or as pledge. F-35

160 Additional information a) Construction in progress The amount of construction in progress at March 31, 2010 is ThUS$422,731 and ThUS$ at December 31, 2009, amounts that are directly related with the operating activities of the Group, as for examples: stoppages of plant, purchase of equipment and constructions. b) Leased assets The following assets acquired under finance leases are presented in Other Property, Plant and Equipment: i. Corporate offices acquired under finance leases with Banco Santander Chile. At March 31, 2010, the net value is ThUS$14,498 and at December 31, 2009 it amouns to ThUS$15,208. Payments are made monthly and the contract terminates in August The current value of the future payments from such financial leases are the following: Current Current Gross Interest Value Gross Interest Value ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Less than one year 1,457 (496) 961 2,268 (622) 1,646 Between one and five years 8,148 (1,618) 6,530 11,161 (1,910) 9,251 More than five years 4,509 (211) 4,298 5,372 (263) 5,109 Total 14,114 (2,325) 11,789 18,801 (2,795) 16,006 At the Board Meeting No. 253, was approved the sale of the floors 4 and 5, the warehouses and parkings paces of the building Malasia located at Avenida Tajamar No. 183, district of Las Condes in Santiago, which has a leasing contract with Metlife Chile Seguros de Vida S.A., the net value eliminated from assets and reclassified as assets held for sale (Note 33) amounts to ThUS$1,966. c) Dismantling, withdrawal or restoration costs As part of its fixed asset costs the Group has capitalized the Platform dismantling costs for a net amount at March 31, 2010 of ThUS$0 and at December 31, 2009 of ThUS$11,664. F-36

161 d) Capitalization of Interests Item Project Company ThUS$ ThUS$ Construction in Progress Lease Enap Refinerias S.A. - 1,216 e) Insurances Total - 1,216 Applied rate 4.97% The Group has insurance policies to cover any potential risks to property, plant and equipment, as well as any potential claims that could be filed in connection with their use. The directors consider that these policies are sufficient to cover any pertinent risks. f) Depreciation cost The charge to income for depreciation of fixed assets included in exploitation costs and administrative and selling expenses is as follows: ThUS$ ThUS$ In exploitation costs 66,702 61,023 In administration expenses Total 67,696 61,913 g) Investment in exploration and production The balances of investments in exploration and production at March 31, 2010 and December 31, 2009, are as follows: At the subsidiary Enap Sipetrol S.A.: Ownership Investment amount Less: Net amount of the percentage in joint venture impairment losses investment in joint venture Joint Venture ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ a. Exploitation Magallanes Area (a) ,483 99, ,483 99,392 Campamento Central Cañadón Perdido (b) ,004 41, ,004 41,051 Cam 2A Sur (c) ,041 13,056 12,217 12, East Rast Qattara (d) ,558 23, ,558 23,456 b. Exploration E2 (former CAM3 and CAM1) (a) La Invernada (b) Block 2 - Rommana (c) ,400 2, ,400 2,400 Block 8 - Sidi Abd El Rahman (d) ,818 1, ,818 1,818 Block Mehr (e) ,262 27,262 27,262 27, Total 204, ,590 39,479 39, , ,111 F-37

162 Net amount Amount of investment Less: of the investment in joint venture Impairment losses in joint venture Business ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Pampa el Castillo (a) 148, , , ,389 Paraíso, Biguno, Huachito (b) 25,255 26, ,255 26,039 Mauro Dávalos Cordero (b) 75,865 75, ,865 75,831 Total 249, , , ,259 In addition, there exists ThUS$224,497 as at March 31, 2010 and ThUS$243,025 at December 31, 2009, for the concept of Investment in exploration and production performed by ENAP in the region of Magallanes. 7. IMPAIRMENT LOSSES i) Impairment loss As a consequence of the damages caused by the earthquake of February 27, 2010 in the southcentral area of Chile, the results of the Company as at March 31, 2010, were negatively affected due to the need of recognizing impairment losses of the Property, plant and equipment occurred in the premises of the refinery of Bíobío located in the district of Hualpén and to a lesser extend at the refinery of Aconcagua located in the district of Concón. The above situation generated a recognition in the Statement of Income (item Other income (loss)) of approximately US$64 million. As indicated in Note 36, Effects of the Earthquake, ENAP counts on insurances that aim to the total recovery of the damages loess the corresponding deductibles established in the policies. ii) Provisions At December 31, 2008, there was a decrease in the Mehr block in Investments in exploration and production. OMV, as operator of the Mehr block and representing the consortium made up of Repsol and ENAP Sipetrol S.A., through its subsidiary Sipetrol International S.A., delivered a letter addressed to the Exploration Director of the National Iranian Oil Company (NIOC) on January 24, 2009, reporting that a unanimous decision had been made to not continue with the negotiations for developing the Band-e-Karkheh field. This decision is due to the fact that it has not been possible to reach an agreement with NIOC regarding the Development Plan needed to exploit this discovery made by the consortium. Considering that contractual obligations were fulfilled, the consortium informed NIOC that it would be activating the clause entitling it to recover exploration expenses and the remuneration fee, according to the terms stipulated in the Exploration Services Contract signed by the consortium and NIOC. F-38

163 In spite of the mentioned in the previous paragraph, taking into account management s judgment and analysis, the ENAP Group maintains a provision for the amount of the investment of ThUS$ 27,262. iii) Withdrawals and write-offs In the item Investments in Exploration and Productions are presented withdrawals and writeoffs performed by the ENAP Group as at March 31, 2010 and December 31, 2009, as per the following detail: ThUS$ ThUS$ Dry well E2 - Argentina - 40,157 Dry well Sidi Abd El Rahman Offshore - Egypt - 10,480 Withdrawals of CEOP - 6,640 Total - 57, INVESTMENT PROPERTIES The detail and fluctuations in the investment properties of the ENAP Group at March 31, 2010 and December 31, 2009 are as follows: ThUS$ ThUS$ Opening balance 2,066 2,072 Depreciation expense (1) (6) Final balance 2,065 2,066 The investment properties of the ENAP Group correspond mainly to land and properties held for leasing. The depreciation method in use is the straight-line method and the useful life period assigned to such items fluctuates between 10 and 20 years. The amount of the accumulated depreciation was of ThUS$(44) and ThUS$(43) as at March 31, 2010 and December 31, 2009, respectively. F-39

164 The revenues obtained by the subsidiary Enap Refinerías S.A. from its investment properties, assets that in total have been leased under an operating lease scheme, amount to ThUS$0 as at March 31, 2010 (ThUS$27 at December 31, 2009). The aforementioned revenues are stated on an annual basis, and are determined based on the lease amount established in an annual contract, renewable for equal periods and as long as there exist interested third parties. F-40

165 9. INVESTMENTS RECORDED USING THE EQUITY METHOD a) Detail of the investments Companies Country of Origen Functional Currency Ownership Percentage Percentage with voting Rigths Stock Exchange Value Main Activity % % % % A&C Pipeline Holding I.Cayman US$ Company dedicated to the investment and financing in general It controls Oleoducto Trasandino (Argentina) S.A. and Oleoducto Trasandino (Chile) S.A. Compañía Latinoamericana Petrolera S.A. Chile $ Perform abroad, on its own or third party account, exploration and exploitation projects related to oil, gas and - derivatives, as well as the purchase, sale, import, export and marketing of such products. Empresa Nacional de Geotermia S.A. Chile $ Investigation, exploration, development and exploitation of geothermal energy and all its complementary activities. Energia Andina S.A. Chile US$ The development of investigation or exploration of geothermal energy, through the execution of studies, - measurements and other investigation projects in order to determine the existence of geothermal resources, their physical and chemical characteristics, their geographical extension and their conditions to be actually used. Gasoducto del Pacífico Cayman Ltd Chile US$ Company dedicated to the investment and financing in general. It controls Gasoducto del Pacífico S.A. Argentina - and Chile. Gasoducto del Pacífico (Chile) S.A. Chile US$ Construction, ownership, exploitation and technical and commercial operation of pipeline system to transport natural - gas from Argentina to the 8 th Region of Chile, and the execution of all kinds of complementary activities that can be performed through the pipeline system. Gasoducto del Pacífico Argentina S.A. Argentina US$ Construction, ownership and operation of the gas pipeline system from the Argentinean area of Loma de la Lata - (Province of Neuquén) until Passage of Buta Mallín (Province of Neuquén) at the Chilean-Argentinean border and of its extensions and expansions and additional facilities. Geotermica del Norte S.A. Chile $ 48, , Investigation, exploration, development and exploitation of geothermal energy and all its complementary activities. GNL Chile S.A. Chile US$ GNL Quintero S.A. Chile US$ Innergy Holding S.A. (a) Chile US$ Norgas S.A. Chile $ Oleoducto Trasandino (Argentina) S.A. Argentina US$ Oleoducto Trasandino (Chile ) S.A. Chile $ Hire the services of GNL Quinteros S.A. and use all the storage, processing and regasification capacities of liquid natural gas, of the regasification terminal of its own property, including the expansions, if any, and any other issue that the company decides for the use of the regasification terminal. Development, financing, design, engineering, supply, construction, commissioning, testing, conclusion, operation and maintenance of a LNG regasification terminal and its expansions, if any. Participate in companies whose purpose is to purchase, sale, market and supply Natural Gas or build and exploit and operate all kinds of transport networks of natural gas. Render to its subsidiaries or to third parties management and administrative services and advisories. Import, export and purchase of liquid petroleum gas and its bulk sale to large distributors in the first and second regions of the country and all the technical and commercial formalities related directly to the previously mentioned operations. Construction and exploitation of an oil pipeline between Argentina and Chile, and the operation of it within the country borders of Argentina. Perform independently or in association with third parties, the construction and exploitation of an oil pipeline between Argentina and Chile, and the operation of it within the country borders of Chile. - Petropower Energia LTDA (a) Chile US$ Generation of energy and processing of fuels. Sociedad Nacional de Oleoducto S.A. Chile $ Transport fuel and derivatives to the demand centers specified by our clients, providing greater efficiency and added - value to the supply chain, in a manner that is compatible with the interests of our shareholders. Sociedad Nacional Maritima S.A. Chile $ Transport fuel and derivatives to the demand centers specified by our clients, providing greater efficiency and added - value to the supply chain, in a manner that is compatible with the interests of our shareholders. Golfo Guayaquil Petroenap Ecuador US$ Execution of activities in all and any of its phases of the oil industry, centered on the optimum usage of the Compañía de Economia Mixta hydrocarbons belonging to the inalienable and imprescriptable ownership of the Ecuadorian State, including the scientific investigation, the generation and transfer of technology, for which it is allowed to execute all actions and - contracts allowed by law. Primax Holding S.A. Ecuador US$ Purchase of shares, ownerships and rights in other companies on its own behalf. Forenergy S.A. Chile $ Execute general, technical, economic, legal and financial feasibility studies, of a second generation biodiesel - production project as of the forestry biomass or other raw material of national origin. Primax S.A. Peru US$ Develop directly or indirectly, operations, activities and services related to the hydrocarbon sector, including natural gas, as established in the General Law on Hydrocarbons, its regulations and other modifying provisions. Biocomsa S.A. Chile US$ Investigation and transfer of technologies for the production from lignocellulosic material of biomasses and their transformation into biofuels for the application with hydrocarbons and their derivatives. (a) This investment is considered an independent investee as the ownership is less than 20%, due to the existence of significant transactions between the investor and the ownership; in addition, the ENAP Group participates in its commercial and financial decisions. F-41

166 b) Movement of Investments The following is a detail of the main investments in investees recorded under the equity method, as at March 31, 2010 and December 31, 2009: Companies Balance at Addition Equity in earnings (loss) Dividends received Transalation Difference Other Increase (Decrease) Balance at t/m ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ A&C Pipeline Holding Compañía Latinoamericana Petrolera S.A (5) 383 Empresa Nacional de Geotermia S.A (169) - (31) Energia Andina S.A. 5,418 - (76) - - (78) 5,264 Gasoducto del Pacífico Cayman Ltda Gasoducto del Pacífico (Chile) S.A. 5, ,265 Gasoducto del Pacífico Argentina S.A. 6, (985) 5,686 Geotermica del Norte S.A. 22,525 - (415) - (746) - 21,364 GNL Quintero S.A. 19,971 - (392) - (770) 18,809 Norgas S.A. 3, (128) - 4,088 Oleoducto Trasandino (Argentina) S.A. 4,086 - (161) ,925 Oleoducto Trasandino (Chile ) S.A. 1, ,154 Petropower Energia LTDA 10, ,844 Sociedad Nacional de Oleoducto S.A. (a) - 3,863 (670) - 12,705 15,898 Sociedad Nacional Maritima S.A. (a) - 2, ,668 3,755 Golfo Guayaquil Petroenap Primax Holding S.A (128) - 32 Forenergy S.A Primax S.A. 47,011-2,998-2,800-52,809 Biocomsa S.A Total 128,268-8,787 (670) 1,767 12, ,687 Discontinued equity method GNL Chile S.A. (c) Innergy Holding S.A. (c) (191) 1 Total 128,270-9,025 (670) 1,767 12, ,689 As of 2010, ENAP reclassified the investments held in Sonacol S.A. and Sonamar S.A. Other non-current non-financial assets to the item Investments recorded under the equity method" although it does now own an interest equal or higher than 20%, the change of director in these companies and the review of the importance that ENAP represents for the operations of these companies, it concluded with the execution of this change, the effects originated in equity of the company within the item other reserves. F-42

167 Companies Balance at Equity in Dividends Transalation Other Increase Balance at Addition earnings (loss) received Difference (Decrease) t/m ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ A&C Pipeline Holding (1) 84 Compañía Latinoamericana Petrolera S.A. (e) 3,661 - (312) (3,775) 388 Empresa Nacional de Geotermia S.A. (f) 610 2,685 (2,903) Energia Andina S.A. 5,971 - (486) - - (67) 5,418 Gasoducto del Pacífico Cayman Ltda. (b) Gasoducto del Pacífico (Chile) S.A. (b) - 6,778 (21,792) ,217 5,203 Gasoducto del Pacífico Argentina S.A. (b) - 2,458 (5,806) (4,151) - 14,051 6,552 Geotermica del Norte S.A. (d) 8,241 12,292 (71) - - 2,063 22,525 GNL Quintero S.A. (h) 38,537 - (1,480) - (17,086) 19,971 Norgas S.A. 2,044-2,364 (1,504) ,853 Oleoducto Trasandino (Argentina) S.A. 4,776 - (670) - - (20) 4,086 Oleoducto Trasandino (Chile ) S.A. (g) 5,901 - (49) (5,450) 1,154 Petropower Energia LTDA 10,311-3,909 (1,186) (737) (1,865) 10,432 Golfo Guayaquil Petroenap (30) 10 Primax Holding S.A (68) 64 Forenergy S.A Primax S.A. 37,267-10, (655) 47,011 Biocomsa S.A Total 117,677 24,503 (16,761) (6,841) 1,199 8, ,268 Discontinued equity method GNL Chile S.A. (c) 1 - (312) Innergy Holding S.A. (a) , (90,381) 1 Total 117,679 25,124 72,687 (6,841) 1,199 (81,578) 128,270 a) The participation in profits or losses in investees, includes a loss of ThUS$312 corresponding to GNL Chile S.A. and a profit of ThUS$89,760 corresponding to Innergy Holding S.A. The recognition of the equity value for both companies was discontinued in prior years as they presented negative equities, which is presented in Note 18. b) During the month of June 2009, ENAP increased its ownership in the companies Gasoducto del Pacífico S.A. to 25%, Gasoducto del Pacífico Cayman Ltd. to 22.8%, and Gasoducto del Pacífico Argentina S.A. to 22.8% obtaining hereby a significant influence, in order to unify the gas transport business. The effects generated by these participation increases, as mentioned in the following chart, have been recorded under the equity method of accounting, as at December 31, 2009, until the acquisition of these investment they were classified as part of the Other non-current assets in the amount of ThUS$34,268. c) (a) On June 17, 2009 was purchased the remaining 50% of Gas de Chile S.A., through ENAP and Enap Refinerías S.A. (5%), company which as of June 2009 is being consolidated by ENAP, in accordance with the consolidation chart of Note 3.1.b. F-43

168 d) The increase of the participation was generated because in December 2009, a capitalization of the accounts receivable was performed in the amount of ThUS$12,292. e) The variation of the investment ThUS$(3,775) corresponds to the decrease of capital which was compensated in the accounts payable current as of such date. f) In February 2009 was performed a capital contribution of ThUS$2,685. g) The variation of ThUS$5,450 is explained by a capital decrease performed during 2009, which have their payments still pending in the amount of ThUS$784. h) The decrease of the investment of ThUS$17,086 is explained by the recognition in equity if the cash flow hedge, effect that in the case of ENAP is recognized in the account hedge reserve. F-44

169 c) Detail of financial information The summary of the main balances of the financial statements of the investees with significant influence is as follows: Detail ThUS$ ThUS$ Assets 2,193,072 1,840,192 Liabilities 1,824,543 1,470,202 Equity 368, ,990 Income 715,017 2,274,773 Expenses (708,000) (2,031,992) Net Income 7, , PARTICIPATION IN JOINT VENTURES Next are detailed the main joint ventures of exploitation and exploration operations through which revenues are obtained and expenses are incurred. a) Exploitation (a) Magallanes Area On January 4, 1991, Sipetrol Argentina S.A. and Yacimientos Petrolíferos Fiscales S.A. entered into a Unión Transitoria de Empresas (UTE, similar to a joint venture) contract, for hydrocarbon development and drilling activities in the Magallanes Area, a block located in the eastern mouth of the Strait of Magellan, Argentina. Enap Sipetrol Argentina S.A., as operator of this contract, is responsible for performing all operations and activities in this area. (b) Campamento Central - Cañadón Perdido In December 2000, ENAP Sipetrol S.A. signed an agreement with YPF S.A. whereby the latter assigns and transfers to ENAP Sipetrol Argentina S.A. 50% of the concession that YPF S.A. holds for exploiting hydrocarbons in the areas known as Campamento Central - Cañadón Perdido, in the province of Chubut, Argentina, which is subject to Law and its enabling regulations. In this case, the operator is YPF S.A. (c) Cam 2A Sur Regulatory decision 14 of January 29, 1999, awarded YPF and ENAP Sipetrol Argentina S.A. the right to explore the area known as CAM 2A Sur. On October 7, 2002, ENAP Sipetrol Argentina S.A. and YPF S.A. entered into a UTE (similar to a joint venture) in the Tierra del Fuego Provinces. F-45

170 (d) East Rast Qattara As part of the bidding process opened in 2002 by the Egyptian General Petroleum Company (EGPC) for tenders to be submitted for various blocks in the Western Desert, the East Rast Qattara block was awarded to the subsidiary Sipetrol International S.A., together with the Australian company Oil Search Ltd., on April 16, The contract was signed on March 30, 2004 in the presence of the Egyptian Oil Ministry, with an ownership interest of 50.5% for Sipetrol International S.A., Egyptian branch, as the operator, and 49.5% for Oil Search Ltd. The exploitation stage started in December On August 28, 2008, Oil Search sold its full ownership interest to Kuwait Energy Company. b) Exploration (a) E2 (Formerly CAM 3 and CAM 1) The CAM-1 (Cuenca Austral Marina 1) area was awarded on September 4, 2003 to ENAP Sipetrol Argentina S.A. and Repsol-YPF S.A. by the Energy Secretariat of the Ministry of Federal Planning, Public Investments and Services, which accepted the tender submitted by the companies during the International Public Bidding called for this project. The CAM-1 area is located in the Atlantic Ocean in southern Argentina and is adjacent to other concessions where ENAP Sipetrol Argentina S.A. is currently exploring and producing hydrocarbons. ENAP Sipetrol Argentina S.A. and YPF have formed a UTE (similar to a joint venture) to carry out hydrocarbon explorations in this area and exploit it commercially, if oil is found. In October, 2005, ENAP Sipetrol Argentina S.A. was informed by the Energy Secretariat that the CAM-1 exploitation area would be registered to ENARSA (a Stateowned company). This was based on the fact that the area had been awarded to ENAP Sipetrol Argentina S.A. and YPF S.A. in 2003 by the Energy Secretariat, but approval by administrative decree issued by the Executive was pending. On September 26, 2006, ENARSA, ENAP Sipetrol Argentina S.A. and YPF S.A. signed a joint venture agreement, whereby the parties agreed to enter into a UTE with each party holding a 33.33% interest. ENARSA, as the owner of CAM 1 (hereinafter E2), contributed this block, and ENAP Sipetrol Argentina S.A., jointly with YPF S.A., contributed the CAM 3 block. ENAP Sipetrol and Repsol YPF expressly reversed CAM- 3 to the Energy Secretariat, so that the latter could then award it to the new the consortium. F-46

171 Within the framework of the agreement signed between ENARSA, YPF S.A. and ENAP Sipetrol Argentina S.A. for the joint exploration, development and possible exploitation of the new E2 area, the Energy Secretariat accepted the transfer of the CAM-3 area to ENARSA, which, together with the former CAM-1 area, now makes up the E2 area that is the subject of the agreement. Likewise, the Energy Secretariat accepted offsetting the promised investments pending in the CAM-3 area with the promise to drill a second exploration well in the new E2 area. On March 31, 2008, the parties signed the E2 Area Hydrocarbon Exploration and Exploitation UTE (similar to a joint venture), with the purpose of regulating the rights and obligations of ENAP Sipetrol Argentina S.A., YPF S.A. and Energía Argentina S.A. (ENARSA) as partners and co-participants in exploring and exploiting the E2 area. This UTE was registered on April 17, 2008 with the Corporate Records Office under number 63, Book 2 of the Company Joint Venture Contracts. (b) La Invernada This block was opened for bidding by the Hydrocarbons Department of the Province of Neuquén on June 9, 2003 and awarded to Wintershall Energía S.A. (WIAR) effective October 29, The exploration contract was signed by WIAR and the Department of Hydrocarbons on November 11, After evaluating the possibility of finding oil in this block, the Company entered into a Joint Study and Bidding Agreement with WIAR to obtain an entry option for a 50% interest under ground floor conditions. On December 21, 2004, Decree 2949 of the Province of Neuquén approved the assignment of 50% of Wintershall Energía S.A. s interest in the Exploration Contract and License to ENAP Sipetrol Argentina S.A. The UTE (joint venture) contract was signed on March 29, 2005 and registered on May 10, 2005 with the Corporate Records Office under number 74, Book 01. On September 24, 2008, the Operator submitted the application for total roll-back of the La Invernada exploration area to the Under-secretariat of Hydrocarbons and Energy of the Province of Neuquén. On August 14, 2009, WIAR was notified by the Under-secretariat of Hydrocarbons and Energy of the Province of Neuquén regarding the Decree No. 1338, dated August 6, 2009, which approves the total reversal of the La Invernada Area. Nevertheless, such Decree only made reference to WIAR, reason why Enap Sipetrol Argentina S.A. requested formally together with WIAR through a note, dated September 9, 2009, whether the scope of the mentioned decree could be extended also to Enap Sipetrol Argentina S.A. F-47

172 On November 30, 2009 the Province of Neuquén notified the Provincial Decree No. 2175/09 which modifies Article 2 of the Provincial Decree No. 1338/09, and which reads now as follows: The Contract signed with the company Wintershall Energía S.A. on November 11, 2003 is hereby terminated, as well as the rights and obligations which correspond to the company Enap Sipetrol Argentina S.A. in its role as co-owner, for the Exploration Permit over La Invernada Area, as of November 11, 2008 due to the application of article 19 parragraph a) of the Contract, in conformity with the arguments stated in the Considerations included in this document. (c) Area 2 - Rommana In December 2006, through its subsidiary Sipetrol Internacional S.A., ENAP Sipetrol S.A. was awarded two exploration contracts, subject to the terms, procedures and approvals required by the Egyptian authorities. Block 2 on land will be operated by Sipetrol Internacional S.A., with a 40% interest in a consortium made up of PTT Exploration and Production Public Company Limited ("PTTEP") and Centrica, each with a 30% interest. This area is located to the north of SINAB, covering a surface area of 6,200 km2. On September 18, 2007, the Concession Agreement for the block was signed and the exploration stage began. (d) Block 8 - Sidi Abd El Rahman In December 2006, through its subsidiary Sipetrol Internacional S.A., ENAP Sipetrol S.A. was awarded two exploration contracts, subject to the terms, procedures and approvals required by the Egyptian authorities. Block 8, off-shore, will be operated by Edison International SPA, with a 40% interest in the consortium made up of PTT Exploration and Production Public Company Limited ("PTTEP") and Sipetrol International S.A., each with a 30% interest. This area is located in the northeast of Egypt, in the Mediterranean Sea, and covers a surface area of 4,294 km2. On September 18, 2007, the Concession Agreement for the block was signed and the exploration stage began. (e) Block Mehr Through its subsidiary Sipetrol International S.A., ENAP Sipetrol S.A. holds a 33% interest in the Mehr Block, in partnership with Repsol YPF and OMV, with the latter being the operator. Since obtaining the concession in 2001, the area has been in its exploration phase and one discovery has been made. F-48

173 On June 30, 2007, the NIOC (National Iranian Oil Company)declared the Block to be commercially viable, thereby kicking off negotiations for a development plan for the area and the respective development contract. In December, 2008, a document was received from NIOC containing comments on the development plan proposed by the consortium. Since it was not economically viable for the companies making up the consortium (Sipetrol, OMV and Repsol), a unanimous decision was made to withdraw from the negotiation process, reserving the right to demand reimbursements of expenses incurred in the exploration stage, as stipulated in the exploration services contract. OMV, as operator of the Mehr block and representing the consortium made up of Repsol and ENAP Sipetrol S.A., through its subsidiary Sipetrol Internacional S.A., delivered a letter addressed to the Exploration Director of the National Iranian Oil Company (NIOC) on January 24, 2009, reporting that a unanimous decision had been made to not continue with the negotiations for developing the Band-e-Karkheh field. This decision is due to the fact that it was not possible to reach an agreement with NIOC regarding the Development Plan needed to exploit this discovery made by the consortium. Considering that contractual obligations were fulfilled, the consortium informed NIOC that it would be activating the clause entitling it to recover exploration expenses and the remuneration fee, according to the terms stipulated in the Exploration Services Contract signed by the consortium and NIOC. Regardless, based on management s judgments and estimates, the subsidiary Sipetrol International S.A. has deemed it appropriate to record a provision of ThUS$27,262 for the amount of the investment. Next are detailed the assets, liabilities of each of the joint ventures: Current assets Non-current assets in Current liabilities Non-current liabilities Joint ventures in joint ventures joint ventures in joint ventures in joint ventures ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ a. Exploitation Magallanes Area (a) 20,361 18,946 92,336 94,595 36,437 38,110 6,131 6,189 Campamento Central Cañadón Perdido (b) 17,077 15,890 77,443 79,338 30,560 31,963 5,142 5,191 Cam 2A Sur (c) 2,627 2,445 11,914 12,206 4,702 4, East Rast Qattara (d) 21,233 17,508 20,153 22,741 4,947 4,715 17,480 18,341 b. Exploration E2 (former CAM3 and CAM1) (a) ,979 3,051 1,175 1, La Invernada (b) Block 2 - Rommana ( c) Block 8 - Sidi Abd El Rahman (d) 1,858 1,532 1,763 1, ,529 1,605 Block Mehr ( e) Total 64,078 57, , ,205 78,316 81,406 31,489 32,554 F-49

174 The amounts specified below detail the net sales, costs of sales and results of each of the joint ventures. Ordinary income Cost of sales Net income (loss) Joint ventures from joint ventures in joint ventures in joint ventures ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ a. Exploitation Magallanes Area (a) 16,431 66,584 11,275 54,831 2,901 2,764 Campamento Central Cañadón Perdido (b) 8,163 37,358 7,602 35, Cam 2A Sur (c) 1,173 4,328 1,556 4,993 (547) (3,311) East Rast Qattara (d) 10,996 26,517 5,326 16,815 5,494 8,457 b. Exploration E2 (former CAM3 and CAM1) (a) (717) (28,146) La Invernada (b) (1) (14) Bloque 2 - Rommana ( c) (2,965) (981) Bloque 8 - Sidi Abd El Rahman (d) ,257 (184) (17,932) Bloque Mehr ( e) Total 36, ,931 26, ,224 4,123 (39,053) c) Joint Ventures Agreements of ENAP in Chile Dorado Riquelme Block: During 2010 the perforation of the exploratory and extension wells in the Block have continued, in the areas called Tropilla, Gregorio and Palenque. A new collector was build that allows independizing the production of the Tropilla oilfield from the surface facilities of the Oilfield Palenque, which provides alternatives for the handling of the production and sale of the gasses of the Block. The drilled wells and the investments performed are in compliance with the contract obligations included in the CEOP. The program of activities to be developed includes for 2010 continue drilling exploration, extension and development wells, as well as continuing adequating the surface facilities according to the results that are being obtained in the drilling of new wells. Including all activities, the production of the block as at March 31 is slightly higher than 1 million cubic meters per day, situation which has allowed maintaining in this period two Methanex trains in operation. Lenga Block As of this date, the two wells of the contractual obligation Carmen AX-1 and Carmen BX-1 have been drilled, evaluated with logs and enclosed. Once the termination of the well Esmeralda AX-1 has been completed (Block Russfin awared to Apache) the rig will be moved to continue with the completion stage f the wells in Carmen. F-50

175 Coirón Block The Company decided to cancel and repeat the bidding process for drilling equipment, due to the excessive prices requested in the bids. A second bidding process was started (13 invited and 3 bidders) and it was awared to Cia. Quintana, however the works con only start after October In February 2010, the Operator proposed the second exploration location, "Dinamarqueros", which was accepted by ENAP. The first approved exploration well for the Block corresponds to the location Los Cerros. The possibility is being evaluated of using a rig of ENAP (due to the available time frame a the Block Dorado Riquelme) to drill one or the two defined locations.. Caupolicán Block On December 10, 2009 was agreed the Work Program and the Budget for the First Contract Year, which includes, among other, the programming of 300 Kms2 of seismic 3D, programming of the first exploration well, re-entrance in the well Clarencia 1A, etc. In relation to the joint operations, the last operations performed as of this date was the re-entrance to the Clarencia 1A well in January In this context, ENAP and PetroMagallantes (as informed to the Department of Energy) are currently discussing the validity of the execution by PetroMagallanes of two operations at "only risk" performed subsequentl in such well. Still pending is the review and approval of some of the works performed during the first contract year, as well as those performed during this year. Regarding the Joint Operating Agreement (JOA), the negotiations informed on December 31 still continue, in which an agreement has been achieved of approximately 90% of the clauses. 11. OTHER BUSINESS Below are detailed the main operations for the exploitation activities. a) Pampa del Castillo - La Guitarra On September 25, 2001, Pecom Energía S.A. assigned to Sipetrol Argentina S.A. 100% of the rights to the exploitation concession of the hydrocarbon area referred to as Pampa del Castillo - La Guitarra, located in the province of Chubut, Argentina. F-51

176 b) Paraíso, Biguno, Huachito and Mauro Dávalos Cordero On October 7, 2002, a contract was signed with Empresa de Petróleos del Ecuador - PETROECUADOR and its subsidiary Empresa Estatal de Exploración y Producción de Petróleos del Ecuador - Petroproducción, to exploit and develop the oilfields Paraíso, Biguno, Huachito (PBH) and Mauro Dávalos Cordero (MDC), located in the eastern Ecuador basin. By means of this specific service contract, the Company committed to making investments in the development of these fields for an amount estimated in US$90 million, which include drilling 16 wells (9 in PBH and 7 in MDC), the construction of a production station in MDC, the adaptation of facilities and a camp. At the same time, it acquired the exploration and operations rights, assuming 100% of the operation and management costs of the fields. On August 08, 2006, the MD field contract with PETROECUADOR was modified, and ENAP SIPEC agreed to increase the investment program to include the drilling of 7 wells and expansion of production facilities. These new wells will certify additional reserves, increasing current reserves from 31.6 to 57.0 million barrels of crude oil. The summarized financial information of each of the proyects in which the ENAP Group participats through Enap Sipetrol S.A. as at March 31, 2010 and December 31, 2009, is as follows: Current assets Non-current assets Current liabilities Non-current liabilities in other business in other business in other business in other business Projects ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Pampa el Castillo (a) 24,959 14, , ,760 44,665 90,412 7,516 19,991 Paraíso, Biguno, Huachito (b) 8,126 11,903 21,467 18,780 2,999 5, Mauro Dávalos Cordero (b) 30,569 50,744 80,759 80,061 11,283 24,857 1, Total 63,654 77, , ,601 58, ,100 9,111 20,976 Ordinary income Cost of sales Net Income (loss) in other business in other business in other business Projects ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Pampa el Castillo (a) 19,985 91,475 16,603 74, ,512 Paraíso, Biguno, Huachito (b) 16,759 14,221 7,112 9,809 6,143 2,827 Mauro Dávalos Cordero (b) 4,445 53,389 2,526 26,397 1,192 18,791 Total 41, ,085 26, ,337 8,333 29,130 F-52

177 12. FINANCIAL INSTRUMENTS a) Classification of other financial assets and liabilities The detail of the other financial assets, classified per nature and category as at March 31, 2010 and December 31, 2009, is as follows: Financial assets held for negotiation March 31, 2010 Financial assets at fair value through profit and loss Loans and accounts receivable Financial assets available for sale Investment held to maturity Hedge derivates ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Other financial assets (derivative instruments) ,665 Trade and other receivables , Total current ,226-52,665 Other financial assets (investment in other companies) 11,719 Other financial assets (derivative instruments) ,413 Other financial assets (Scrow Account ) Trade and other receivables , Total non-current ,307 11,719 3,413 December 31, 2009 Financial assets held for negotiation Financial assets at fair value through profit and loss Investment held to maturity Loans and accounts receivable assets available for sale Hedge derivates ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Other financial assets (derivative instruments) ,824 Trade and other receivables , Total current assets ,285-2,824 Other financial assets (investment in other companies) 27,177 Other financial assets (derivative instruments) ,614 Other financial assets (Scrow Account ) Trade and other receivables , Total non-current assets ,929 27,177 54,614 The detail of the other financial liabilities, classified per nature and category as at March 31, 2010 and December 31, 2009, is as follows: Liabilities March 31, 2010 Financial liabilities held for negotiation Financial liabilities at fair value through profit and loss Loans and Derivative accounts payable instruments ThUS$ ThUS$ ThUS$ ThUS$ Other financial liabilities (Interest bearing loan) - - 1,294,298 - Other financial liabilities (derivative instruments) ,141 Trade payables and other accounts payable - - 1,232,066 - Total current liabilities - - 2,526,364 15,141 Other financial liabilities (Interest bearing loan) - - 2,326,645 - Other financial liabilities (derivative instruments) ,420 Trade payables and other accounts payable - - 3,679 - Total non-current liabilities - - 2,330,324 78,420 Total - - 4,856,688 93,561 F-53

178 Liabilities December 31, 2009 Financial liabilities held for negotiation Financial liabilities at fair value through profit and loss Loans and Derivative accounts payable instruments ThUS$ ThUS$ ThUS$ ThUS$ Other financial liabilities (Interest bearing loan) ,509 - Other financial liabilities (derivative instruments) ,890 Trade payables and other accounts payable - - 1,406,270 - Total current liabilities - - 2,008,779 8,890 Other financial liabilities (Interest bearing loan) - - 2,365,088 - Other financial liabilities (derivative instruments) ,484 Trade payables and other accounts payable - - 3,744 - Total non-current liabilities - - 2,368,832 68,484 Total - - 4,377,611 77, OTHER FINANCIAL ASSETS AND LIABILITIES Details of the Group s financial assets and liabilities at March 31, 2010 and December 31, 2009, are as follows: Current Non current Other financial assets ThUS$ ThUS$ ThUS$ ThUS$ Derivative instruments ( a ) 52,665 2,824 3,413 54,614 Investment in other companies ( b ) - 11,719 27,177 Other Total 52,665 2,824 15,608 82,266 Current Non current Other financial liabilities ThUS$ ThUS$ ThUS$ ThUS$ Interest bearing loans ( c ) 1,294, ,509 2,326,645 2,365,088 Derivative instruments ( a ) 15,141 8,890 78,420 68,484 Total 1,309, ,399 2,405,065 2,433,572 F-54

179 a) Coverage derivatives The ENAP Group, in compliance with financial risk management policy described in Note 5, acquires financial derivaties to cover its exposure to the interest rate variations, currency (exchange rate) and fuel prices. The interest rate derivatives are used to establish or limit the variable interest rate of the financial obligations and correspond to interest rate swaps and zero-cost collars. The currency derivatives are used to establish the exchange rate of the US dollars in comparison to the Chilean peso (CLP), Unidad de Fomento (UF) and Euros (EUR), among other, due to investments or existing obligations in currencies other than the US dollar. These instruments correspond mainly to Forwards and Cross Currency Swaps. The WTI derivaties (zero cost collar and 3W zero cost collar) destined to protect, within a range, the price of a percentage of its crude oil shipments. This strategy is complemented by the use of swap sales contracts of refined products. i) Presentation of assets and liabilities The detail of the hedge assets and liabilities, considering the nature of the operations, is as follows: Hedge assets Current Non-Current Current Non-Current ThUS$ ThUS$ ThUS$ ThUS$ Exchange rate hedging Cash flow hedge 52,665 3,413 2,824 54,614 Interest rate hedging Cash flow hedge WTI hedging Cash flow hedge Total 52,665 3,413 2,824 54, Hedge liabilities Current Non-Current Current Non-Current ThUS$ ThUS$ ThUS$ ThUS$ Exchange rate hedging Cash flow hedge 1,135 6, Interest rate hedging Cash flow hedge 6,638 71,463 5,340 68,484 WTI hedging Cash flow hedge 7,368-3,550 - Total 15,141 78,420 8,890 68,484 F-55

180 ii) Fair value of hedge derivatives The detail of the hedge instruments portfolio of ENAP, is as follows: Detail of Hedge Instruments Description Hedge Instrument Description of instruments against which is hedged Fair value of Instruments against which is hedged ThUS$ ThUS$ Cross-Currency Swap Exchange rate and interest rate Unguaranteed obligations (Bonds) 44,440 51,049 Cross-Currency Swap Exchange rate and interest rate Financial lease 3,413 3,596 SWAP Interest rate Bank loans (68,046) (67,259) Zero Cost Collar Interest rate Bank loans (8,787) (6,596) Zero Cost Collar WTI Inventories (1,724) (2,038) 3W Zero Cost Collar WTI Inventories (4,567) (1,512) Swap ULSD ULSD Platt Waterborne Inventories (1,077) - Forward Exchange rate Trade receivables and other receivables (1,135) 2,824 Total (37,483) (19,936) iii) Effect in profit and loss of the hedge derivatives At period-end March 31, 2010, ENAP has recognized in profits and losses the following amounts for ineffectiveness and for the value of money in time of the derivatives: Income Income (loss) (loss) for ineffectiveness for value in time ThUS$ ThUS$ Cross-Currency Swap Exchange rate and interest rate - - Cross-Currency Swap Exchange rate and interest rate - - SWAP Interest rate (110) - Zero Cost Collar Interest rate - (539) Zero Cost Collar (*) WTI - (1,724) 3W Zero Cost Collar (*) WTI - (3,564) Forward Exchange rate (2) - Total (112) (5,827) (*) These amounts have been recorded in the item Cost of sales F-56

181 iv) Other data on financial instruments Next are detailed the maturities of the hedges: March 31, 2010 Notional After Financial derivaties Fair value a 2015 Total ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Exchange rate hedging Cash flow hedge 46, ,829 1, ,463 1,612 1,673 1,736 4, ,764 Interest rate hedging Cash flow hedge (76,833) 90, , , ,750 36,639 38, ,716 1,112,119 Total (30,115) 615, , , ,362 38,312 40, ,669 1,785,883 Fair value 2010 ThUS$ Thousands of WTI hedging Cash flow hedge (6,291) 8,350 Barrels USLD Hedging Cash flow hedge (1,077) 12,600 Gallons December 31, 2009 Notional After Financial derivaties Fair value a 2015 Total ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Exchange rate hedging Cash flow hedge 57, ,230 1, ,512 1,663 1,726 1,790 5, ,576 Interest rate hedging Cash flow hedge (73,855) 105, , , ,750 36,639 38, ,716 1,127,218 Total (16,386) 790, , , ,413 38,365 40, ,826 1,961,794 Fair value 2010 ThUS$ Thousands of WTI hedging Cash flow hedge (3,550) 5,950 Barrels The contractual notional amount of the contracts celebrated does not represent the risk taken on by ENAP and SPE s, as this amount only responds to the basis on which the calculations of the derivative liquidation have been made. v) Hierarchies of the Fair Value The Group calculates the fair value for the financial derivatives by using market parameters, which are adjusted to the maturity profil of each operation. The forward operations hedging the exchange rate exposure of the accounts receivable from sales invoices in Chilean pesos are recorded using as reference the forward peso- US dollar curve available in the market. F-57

182 The cross currency swap operations hedging the exposure to the fluctuation of the US dollar of the financial liabilities denominated in UF are recorded as the present value fo the future flows in UF (asset) and US dollar (liability). To calculate such present values are used the rate curves of the UF and market LIBOR, which are adjusted to the relevant dates of the flows included in each operation. The interest rate swap operations hedging the exposure to the fluctuation of the LIBOR rate of the financial liabilities that accrue a variable rate based on LIBOR are recorded as the present value of the future flows. To calculate such present values are used the rate curves of the market LIBOR, which are adjusted to the relevant dates of the flows included in each operation. The option operations on WTI hedging the exposure to the variation of the international price of the crude oil imports of ENAP are recorded by using calculation tools provided by financial information platforms. Such tools use the future curves of the WTI prices in the market, adjusting these to the maturity profile of each operation. The financial instruments recognized at fair value in the statement of financial situation, are classified according to the following hierarchies: (a) Level 1: Quoted price (not adjusted) in an active market for identical assets and liabilities. (b) Level 2: Different inputs to the quoted prices which are included in Level 1 and which are observable for assets and liabilities, whether directly (as price) o indirectly (as derivated from a price); and (c) Level 3: Inputs for assets and liabilities that are not based on observable market information (not observable inputs) Financial instruments measured at fair value level 1 level 2 level 3 ThUS$ ThUS$ ThUS$ ThUS$ Hedge assets Cash flow hedge 56,078-56,078 - Total 56,078-56,078 - Hedge liabilities Cash flow hedge 93,561-93,561 - Total 93,561-93,561 - F-58

183 b) Investments in other companies i) Detail of investments The detail of investments in other companies at March 31, 2010 and December 31, 2009, is as follows: Other companies ThUS$ ThUS$ Electrogas S.A. 2 2 Inversiones Electrogas S.A. 4,046 5,130 Sociedad Nacional de Oleoductos S.A. (a) - 12,705 Sociedad Nacional Marítima S.A. (a) - 1,668 Asociación Gremial de Industriales Químicos A.G 7 8 Terminales Maritimos Patagónicos S.A. 7,664 7,664 Total 11,719 27,177 (a) During 2010 the investments in these companies were reclasified to the item Investment recorded using the equity method, see Note 9. ii) Balances receivable and payable Amounts receivables Tax number Company Description of transaction Currency ThUS$ ThUS$ Sociedad Nacional Marítima S,A, Purchase of services US$ Sociedad Nacional de Oleoductos S.A. Purchase of services US$ 14 Amounts payable Tax number Company Description of transaction Currency ThUS$ ThUS$ Sociedad Nacional Marítima S,A, Purchase of services US$ Sociedad Nacional de Oleoductos S.A. Purchase of services US$ 888 F-59

184 c) Loans accruing interests The detail of the loans accruing interests as at March 31, 2010 and December 31, 2009 is the following: Current Non-current Not guaranteed ThUS$ ThUS$ ThUS$ ThUS$ Borrowings from financial institutions 1,158, , , ,530 Bonds payable(*) 15,924 23,846 1,253,011 1,269,112 Credit lines 8, Financial lease 1,460 1,766 12,658 17,458 SubTotal 1,184, ,045 1,914,194 1,934,100 Guaranteed Borrowings from financial institutions 110, , , ,988 SubTotal 110, , , ,988 Total 1,294, ,509 2,326,645 2,365,088 (*) At amortized cost F-60

185 i) Detail of loans accruing interests The detail per currency and maturity of the loans from financial entities (guaranteed and not guaranteed) accruing interests as at March 31, 2010 and December 31, 2009 is the following: March 31, 2010 Current Non-Current Currency Payment interests Nominal Rate Effective Rate Guarantee Nominal Value Undetermine ThUS$ Up to 1 month ThUS$ From 1 to 3 From 3 to 12 months ThUS$ month ThUS$ Total al ThUS$ 5 years and Total From 1 to 5 more at years ThUS$ ThUS$ ThUS$ Tax number Name Country Tax number Name Country Enercon Chile 0-E BNP - Paribas Francia US dollars Half-yearly 4.64% 4.64% Guarantee 410,000-30,226 30, , , , Etalsa Chile 0-E Kreditanstalt fur Wiederaufbau Alemania US dollars Half-yearly 4.52% 4.52% Guarantee 29,940-4,690 4,690 2,450-2, Petrosul Chile 0-E Kreditanstalt fur Wiederaufbau Alemania US dollars Half-yearly 6.98% 6.98% Guarantee 20,554-2,756 2,756 5,898-5, Prodisa Chile 0-E BNP - Paribas Francia US dollars Half-yearly 6.04% 6.04% Guarantee 34,459-1,591 1,591 20,101-20, Prodisa Chile 0-E BNP - Paribas Francia US dollars Half-yearly 3.10% 3.10% Guarantee 13, ,134 1,362 8, Prodisa Chile 0-E BNP - Paribas (Cesce) Francia US dollars Half-yearly 4.38% 4.38% Guarantee 53,215-2,348 2,348 26,427 5,519 31, K CHBB Chile 0-E Société Générale Francia US dollars Half-yearly 6.43% 6.43% Guarantee 21,981-2,372 2,372 9,253-9,253 Banco Latinoamericano de 0-E Enap Sipetrol Argentina Argentina 0-E Exportaciones S.A. (Bladex) (3) Panamá US dollars Single time 4.60% 4.60% Guarantee 65, ,000 65, ENAP Chile 0-E Export Dev Canada Canada US dollars Single time 1.03% 1.03% No Guarantee 50, ,000 50, ENAP Chile Banco de Chile Chile US dollars Single time 1.82% 1.82% No Guarantee 130, , , ENAP Chile Banco de Chile Chile US dollars Single time 0.97% 0.97% No Guarantee 71, ,381 71, ENAP Chile 0-E The Royal Bank Holanda US dollars Single time 1.23% 1.23% No Guarantee 60, ,000 60, ENAP Chile 0-E The Royal Bank Holanda US dollars Single time 1.23% 1.23% No Guarantee 60, ,000 60, ENAP Chile K Banco Itau Chile US dollars Single time 1.39% 1.39% No Guarantee 25, ,000 25, ENAP Chile 0-E Banco Itau Europa Portugal US dollars Single time 1.13% 1.13% No Guarantee 50, ,000 50, ENAP Chile 0-E JP Morgan Chase Bank EE.UU US dollars Single time 1.39% 1.39% No Guarantee 75, ,000 75, ENAP Chile 0-E Scotianbank Canada US dollars Single time 0.88% 0.88% No Guarantee 100, , , ENAP Chile BBVA Chile US dollars Single time 1.79% 1.79% No Guarantee 70, ,000 70, ENAP Chile 0-E JP Morgan Chase Bank EE.UU US dollars Single time 1.54% 1.54% No Guarantee 60, ,000 60, ENAP Chile 0-E Banco San Paolo EE.UU US dollars Single time 1.25% 1.25% No Guarantee 50, ,000 50, ENAP Chile 0-E Banco Do Brasil EE.UU US dollars Single time 1.13% 1.13% No Guarantee 80, ,000 80, ENAP Chile BBVA Chile US dollars Single time 1.25% 1.25% No Guarantee 50, ,000-50, ENAP Chile 0-E Banco Credit Agricole EE.UU US dollars Single time 1.25% 1.25% No Guarantee 100, , , ENAP Chile 0-E JP Morgan Chase Bank EE.UU US dollars Single time 1.54% 1.54% No Guarantee 100, , , ENAP Chile 0-E JP Morgan Chase Bank (1) EE.UU US dollars Single time 4.27% 2.46% No Guarantee 220, , , ENAP Chile 0-E Calyon N.Y Branch (2) EE.UU US dollars Half-yearly 5.84% 2.80% No Guarantee 150, , , ENAP Chile 0-E Banco HSBC (4) EE.UU US dollars Half-yearly 2.60% 0.75% No Guarantee 50, ,496-49, ENAP Chile 0-E BNP Paribas (4) EE.UU US dollars Half-yearly 2.10% 0.85% No Guarantee 100, ,000 25,038 73,117-73, ENAP Chile 0-E Banco Santander London (4) EE.UU US dollars Single time 2.59% 0.71% No Guarantee 150, , ,249 Total 2,253-50,608 1,216,044 1,268, , ,126 1,060,976 December 31, 2009 Currency Payment interests Nominal Rate Effective Rate Guarantee Nominal Value Undetermine ThUS$ Up to 1 month ThUS$ From 1 to 3 From 3 to 12 months ThUS$ month ThUS$ Tax number Name Country Tax number Name Country Enercon Chile 0-E BNP - Paribas Francia US dollars Half-yearly 4.64% 4.64% Guarantee 410, ,300 13,404 34, , , , Etalsa Chile 0-E Kreditanstalt fur Wiederaufbau Alemania US dollars Half-yearly 4.52% 4.52% Guarantee 29, ,490 2,243 4,733 4,794-4, Petrosul Chile 0-E Kreditanstalt fur Wiederaufbau Alemania US dollars Half-yearly 6.98% 6.98% Guarantee 20, ,547 1,308 2,855 7,251-7, Prodisa Chile 0-E BNP - Paribas Francia US dollars Half-yearly 6.04% 6.04% Guarantee 34,459-1,991-1,508 3,499 17,798 2,094 19, Prodisa Chile 0-E BNP - Paribas Francia US dollars Half-yearly 3.10% 3.10% Guarantee 13, ,244 5,441 3,264 8, Prodisa Chile 0-E BNP - Paribas (Cesce) Francia US dollars Half-yearly 4.38% 4.38% Guarantee 53,215-2,717-2,105 4,822 23,757 8,189 31, K CHBB Chile 0-E Société Générale Francia US dollars Half-yearly 6.43% 6.43% Guarantee 21, ,360 1,154 2,582 9,234 1,154 10,388 Banco Latinoamericano de 0-E Enap Sipetrol Argentina Argentina 0-E Exportaciones S.A. (Bladex) (3) Panamá US dollars Single time 4.60% 4.60% Guarantee 65, ,000 65, ENAP Chile 0-E Export Dev Canada Canada US dollars Single time 1.62% 1.62% No Guarantee 50, ,000-50, ENAP Chile Banco de Chile Chile US dollars Single time 0.97% 0.97% No Guarantee 100, , , ENAP Chile Banco de Chile Chile US dollars Single time 1.65% 1.65% No Guarantee 30, ,000-30, ENAP Chile Banco de Chile Chile US dollars Single time 0.97% 0.97% No Guarantee 26, ,266-26, ENAP Chile Banco de Chile Chile US dollars Single time 0.97% 0.97% No Guarantee 45, ,115-45, ENAP Chile K Banco Itau Chile US dollars Single time 1.20% 1.20% No Guarantee 25, ,000-25, ENAP Chile 0-E JP Morgan Chase Bank EE.UU US dollars Single time 1.25% 1.25% No Guarantee 75, ,000-75, ENAP Chile 0-E The Royal Bank Holanda US dollars Single time 1.28% 1.28% No Guarantee 79, ,443-79, ENAP Chile 0-E JP Morgan Chase Bank (1) EE.UU US dollars Single time 4.27% 2.46% No Guarantee 220, , , ENAP Chile 0-E Calyon N.Y Branch (2) EE.UU US dollars Half-yearly 5.84% 2.80% No Guarantee 150, , , ENAP Chile 0-E Banco HSBC (4) EE.UU US dollars Half-yearly 2.60% 0.75% No Guarantee 50, ,495-49, ENAP Chile 0-E BNP Paribas (4) EE.UU US dollars Half-yearly 2.10% 0.85% No Guarantee 100,000-25, ,045 73,510-73, ENAP Chile 0-E Banco Santander London (4) EE.UU US dollars Single time 2.59% 0.71% No Guarantee 150, , ,248 Total al ThUS$ From 1 to 5 years ThUS$ Non-Current 5 years and more ThUS$ Total at ThUS$ Totales - 32, ,546 87, , , ,185 1,078,518 Current The nominal interest rates informed for credits with half-yearly maturities are annual and in the case of the other credits the rates are per month. F-61

186 (1) J.P. MORGAN CHASE BANK On June 15, 2006, ENAP refinanced 220 million US dollars of the existing syndicated loan, with a September 5, 2006, effective date. Through this operation, ENAP signed a contract with fifteen international banks under the laws of New York called Second Amended and Restated Term Loan Agreement, that modifies the August 31, 2004 credit contract, which modified a previous August 29, 2003, contract. The current modifications refers to: (i) the consolidation in a single credit of the principal due from 2007 to 2009 of the current credit s two existing tranches (Tranche 1 and Tranche 2), and (ii) the modification of principal maturity dates into a 7 year term single payment ("bullet"), with a September 2013 maturity date. The interest rate applied to the operation was LIBOR+0.20% for the first four years, LIBOR+0.225% for years five and six and LIBOR+0.25% for year seven. The change in the credit s term, which originally matured between 2006 and 2009, created additional funds to finance ENAP investments for the coming years. The interest rate spread remains practically unaltered regarding the original credit (LIBOR+0.20% between 2006 and 2008 and LIBOR+0.225% in 2009). Since it is a refinancing of liabilities, this transaction did not affect ENAP s liability level. (2) CALYON NEW YORK BRANCH In December 2006, the Company obtained a ThUS$150,000 syndicated loan from a group of banks, with Calyon Bank New York Branch as the agent. Through this operation, ENAP signed a syndicated loan contract (called Term Loan Agreement) with 12 international banks under the laws of New York. The loan has a 7 year term and will be amortized in 6 equal half-year installments, the first due on June 14, The annual interest rate applied to the operation is LIBOR+0.175% for the first three years, LIBOR+0.20% for years four and five and LIBOR+0.225% for years six and seven. (3) Banco Latinoamericano de Exportaciones S.A. (Bladex) On June 30, 2009, Enap Sipetrol Argentina S.A. obtained a loan of ThUS$65,000 which matures on June 28, 2010, with payment of capital upon maturity and half-yearly payments of interests. This loan is guaranteed by the ENAP Group. The interest rate is Libor plus 3.5%. (4) HSBC Bank On June 17, 2009, ENAP obtained 3 credits at a 3 years term with Banco Santander London, BNP Paribas and HSBC in the amounts of ThUS$150,000, ThUS$100,000 and ThUS$50,000 respectively, with amortizations as of the second year and an annual interest rate of LIBOR plus a spread with a range between 1.25% and 1.50%. F-62

187 ii) Detail of Bonds Payable The detail and maturities of the bonds payable is indicated in the following table: Bonds payable Name Nominal Payment Amortization Nominal Effective Period in Tax number Company Country Description Placement Tax number Creditor Country Currency Value Interests Capital Rate Rate Guarantee year Current ThUS$ ThUS$ ENAP Chile Tipo 144 A ( b.1 ) Foreign 0-E JP Morgan USA US$ 290,000,000 Half-yearly Upon maturity 6.75% 3.80% No Guarantee 10 7,380 2, ENAP Chile Tipo 144 A ( b.2 ) Foreign 0-E Deutsche Bank USA US$ 150,000,000 Half-yearly Upon maturity 4.88% 2.90% No Guarantee , ENAP Chile N 303 A1 y A2 ( a.1 ) Local Banco de Chile Chile UF 3,250,000 Half-yearly Upon maturity 4.25% 2.50% No Guarantee , ENAP Chile B-ENAP - B ( a.2 ) Local Banco de Chile Chile UF 9,750,000 Half-yearly Upon maturity 4.33% 2.20% No Guarantee 10 3,854 8, ENAP Chile Tipo 144 A ( b.3 ) Foreign 0-E Santander USA US$ 300,000,000 Half-yearly Upon maturity 6.25% 3.30% No Guarantee 10 4,295 9,167 Total 15,924 23,846 Name Nominal Payment Amortization Nominal Effective Period in Tax number Company Country Description Placement Tax number Creditor Country Currency Value Interests Capital Rate Rate Guarantee year Non Current ThUS$ ThUS$ ENAP Chile Tipo 144 A ( b.1 ) Foreign 0-E JP Morgan USA US$ 290,000,000 Half-yearly Upon maturity 6.75% 3.80% No Guarantee , , ENAP Chile Tipo 144 A ( b.2 ) Foreign 0-E Deutsche Bank USA US$ 150,000,000 Half-yearly Upon maturity 4.88% 2.90% No Guarantee , , ENAP Chile N 303 A1 y A2 ( a.1 ) Local Banco de Chile Chile UF 3,250,000 Half-yearly Upon maturity 4.25% 2.50% No Guarantee , , ENAP Chile B-ENAP - B ( a.2 ) Local Banco de Chile Chile UF 9,750,000 Half-yearly Upon maturity 4.33% 2.20% No Guarantee , , ENAP Chile Tipo 144 A ( b.3 ) Foreign 0-E Santander USA US$ 300,000,000 Half-yearly Upon maturity 6.25% 3.30% No Guarantee , ,512 Total 1,253,011 1,269,112 F-63

188 a) National Bonds 1. On October 4, 2002, the Company registered at the Securities Record of the Superintendency of Securities and Insurance under No. 303, the issuance of adjustable bonds in Unidad de Fomento (UF) in the local market, which was executed on October 22, This placement was performed in two subseries A-1 and A-2, with the following characteristics: The placement of bonds in the local market amounted to UF 3,250,000. The maturity period is of 10 years, the payments of interests are half-yearly, the annual interest rate is of 4,25% and the amortization of the principal is at the end of the period. 2. On January 15, 2009, the Company registered at the Securities Register of the Superintendency of Securities and Insurance under No. 303, the issuance of adjustable bonds in UF in the local market. The placement of bonds in the local market was performed in January and amounted to UF 9,750,000. The maturity period is of 10 years, the payments of interests are half-yearly, the annual interest rate is of 4.33% and the amortization of the principal is at the end of the period. b) International Bonds: 1. On November 5, 2002, the Company issued and placed bonds Type 144 A in the US market, at an annual interest rate of 6.75%, in the amount of US$290 million. 2. On March 16, 2004, the Company issued and placed bonds Type 144 A in the US market, at an annual interest rate of 4,875%, in the amount of US$150 million. The maturity period of both placement is 10 years. Interests are paid on a half-yearly basis and the amortization of capital will be performed upon maturity. 3. On June 30, 2009, the Company issued and placed bonds Type 144 A in the US market, at an annual interest rate of 6.25%, in the amount of US$300 million. The maturity period is of 10 years. Interests are paid on a half-yearly basis and the amortization of capital will be performed upon maturity. F-64

189 14. INVENTORIES As at March 31, 2010 and December 31, 2009 this item is composed as follows: Detail ThUS$ ThUS$ Crude oil in inventories 428, ,635 Crude oil in transit 84, ,124 Finished products 445, ,773 Products in transit 128,864 30,175 Material in warehouse and in transit 88,863 89,646 Total 1,177,296 1,060, Additional Inventory Information ThUS$ ThUS$ Discounts on inventory amounts - - Inventory costs recognized as expense during the period (2,008,678) (1,372,366) 15. TRADE RECEIVABLES AND OTHER RECEIVABLES As at March 31, 2010 and December 31, 2009 this item is composed as follows: Total Current Total Non-Current Item ThUS$ ThUS$ ThUS$ ThUS$ Trade debtors 638, , Sundry Debtors 62,416 88,424 5, Other receivables 18,387 3,025 18,981 25,947 Allowance for doubtful accounts (1,282) (1,282) - - Total 718, ,276 24,489 25,965 The balances included in this item do not accrue interests. The average collection period to clients is of 19.8 days, without considering the other receivables or the sundry debtors F-65

190 a) Aging of matured accounts receivable, but not impaired Next is detailed the aging of the matured accounts receivable, but not impaired: ThUS$ ThUS$ Up to 90 days 117, ,173 Over 90 days up to 1 year 9,658 10,062 Over 1 year 5,724 8,117 Total 132, ,352 b) Allowance for doubtful accounts The amounts of the allowance for doubtful accounts as at March 31, 2010 and December 31, 2009 are as follows: ThUS$ ThUS$ Up to 90 days - - Over 90 days up to 1 year - - Over 1 year 1,282 1,282 Total 1,282 1,282 Considering the creditworthiness of the debtors and the historical behavior of the collection, the Group has estimated that the allowance for doubtful accounts as at March 31, 2010 is sufficient. The fair values of trade debtors, sundry debtors and other receivables correspond to the same commercial values. F-66

191 16. SHAREHOLDERS' EQUITY a) Changes in equity: Through Order No. 64 of January 1, 2009 the Treasury Department authorized the following: Through Order No of December 28, 2007, the Treasury Department temporarily suspended for the period 2007, the policy of transferring revenues from ENAP to the Chilean Government. At the same time, it transitorily annulled for that year, the transfer of net income for any reason, to complete the 14% profit on equity with retained earnings from previous periods. Article 2 of Law No authorized the Treasury Department to perform for a single time, an extraordinary contribution of capital to ENAP in the amount of ThUS$250,000, which will be financed with available resources in financial assets of the National Treasury. Such contribution was carried out through Supreme Decree No of October 29, 2008 through which the Treasury Department proceeded to the modification of the current budget of the National Treasury that allowed the capital contribution that was made effective on November 10, Through Order No. 64 of January 23, 2009 the Treasury Department authorized the following: a) Suspend temporarily for 2009, the transfer policy of 100% of the annual dividends of the subsidiaries to ENAP, corresponding for the year ended December 31, 2008; b) Temporarily suspend for 2009, the transfer policy of revenues from ENAP to the Chilean Government (for the revenues generated in 2008). The revenue distribution policy that governs ENAP, established by Treasury Resolution No. 25 of August 11, 2005, which established that ENAP had to transfer a minimum amount of resources to the Chilean State, whether as income tax (40%) and/or as anticipated revenues, corresponding to 14% of profitability over equity, with retained earnings of prior periods. F-67

192 b) Paid-in capital The detail of the paid capital as at March 31, 2010 and December 31, 2009 is the following: ThUS$ ThUS$ Paid-in capital 1,182,700 1,182,700 Total 1,182,700 1,182,700 Capital management The main purpose of the capital management, referred to the management of the equity of the Company, is the administration of the capital of the ENAP Group, as per the following detail: Ensure the normal functioning of its operations and the continuity of the Business in the long term. Ensure the financing of new investments in order to maintain a continuous growth in the future. Maintain an adequate capital structure according to the economical cycles that impact the business and the corresponding nature of the industry. Maximize the value of the ENAP Group in the long and medium term. According to the above, the capital requirements are incorporated based on the financing needs of the Group, trying to maintain an adequate liquidity level and complying with the financial requirements established in the current debt contracts and in the commitments agreed on with the owner. The ENAP Group manages its capital structure and performs adjustments based on the predominating economic conditions, in order to mitigate the risks associated to the adverse market conditions and to materialize the opportunities that could be generated to improve the liquidity position of the ENAP Group. F-68

193 c) Other Reserves As at March 31, 2010 and December 31, 2009 this item is composed as follows: Detail ThUS$ ThUS$ Transalation of foreign currency (ii) (71,819) (70,683) Held to sale (852) - Cash flow hedge (i) (51,707) (45,514) Other sundry reserves (iii) 22,346 19,763 Total (102,032) (96,434) i) Cash flow hedging Total Total Movement ThUS$ ThUS$ ThUS$ Income /(loss) recognized in the cash flow hedges of: Cross Currency Swap / Bonds and Financial lease (10,835) 9,743 (1,092) Opción ZCC. 3WZCC,SWAP / WTI 542 (2,622) (2,080) SWAP y Option ZCC interest rate bank loans (49,864) (414) (50,278) Contratos Forward of foreign exchange 2,803 (3,936) (1,133) Swap investee GNL Quintero (20,586) (928) (21,514) Deferred income tax derivatives 32,426 (8,036) 24,390 Total (45,514) (6,193) (51,707) ii) Translation reserves of foreign currencies ThUS$ ThUS$ Balance at the beginning of the year (70,683) (75,396) Result of changes in investees with accounting in local currency (1,136) 4,713 Total (71,819) (70,683) F-69

194 iii) Other sundry reserves ThUS$ ThUS$ Initial balance 19,763 25,067 Equity adjustment in Petropower Energia Ltd. 2,583 (3,786) adjustment to reserves in Innergy Holdings S.A. - (1,518) Total 22,346 19,763 d) Accumulated earnings (losses) ThUS$ ThUS$ Balance at the beginning of the year (680,044) (913,725) Income (loss) for the year (89,620) 195,923 Net variation retained earnings (accumulated loss) (3,038) 37,758 Total (772,702) (680,044) 17. NON CONTROLLING INTEREST The detail per company of the effects originated by the participation of third parties in the equity and the results of the subsidiary companies as at March 31, 2010 and December 31, 2009, is the following: Entity Non-Controlling Equity in income Interest ThUS$ ThUS$ ThUS$ ThUS$ Other companies (Special Purpose Entities) 38,597 37,501 3,297 4,555 Enap Refinerías S.A (18) 15 Total 38,694 37,618 3,279 4,570 F-70

195 18. OTHER ACCRUALS As of March 31, 2010 and December 31, 2009 the detail is as follows: Current Non-Current Concept ThUS$ ThUS$ ThUS$ ThUS$ Provision for contracts 8,152 8, Dismantling, restoration and rehabilitation costs ( a ) 18,000 18,000 50,664 51,474 Income tax provision (DL) ,860 8,565 Equity in loss of investments ( b ) 8,170 9, Sobrestadia 10,900 10, Onerous contracts ( d ) ,115 18,115 Other provisions ( c ) 1,062 11, Total 46,284 57,603 80,990 78,504 a) Under this kind of provision are grouped the estimated disbursements which the Group should perform in the future for the concepts of environmental remediations, platforms and wells, which are supported by a detailed activities plan which is currently being applied. b) Corresponds to the provisions for negative equity of the investments held in Innergy and GNL Chile S.A. c) Under this kind of provisions are grouped the disbursements that the Group will perform in the future for received services, asserts adquired and estimation of expenses with a sufficient basis waiting for its formalization or execution. d) Correspond to the recognition of obligations for the concept of onerous contract with Innergy Holding S.A. and Gas Valpo S.A. Dismantling Provision for restoration and Onerous Negative Other contracts rehabilitation costs contracts equity Provisions Total ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Movements in provisions Total provision, Initial balance at ,099 69,474 18,115 9,129 31, ,107 Additional provisions Used provision (955) - - (3,949) (4,904) Reversal of provision (959) (7,117) (8,076) Increase (decrease) in the Foreign Currency Exchange Other Increase (Decrease) ,938 3,938 Total provision, Final Balance at ,152 68,664 18,115 8,170 24, ,274 F-71

196 Dismantling Provision for restoration and Onerous Negative Other contracts rehabilitation costs contracts equity Provisions Total ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Movements in provisions Total provision, Initial balance at ,431 81,004 62,155 96,835 41, ,263 Additional provisions 12, ,991 21,718 36,307 Used provision (15,230) - (44,040) - (23,793) (83,063) Reversal of provision (17,700) (708) - (89,697) (12,018) (120,123) Increase (decrease) in the Foreign Currency Exchange Other increase (decrease) - (10,822) - - 3,540 (7,282) Total provision, Final Balance at ,099 69,474 18,115 9,129 31, , ACCRUALS FOR EMPLOYEE BENEFITS The detail of the accruals for employee benefits as at March 31, 2010 and December 31, 2009, is the following: Current Non-Current Concept ThUS$ ThUS$ ThUS$ ThUS$ Severance payments ( a ) , ,345 Share in profits and bonds for employees ( b ) 16,244 19, Others provisions ( c ) 20,258 22, Total 36,502 42, , ,464 a) This corresponds to the all events severance payments held by ENAP with its employees, which are detailed in the collective agreements active as of such date. b) Correspond to all benefits associated to bonuses and participation in revenues that ENAP has to pay to its employees and which is established in the current collective agreement contracts or employment contracts, as appropriate. c) The amounts recorded in this item correspond to other benefits to personnel, as for example vacations, rewards, year-end bonus, etc. Profit shaning Severance Other bonuses indemnity Provision Total ThUS$ ThUS$ ThUS$ ThUS$ Movements in provisions Total provision inicial balance , ,355 22, ,587 Additional provisions 6,644 2,111 9,100 17,855 Used provision (9,241) (1,849) (10,917) (22,007) Reversal of provision - - Increase (decrease) in the foreign currency (876) (5,122) (262) (6,260) Other increase (decrease) Total provision, final balance , ,495 20, ,175 F-72

197 Profit shaning Severance Other bonuses indemnity Provision Total ThUS$ ThUS$ ThUS$ ThUS$ Movements in provisions Total provision inicial balance , ,850 18, ,513 Additional provisions 31, ,968 42, ,222 Used provision (40,753) (114,129) (40,876) (195,758) Reversal of provision Increase (decrease) in the foreign currency 2 15, ,058 Other increase (decrease) 1,731 20,604 2,217 24,552 Total provision, final balance , ,345 22, , REVENUES FROM ORDINARY ACTIVITIES The detail of this item is as follows: Detail ThUS$ ThUS$ Sale of crude oil 50,412 42,492 Sale of Gas 51,618 18,433 Sale of refined products 1,800,854 1,425,003 Sale of oil services 26,240 75,895 Other operating income 8,316 2,294 Total 1,937,440 1,564, OPERATING SEGMENTS Segment criteria The segment structure used by ENAP and defined by the Board of Directors of ENAP, is first in accordance with its business lines and second, according to its geographical distribution. The aforementioned lines of business are Exploration, Production and Refining, Logistics and Distribution. Main business segments of the consolidated group: Exploration and production, including the exploration operations of hydrocarbons (oil and natural gas) and of geothermia, as well as its development, production and marketing. F-73

198 Refining, logistics and distribution, including the activities destined to the acquisition of crude oil and other supplies for the production; development of the fuel production (fuel, diesel, fuel oil, kerosene, liquid gas, among other) and other products derived from oil (solvents, bases for the production of asphalt, ethylene and other petro-chemical products); the storage, transport and marketing of these products in the local and international market, including the wholesale distribution business in Peru. The Board of Directors and the General Manager of ENAP are in charge of the decision taking process regarding the administration allocation of resources and regarding the performance assessment of each of the above described operating segments. Segment information of these businesses as at March 31, 2010 and December 31, 2009 is as follows. March 31, 2010 ThUS$ Refining, Exploration and Production Logistics and Marketing Other Total (E&P) (RL&C) ( 1 ) Revenues 137,161 2,055,175 (254,896) 1,937,440 Cost of sales (93,850) (2,070,529) 254,572 (1,909,807) Gross margin 43,311 (15,354) (324) 27,633 Other operating revenues ,761 4,307 Administrative expenses (8,892) (7,351) (6,400) (22,643) Other sundry operating expenses (13,818) (2,206) (4,114) (20,138) Other income (loss) (456) (63,912) - (64,368) Financial Revenues Financial Costs (1,607) (19,493) (13,833) (34,933) Equity in Earnings (Loss) of Associates, recorded according to the equity method - 3,332 5,693 9,025 Foreign Currency Exchange Differences 351 8, ,623 Income (loss) after taxes 19,606 (95,202) (15,574) (91,170) (Expense) Revenues for income taxes (7,346) 12,267 (92) 4,829 Income (Loss) after tax 12,260 (82,935) (15,666) (86,341) Revenues from discontinued operations (2) Income (Loss) 12,260 (82,935) (15,666) (86,341) Income (loss) attributable to owners of the Parent Company 12,246 (87,165) (14,701) (89,620) Income (loss) attributable to minority interests 14 4,230 (965) 3,279 Income (Loss) 12,260 (82,935) (15,666) (86,341) F-74

199 March 31, 2009 ThUS$ Refining, Exploration and Production Logistics and Marketing Other Total (E&P) (RL&C) ( 1 ) Revenues 79,380 1,636,649 (151,912) 1,564,117 Cost of sales (96,529) (1,510,534) 134,705 (1,472,358) Gross margin (17,149) 126,115 (17,207) 91,759 Other operating revenues 1,728 5, ,828 Administrative expenses (13,307) (6,339) (3,833) (23,479) Other sundry operating expenses (1,414) (155) (5,179) (6,748) Other income (loss) - (541) 268 (273) Financial Revenues ,535 11,725 Financial Costs (2,495) (25,327) (15,921) (43,743) Equity in Earnings (Loss) of Associates, recorded according to the equity method - 2,988 (1,356) 1,632 Foreign Currency Exchange Differences (1,599) 6,784 (10,539) (5,354) Income (loss) after taxes (34,083) 109,395 (41,965) 33,347 (Expense) Revenues for income taxes (3,303) (11,092) (52,605) (67,000) Income (Loss) after tax (37,386) 98,303 (94,570) (33,653) Revenues from discontinued operations (2) 45, ,751 Income (loss) 8,365 98,303 (94,570) 12,098 Income (loss) attributable to owners of the Parent Company 8,357 92,383 (93,212) 7,528 Income (loss) attributable to minority interests 8 5,920 (1,358) 4,570 Income (Loss) 8,365 98,303 (94,570) 12,098 (1) This line presents the elimination adjustments in consolidation and the revenues generated by the ENAP Group, being the most relevant items: i) the transactions of revenues and costs for the purchase/sale of products and raw material between the companies of the ENAP Group in the amounts of ThUS$ and ThUS$254,572, respectively for the year 2010 and ThUS$-151,912 and ThUS$134,705 for 2009; and ii) the income taxes of ThUS$4,829 for 2010 and ThUS$67,000 for 2009, which correspond to 40% of the additional tax that affects the ENAP Group, in conformity with the indicated in L.D (2) Corresponds to the revenues generated by the sale of the project North Bahariya, which was performed on March 31, 2009, in the amount of ThUS$45,751. Detail of revenues according to segment criteria: Exploration and Production Refining, Logistics and Marketing Total Exploration and Production Refining, Logistics and Marketing Total Geographical sales (E&P) (RL&C) (E&P) (RL&C) ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ National 36,455 1,750,541 1,786,996 22,521 1,367,872 1,390,393 Foreign 72,730 77, , ,597 68, ,724 Total 109,185 1,828,255 1,937, ,118 1,435,999 1,564,117 F-75

200 Exploration and Production Exploration Total and Production Refining, Logistics and Marketing Refining, Logistics and Marketing Total Sale of products (E&P) (RL&C) (E&P) (RL&C) ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Liquid Petroleum Gas - 121, ,338-65,782 65,782 Fuel - 448, , , ,617 Kerosene - 161, ,398-93,138 93,138 Diesel - 802, , , ,551 Fuel oil - 210, , , ,850 Other products - 56,242 56,242-45,457 45,457 Gas 24,867 26,751 51,618 18,433-18,433 Crude oil 50,412-50,412 42,492-42,492 Sale of services and other exploitation services 33,906 1,096 35,002 67,193 11,604 78,797 Total 109,185 1,828,255 1,937, ,118 1,435,999 1,564,117 Assets and liabilities for Operating Segments At current the ENAP Group does not maintain a control and register of the assets for reportable segments in its internal reporting system; consequently such information is not used by the Board as part of de decision-making process and allocation of resources. The financial liabilities of ENAP are centralized and controlled at corporate level and are not presented by reportable segments. The main customers of ENAP at national level are Copec, Petrobras, Terpel, Esso and Methanex. 22. FINANCIAL EXPENSES As at March 31, 2010 and 2009 the detail of this item is as follows: Concepts ThUS$ ThUS$ Interests from overdraft and bank borrowings 6,752 15,056 Interests from bonds payable 17,947 12,267 Interests from lease obligations Expense for other 2,408 3,763 Expenses for interests accounts payable 3,133 7,448 Total expenses for interests 30,371 38,662 Income / Loss for liquidations from derivatives (swap) 7,955 6,405 Other effects for the valuation of derivatives (time value and ineffectiveness) (347) - Accrued interests for swap (3,046) (1,324) Less: Capitalized interests - - Total financial costs 34,933 43,743 F-76

201 23. INCOME TAXES a) Tax situation All companies of the ENAP Group present individually their tax returns, in conformity with current tax standards in the operating country. The tax and deferred income (expense) for the year ended March 31, 2010 and 2009, is the following: ThUS$ ThUS$ (Expense) income - current tax (3,150) (32,612) Tax benefit from unrecognized tax assets, previously used to reduce the expense for current Adjustments to current tax from prior period Other (expense) income for current taxes (4,995) (74) (Expense) income for current taxes, net, total (8,145) (32,686) Deferred tax expense - Deferred (expense) income for taxes related to the creation and reversal of temporary 12,974 (34,314) (Expense) income for deferred taxes, net, total 12,974 (34,314) (Expense) income for income taxes 4,829 (67,000) ThUS$ ThUS$ (Expense) income for current taxes, net, foreign (3,682) (994) (Expense) income for current taxes, net, national (4,463) (31,692) (Expense) income for current taxes, net, total (8,145) (32,686) Expense for deferred taxes to the income from foreign and national parties, net ThUS$ ThUS$ (Expense) income for deferred taxes, net, foreign (3,754) 910 (Expense) income for deferred taxes, net, national 16,728 (35,224) (Expense) income for deferred taxes, net, total 12,974 (34,314) F-77

202 b) Conciliation of the accounting result with the tax result The reconciliation of the Statutory tax rate in Chile and the effective tax rate applicable to the ENAP Group, is as follows: ThUS$ ThUS$ (Expense) income for taxes using the legal rate 12,091 (19,312) Tax effects of rates in other jurisdictions (4,707) 2,439 Tax effect of ordinary income, not taxable (1,185) (5,903) Tax effect of expenses, not deductible from taxes (410) 15,063 Tax effect from the use of tax losses not previously recognized - Tax effect of change in tax rates (5,927) 10,806 Other increase (decrease) in charge for legal taxes 4,967 (70,093) Adjustment to tax expenses using the legal rate, total (7,262) 47,678 (Expense) income for taxes using the effective rate 4,829 (67,000) Reconciliation of the legal tax rate with the effective tax rate % % Legal tax rate (%) 57.00% 57.00% Tax effects of rates in other jurisdictions (%) 5.16% 7.20% Tax effect of ordinary income, not taxable (%) 1.30% % Tax effect of expenses, not deductible from taxes (%) 0.45% 44.46% Tax effect of changes in tax rates of other jurisdictions (%) 40.00% 31.90% Tax effect from the use of tax losses not previously recognized 0.00% 0.00% Tax effect of changes in tax rates of other jurisdictions (%) 0.00% 0.00% Oher increase (decrease) in legal tax rate (%) 4.79% % Adjustments to legal tax rate, total (%) 51.70% % Effective tax rate (%) 5.30% % The tax rates applicable for the ENAP Group are of 17% for the local subsidiaries (ERSA, Sipetrol and SPE s) en in the case of the Parent Company, ENAP, the applicable rate amounts to 57%, which includes the rate of 17% plus 40% of Law Decree The other increases or decreases due to legal taxes, correspond to the taxes, the retained earnings of the subsidiaries. The taxes for the foreign companies are calculated according to the tax rates in the corresponding jurisdictions. F-78

203 c) Deferred tax assets and liabilities The origin of the deferred taxes recorded at March 31, 2010 and December 31, 2009, is as follows: ThUS$ ThUS$ Assets for deferred taxes related to accumulations (or accruals) 12,227 13,432 Assets for deferred taxes related to Provisions 60,177 40,546 Assets for deferred taxes related to Foreign Currency Contracts 25,753 47,734 Assets for deferred taxes related to Post-Retirement benefit obligations 49,345 44,533 Assets for deferred taxes related to property, plant and equipment 13,644 7,518 Assets for deferred taxes related to tax losses 141, ,456 Assets for deferred taxes related to other 160, ,805 Assets for deferred taxes 463, , ThUS$ ThUS$ Assets for deferred taxes, tax credits, not recognized (9,674) (9,674) Assets for deferred taxes, Not recognized, Total (9,674) (9,674) Liabilities for Recognized Deferred Taxes ThUS$ ThUS$ Liabilities for deferred taxes related to depreciations 8,522 7,817 Liabilities for deferred taxes related to amortizations 6,804 9,624 Liabilities for deferred taxes related to accumulations (or accruals) 167, ,664 Liabilities for deferred taxes related to obligations for post-retirement benefits 50,553 52,168 Liabilities for deferred taxes related to reassessments of property, plant and equipment 11,080 11,422 Liabilities for deferred taxes related to Other 29,778 17,480 Liabilities for deferred taxes 274, , ThUS$ ThUS$ Movements in liabilities for deferred taxes (presentation) Liabilities for deferred taxes, initial balance 283, ,236 Increase (decrease) in liabilities for deferred taxes (9,152) 22,939 Changes in liabilities for deferred taxes, total (9,152) 22,939 Liabilities for deferred taxes, Final balance 274, ,175 F-79

204 d) Tax assets The detail of the receivable taxes as at March 31, 2010 and December 31, 2009, is as follows: Detail ThUS$ ThUS$ VAT fiscal credit (Remnant) 111, ,779 Taxes FEP Law D.A 497 1,668 Credit FEPP Law , Custom duties 2,091 3,105 Monthly Provisional Payments 17,318 11,160 Recovery of first category income tax 11,692 40,915 Other foreign taxes 17,797 17,559 Other taxes 3,982 4,114 Total 171, ,510 e) Tax liabilities The detail of the payable taxes as at March 31, 2010 and December 31, 2009, is as follows: Detail ThUS$ ThUS$ VAT fiscal debit 71 2,171 Specific tax on Diesel - 6,856 Specific tax on fuel - 17,169 Taxes FEPP Law ,255 - Withholding taxes 3,362 3,359 Subsidy Eastern Island Other foreign taxes 7,811 - Income tax Other taxes 1,147 2,783 Total 27,819 32,500 F-80

205 f) Results and tax rates ThUS$ ThUS$ INCOME (LOSS) BEFORE TAXES (91,170) 33,347 TAX EXPENSES RATE 17% 9,998 (6,366) Tax 17% (1,118) 12,594 Deferred tax 14,798 (17,966) Foreign tax (3,682) (994) INCOME (LOSS) AFTER TAXES RATE 17% (81,172) 26,981 INCOME FROM DISCONTINUED OPERATIONS - 45,751 INCOME (LOSS) AFTER TAXES RATE 40% (81,172) 72,732 TAX EXPENSES DL % (5,169) (60,634) Income tax (3,345) (44,286) Deferred tax (1,824) (16,348) INCOME (LOSS) AFTER TAXES RATE 40% (86,341) 12,098 INCOME (LOSS) (86,341) 12,098 MINORITY INTEREST (3,279) (4,570) NET INCOME (LOSS) FOR THE YEAR (89,620) 7,528 The net (loss) income of ENAP as at March 31, 2010 and 2009, after taxes of 17%, amounts to ThUS$-81,172 and ThUS$26,981, respectively, which in addition to the revenues for discontinued operations in the same periods of US$0 and ThUS$45,751, respectively, result in a final net loss of US$-81,172 for the year 2010, in comparison to the income of ThUS$72,732 in the year F-81

206 24. BALANCES AND TRANSACTIONS WITH RELATED COMPANIES The accounts receivable, accounts payable and transactions with related parties are the following: a) Accounts receivable Currency Non - currency Nature of the relationship Tax Number Company Country Description of the transaction Currency ThUS$ ThUS$ ThUS$ ThUS$ 0-E Primax S.A. Peru Sale of product Affiliated US$ 10,957 20, Petropower Energia Ltda. Chile Sale of service Affiliated US$ 8,099 8, Norgas S.A. Chile Sale of product Affiliated US$ 3,807 1, K GNL Chile S.A. Chile Trade checking account Affiliated US$ 15,477 20, Empresa Nacional de Geotermia S.A. Chile Trade checking account Affiliated US$ Innergy Holding S.A. Chile Trade checking account Affiliated US$ ,426 12, Geotermica del Norte S.A: Chile Trade checking account Affiliated US$ 15, Oleoducto Trasandino Chile S.A. Chile Trade checking account Affiliated US$ Sociedad Nacional de Oleoducto S.A. Chile Trade checking account Affiliated US$ Energia Andina S.A. Chile Trade checking account Affiliated US$ E Gaseoducto del Pacifico Argentina S.A. Argentina Trade checking account Affiliated US$ 3,831 3, Golfo de Guayaquil Petroenap Compañía de Ecuador 0-E Economia Mixta Trade checking account Affiliated US$ SK Inversiones Petroquímicas Chile Trade checking account Relationship through SPE US$ K Foster Wheeler Ibera Chile Trade checking account Relationship through SPE US$ Total 59,820 57,009 12,818 12,964 b) Accounts payable Currency Non - currency Nature of the relationship Tax Number Company Country Description of the transaction Currency ThUS$ ThUS$ ThUS$ ThUS$ 0-E Primax S.A. Peru Trade checking account Affiliated US$ 15,058 13, Oleoducto Trasandino S.A. Chile Purchase of service Affiliated US$ Petropower Energía Ltda. Chile Purchase of service Affiliated US$ Sociedad Nacional Maritima S.A. Chile Trade checking account Affiliated US$ Geotermica del Norte S.A. Chile Purchase / Sale of currencies Affiliated US$ GNL Quintero S.A. Chile Trade checking account Affiliated US$ K GNL Chile S.A. Chile Trade checking account Affiliated US$ - 14, SK. Converge S.A. Chile Trade checking account Relationship through SPE US$ Sigdo Koppers S.A. Chile Purchase of service Relationship through SPE US$ Total 16,916 27, The balances and transactions with related parties are adjusted to the established in Article 89 of Law No , which establishes that the operations between investees, between the parent company and its subsidiaries, and those performed by a publicly traded company have to consider arm s length conditions, which means, performed under conditions of mutual independence between the parties. c) Transactions with related parties Tax Number Company Country Nature of the relationship Description of the transaction ThUS$ ThUS$ Empresa Nacional del Geotermia S.A. Chile Affiliated Reimbursement of expenses Geotermica del Norte S.A. Chile Affiliated Interests 61 - Loans 15,469 - O-E Primax S.A. Peru Affiliated Sale of products 59,605 52, Innergy Holding S.A. Chile Affiliated Purchase of natural gas (6,997) (2,621) Oleoducto Trasandino Chile S.A. Chile Affiliated Purchase of services (1,004) (481) Norgas S.A. Chile Affiliated Sale of products 15,367 7, Petropower Energia Ltda Chile Affiliated Purchase of services (32,119) (46,919) Sociedad Nacional de Oleoducto S.A. Chile Affiliated Sale of services Purchase of services (7,526) (9,875) Dividend Sociedad Nacional Maritima S.A. Chile Affiliated Purchase of services (7,722) (10,456) k GNL Chile S.A. Chile Affiliated Purchase of natural gas (39,125) - Interests 15 - F-82

207 d) Remunerations of the Board of Directors Name Position Period Tax Number ThUS$ ThUS$ Laurence Golborne Riveros ( a ) President - - Hernán Cheyre Valenzuela Vicepresident - - Santiago Gonzalez Larraín ( b ) President - - Carlos Alvarez Voullieme ( b ) Vicepresident - - Rodolfo Krause Lubascher Director 6 4 Miguel Moreno García Director 4 4 Iván Pérez Pavez Director 4 4 Eduardo González Yáñez Director - 2 Jorge Matute Matute ( c ) Director 5 4 Ramón Jara Ayara Director - - Axel Juan Christensen de la Cerda Director 5 - Total (a) On May 4, 2010, assumed as new chairman of the Board of Directors of ENAP the Minister of Energy Mr. Ricardo Raineri Bernain in replacement of the Minister of Mining Mr. Laurence Golborne Riveros. (b) On March 29, assumed as new chairman of the Board of Directors of ENAP Mr. Laurence Golborne Riveros in replacement of Mr. Santiago González Larraín and as Vice Chairman Mr. Hernán Cheyre Valenzuela in replacement of Mr. Carlos Alvarez Voullieme. (c) In his condition as employee of the subsidiary Enap Refinerías S.A., this director received also a remuneration equivalent to ThUS$39. The accrued compensation for key management personnel amounts to ThUS$516 for the year-ended March 31, 2010 (ThUS$535 for the year-ended March 31, 2009). This compensation includes the salaries and an estimate of the short-term benefits (annual bonus) and severance payments paid to the key executives that provided services during the informed years. The positions considered in the amounts informed correspond to the 10 senior executives of the ENAP Group, including the General Manager of ENAP and the executives that report directly to him during the reported years. Incentive plans for key personnel ENAP has a Variable Remunerations System (VRS) that is applicable to all its executives, with the sole exception of the General Manager. The purpose of this system is to encourage them to add value to the company, improvement the teamwork and the individual performances. The factors considered in this model for the determination of the incentive are the following: - The financial results obtained by the company: F-83

208 - The results per area, which shows the compliance level of goals achieved for each of the managements of the company, and - The individual results, which shows the compliance percentage of the goals assigned to each executive. 25. GUARANTEES COMMITTED WITH THIRD PARTIES a) Direct guarantees Empresa Nacional del Petróleo Creditor of the guarantee Name Debtor Relationship Description Type of Guarantee Release of guarantee and following ThUS$ ThUS$ Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Guarantees the adequate execution of works, crossing highway 255, km 56.5 with collector 12 3/4, San Gregorio with maturity in December 2010, for UF 100 Performance Bond 4 Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Guarantees the adequate execution of works, crossing highway 255, km 56.5 with collector 12 3/4, San Gregorio with maturity in December 2010, for UF 50 Performance Bond 2 Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Adequate execution of work "Temporary access to exploration well tropilla F, on highway 255-ch, with maturity in December 2009, for UF 170 Performance Bond 7 Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Guarantees adequate application of work "Temporary access to exploration well tropilla F, on highway 255-ch with maturity in December 2010, for UF 40 Performance Bond 2 Dirección General de Aeronáutica Civil Empresa Nacional del Petróleo Parent Company Guarantees concession at "Aeropuerto Mataveri" at Eastern Island", with maturity in December 2010 for UF 1,452. Performance Bond 58 BG LNG Trading LLC-GNL BG LNG Trading LLC-GNL Empresa Nacional del Petróleo Empresa Nacional del Petróleo Parent Company Parent Company Credit letter, with maturity in June 2010, Credit letter 12,154 Credit letter, with maturity in June 2010, Credit letter 1,449 BG LNG Trading LLC-GNL Empresa Nacional del Petróleo Parent Company Credit letter, with maturity in May 2010, Credit letter 10,654 Dirección General del Territorio Marítimo Empresa Nacional del Petróleo Parent Company Cost of withdrawal of works and construction, with maturity in September 2010, for ThUS$ 18 Performance Bond 18 Dirección General del Territorio Marítimo Empresa Nacional del Petróleo Parent Company Cost of withdrawal of works and construction, with maturity in September 2010, for ThUS$ 58 Performance Bond 56 Subsecretaria de Mineria Empresa Nacional del Petróleo Parent Company Guarantees the compliance of the investments and works in Block Caupolican CEOP ThUS$4,428, with maturity in April 2012 Performance Bond 4,428 Ministerio de Mineria Empresa Nacional del Petróleo Parent Company Faithful compliance, together with Methanex, Block Dorado Riquelme for ThUS$3,750, with maturity in August 2012 Performance Bond 3,750 F-84

209 b) Direct Guarantees Subsidiaries Creditor of the guarantee INNOVA Chile Description Guarantees the correct use of an advance payment granted in relation to project "Biocomsa S.A.", granted by Banco Chile, valid until April 26, Type of Guarantee Performance Bond Release of guarantees 2011 and 2010 following ThUS$1.334 INNOVA Chile Guarantees the faithful compliance of the agreement - Execution of project "Biocomsa S.A.", granted by Banco Chile, valid until April 26, Performance Bond ThUS$60 Dirección General del Territorio Marítimo y de Marina Mercante Guarantees the good preservation conditions of the fiscal improvements, issued by Banco Santander, valid until June 1, Performance Bond ThUS$0.8 Dirección de Vialidad región del Maule Compliance of signals of maintenance works of oil pipeline on highways k-25 and k-215, district of Rio Claro Performance Bond ThU$1 Dirección de Vialidad región del Maule Adequate execution of maintenance works of oil pipeline on highways k-25 and k-215, district of Rio Claro Performance Bond ThU$4 Dirección de Vialidad región del Maule Compliance of signals of maintenance works of oil pipeline on highway L-255, district of Yerbas Buenas Performance Bond ThU$1 Dirección de Vialidad región del Maule Adequate execution of maintenance works of oil pipeline on highway l-255, district of Yerbas Buenas Performance Bond ThU$4 Municipalidad de Hualpen Safeguarding the first stage of the installation of basic public utilities in the nueva integrante street, sublot project, for Ch$66,691,187, expiring in June, 2010 Performance Bond ThU$127 Pacific Hydro Chile S.A. Performance bond for faithful, timely performance of the obligations assumed by ERSA in the contract, for Ch$4,200,000, expiring in February, 2013 Performance Bond ThU$4.200 F-85

210 c) Indirect guarantees Empresa Nacional del Petróleo Creditor of the guarantee Methanex Debtor Committed assets Release of guarantees Relationship Guarantee Description Type of 2010 and Name Type Assets following Guarantees compliance with obligations of Sipetrol in the Sales Contract of Gas between Sipetrol/YPF- Methanex (equivalent to Enap Sipetrol 30% of the contract). The remaining obligation amounts to Subsidiary Argentina S.A SCM(9300 Kcal/m3), at a base price of 0.75 US$/MMBtu (scale with the methanol price) and with a maximum validity until Severally liable (*) Petropower Energía Ltda. Petropower Energía Ltda. Enap Refinerías S.A. Enap Refinerías S.A. Subsidiary Subsidiary Guarantees the obligations of Enap Refinerías S.A. in the Processing Contract signed with Petropower, valid until Severally liable (*) The guaranteed obligation consists in the payment of processing services for an annual amount of approximately ThUS$18,000. Guarantees the obligations of Enap Refinerías S.A. in the different contracts signed regarding the project Petropower ( (i) Capital Contribution Contract in the company (15% of ownership), (ii) Usage Contract of land for the project and (iii) Indemnity Contract in case of negligent or fraudulent actions or Severally liable (*) ommissions by Enap Refinerías S.A.). The obligation to make a capital contribution has been complied already, the other obligations can not be assessed in money in an anticipated manner. The validity of the guarantes expires in YPF y Panamerican Bank KfW Innergy Holding S.A. Subsidiary Eteres y Alcoholes S.A. Subsidiary (Etalsa) Bank KfW Petrosul S.A. Subsidiary Bank BNP Paribas Société Généralé Productora de Diesel S.A. (Prodisa) Compañía de Hidrogeno del Bío Bío S.A. Subsidiary Filial Guarantees the compliance of the obligations of Innergy in the Gas Purchase Contract with YPF- Bridas - Pluspetrol. The total contractual obligation was originated in 2004 and is valid until The 25% to which the guarantee could increase is equivalent to ThUS$6,000 as at 2004, with an annual readjustment up to ThUS$12M in 2019; which is subject to the actual submittal of gas on behalf of the creditors of the guarantees. Severally liable (*) Pledge on shares of Etalsa S.A. owned by ENAP to guarantee the repayment of credit obtained to finance the project, which is Pledge of shares 2,087 shares de Etalsa (*) valid until Pledge on shares of Petrosul S.A. owned by ENAP to guarantee the repayment of credit obtained to finance the project, which is Pledge of shares 1,579 shares of Petrosul S.A. (*) valid until Pledge on shares of Productora de Diesel S.A. owned by ENAP to guarantee the repayment of credit obtained to finance the project, which is valid until Pledge on shares of Compañía de Hidrogeno del Bío Bío S.A. owned by ENAP to guarantee the repayment of credit obtained to finance the project, which is valid until Pledge of shares Pledge of shares 2.,219,987 shares of Productora de Diesel S.A. 50,000 shares of Compañía de Hidrogeno del Bío Bío S.A. (*) (*) 2,087 shares de Etalsa 1,579 shares of Petrosul S.A. 2,219,987 shares of Productora de Diesel S.A. 50,000 shares of Compañía de Hidrogeno del Bío Bío S.A. Bank BNP Paribas Energía Concón S.A. (ENERCON) Subsidiary Pledge on shares of Energía Concón S.A. owned by ENAP to guarantee the repayment of credit obtained to finance the project, which is valid until Pledge of shares 176,749 shares of Energía Concón S.A. (*) 176,749 shares of Energía Concón S.A. Chicago Bridge & Iron Company GNL Quintero S.A. Affiliate Guarantees the payment obligations of GNL Quintero S.A. in accordance with its ownership percentage of ENAP in such company, under the "Engineering Contract", "Procurement Contract" and "Construction Contract", signed on April 30, 2007 for the construction of the LNG project, up to monthly maximum amount of US$ million. (*) The release of these guarantees is associated to the compliance of the contracts that originated them. Severally liable (*) F-86

211 d) Indirect Guarantees Enap Refinerías S.A. Creditor of the guarantee Debtor Description Committed assets Release of guarantees Relationship Guarantee Type of 2010 and Name Type Book Value Assets following Bank KfW Petrosul S.A. Subsidiar y Pledge of shares in Petrosul S.A. owned by ENAP Refinerías S.A., to guarantee repayment of credit obtained for funding of project for ThUS$20,921, current up to year Pledge of shares 3,160 shares of Petrosul S.A. (*) 3,160 shares of Petrosul S.A. Bank KfW Pledge of shares in Etalsa S.A. owned by ENAP Refinerías S.A., to Eteres y Subsidiar guarantee repayment of credit Alcoholes S.A. y obtained for funding of project for (Etalsa) ThUS$30,500, current up to year Pledge of shares 2,087 shares of Etalsa (*) 2,087 shares of Etalsa Bank BNP Paribas Productora de Diesel S.A. (Prodisa) Subsidiar y Pledge of the Productora de Diesel S.A. shares owned by ENAP Refinerias S.A., guaranteeing the Pledge of shares payment of the loan obtained to finance the project for ThUS$110,451 current up to year ,769,953 shares of Prodisa (*) 7,769,953 shares of Prodisa Société Généralé Pledge of the Compañía de Hidrógeno Compañía de del Bío Bío S.A. shares owned by Subsidiar Hidrogeno del ENAP Refinerías S.A., guaranteeing y Bío Bío S.A. the payment of the loan obtained to finance the project until Pledge of shares 50,000 shares of Compañía de Hidrogeno del Bío Bío S.A. (*) 50,000 shares of Compañía de Hidrogeno del Bío Bío S.A. Citigroup Energía Concón S.A. (ENERCON) Subsidiar y Pledge of the Energía Concón S.A. shares owned by ENAP Refinerias S.A., guaranteeing the payment of the loan obtained to finance the project until Pledge of shares 318,148 shares of Energía Concón S.A. (*) 318,148 shares of Energía Concón S.A. (*) The release of these guarantees is associated to the compliance of the contracts that originated them. F-87

212 e) Indirect Guarantees Enap Sipetrol S.A. Creditor of the guarantee EGAS EGAS Servicio de Rentas Internas Ecuador Servicio de Rentas Internas Ecuador Servicio de Rentas Internas Ecuador Description Guarantee for the minimum exploration obligation for Area 2- Rommana in Egypt. Guarantee for the minimum exploration obligation for Area 8- Side ABD El Rahaman in Egypt Guarantee for 10% of complaint for incorrect payment in 2005 Guarantee for 10% of complaint for incorrect payment in 2004 Guarantee for 10% of complaint for incorrect payment in 2003 Consejo nacional Guarantee the obligations of Enap Sipetrol de electricidad SA Consejo nacional Guarantee the obligations of Enap Sipetrol de electricidad SA Consejo nacional Guarantee the obligations of Enap Sipetrol de electricidad SA Ministerio de medio ambiente Faithful performance of contract Ministerio de medio ambiente Faithful performance of contract Ministerio de medio ambiente Faithful performance of contract Maturity Committed assets Release of guarantees Type Book Value Type of date Assets Assets Guarantee ThUS$ ThUS$ ThUS$ ThUS$ MUS$ Stand by Indirect 10,000 10,000 - Stand by Indirect 3,278 3,278 - Guarantee for immediate collection Direct Guarantee for immediate collection Direct Guarantee for Open Direct immediate collection Insurance Policy Direct Insurance Policy Direct Insurance Policy Direct Insurance policy Insurance policy Insurance policy Direct Direct Direct CASH AND CASH EQUIVALENTS As at March 31, 2010 and December 31, 2009 this item is composed as follows: ThUS$ ThUS$ Cash 30,642 42,006 Bank 358,129 32,929 Time and overnight deposits 151,253 1,560 Agreements Total 540,024 76,812 Currency ThUS$ ThUS$ Cash and cash equivalents US$ 467,917 12,861 Cash and cash equivalents AR$ 15,645 6,922 Cash and cash equivalents UK Cash and cash equivalents $ 56,380 56,979 Total 540,024 76,812 F-88

213 27. LAWSUITS AND COMMERCIAL COMMITMENTS The Parent Company and its subsidiaries have not accrued provisions for contingent liabilities, because in the opinion of management, the various lawsuits described next do not represent, neither individually nor combined, any contingency of significant loss for the Company. Lawsuits: The Parent Company (ENAP) has the following lawsuits. ENAP with Solo de Zaldívar María Isabel. Case No of the Civil Court of Porvenir, claim regarding the constitution of mining right-of-ways over wells, pipelines, facilities, etc., existing at the Estate Bahía Lomas, indicated in compliance with the established in the case on the statement of acquisition prescription of right-of-ways mentioned in number 1 of this report; the case is in evidence stage, amount claimed ThUS$4,941. ENAP with Ricardo Covacevich Cvitanich, Case No of the Civil Court of Porvenir. Claim regarding the constitution of transitory mining right-of-ways on the land of the defendant for the execution of the seismic exploration project in Tierra del Fuego. Status: The provisory use of the right-of-ways has been authorized. The notification of the lawsuit is still pending. The works have been executed and the case has been filed. Corpbanca with ENAP, Case No , 3 rd Civil Court of Punta Arenas, sued for executive lawsuit, collection of invoices allegedly not paid by ENAP, ceded by the contractor of ENAP to the plaintiff, the invoices do no appear as received or recorded at ENAP, ENAP files an objection within the legal period, and CORPBANCO opposed it. Lawsuit ended, amount ThUS$180. María Isabel Solo de Zaldívia with Empresa Nacional del Petróleo, Case No. 6486, 10º Civil Court of Santiago. (Case No. at the Supreme Court No ). Lawsuit claiming a remediating action towards the environment together with a claim for a damage indemnity due to environmental damages, both in compliance with Law In addition, a claim for indemnity damages in compliance with the general condition of extracontractual civil liabilities. The final first instance sentence has been passed, rejecting all filed proceedings. The resources of annulment based on violation of procedure or violation of law as well as the appeal of the plaintiff were rejected by the Court of Appeals of Santiago. The plaintiff has filed an annulment petition at the Supreme Court. This proceeding is currently waiting for its resolution. The amount is of ThUS$24,025. F-89

214 Nicky Radonich Morrison with Empresa Nacional del Petróleo, Case No , 2nd Civil Court of Punta Arenas. Lawsuit for damages due to extracontractual responsibility caused by an accident in which a driver and a vehicle of ENAP participate. The responsibility was established based on a sentence of the local polici judge. Amont ThUS$5. Lawsuit has been notified. Proceeding suspended through common agreement. Juan Ernesto Subiabre Torres with Empresa Nacional del Petróleo, Case No , 2nd Civil Court of Punta Arenas, lawsuit demands extinctive prescription statement of mortgage loan from 1982, lawsuit was notified, amount is undetermined. Cardenas Alvarez Manuel Antonio with ENAP, Case No , 3º Civil Court of Punta Arenas. Matter: Indemnity for damages: Lawsuit for moral damages of a former employee who suffered a labor accident and to whom ENAP did not provide, during a period of 11 years, the benefits of Article 29 of Law Status: The evidence stage has expired. The plaintiff requested the summons of the parties to hear the sentence, to which ENAP requested a statement of abandonment of the proceeding. Resolution of this incident is pending. File se currently filed and without movement, amount ThUS$67. Jorte Alderete with María Isabel Haro and ENAP, Case No /2006, 1st Civil Court of Punta Arenas. Claim for damages indemnity due to infringement of Law The court decided to separate both proceedings: The claim against the Social Worker (in order to continue in conformity with the ordinary proceeding) and the claim filed against ENAP (in order to continue with the summary proceeding). ENAP appealed to the Court s resolution and the Court accepted our appeal establishing that both proceedings shall be resolved in a single trial under the ordinary proceeding. The Social Worker still has to be notified in order to answer the claim. Cause has been filed. Américo Almzarza Gallardo with ENAP, Case No , 1st Civil Court of Punta Arenas, due to the non-compliance of contract with damage indemnity and environmental damage with damages indemnity. ENAP constituted a mining right-ofway of occupation to protect certain facilities with this owner, who claims that modifications have been made to the design of the facilities and other damages, amount ThUS$1,072. PIPESA S.A. with ENAP, Case No , Arbitiration Court of the Arbitration Center of the Santiago Chamber of Comerse due to damage indemnity. A contractor to whom ENAP entrusted the construction of a gas pipeline, is sueing ENAP in an arbitration lawsuit regarding the equity effects and alleged damages caused by the delay of the execution of the entrusted work to the Contractor, allegedly due to reasons attributable to ENAP-. The first instance sentence accepts the claim, and it only orders the payment by ENAP for damages cuased in the amount of ThUS$202. An appeal has been presented against this 1 st instance sentence issued by the Arbitrator Judge at the corresponding arbitration court. The resolution of the appeals is still pending, amount: ThUS$2,874. F-90

215 Empresa Nacional del Petróleo with Violic Limitada Case No , Second Civil Court of Punta Arenas, executive Chaim, started by preparatory proceedings, Case No of the same Court. Claim has been notified. Embargo has been requested. Debtor deposited CLP$750,000 and has to define whether he will sign a payment agreement or continue with civil or criminal proceedings, amount ThUS$5. ENAP with Pedro Antonio Mihovilovic Kuzmanic and other, Case No. 86/2007 of the Third Civil Court of Punta Arenas. Claim regarding the constitution of transitory mining right-of-ways in the estate of the defendants for the execution of a seismic exploration project in the continental area of Magallanes, the provisory use of the right-of-ways has been authorized. The notification of the Chaim to one of the owners is still pending. The works have been executed and the case has been filed. ENAP with Sociedad Ganadera Canal Tortuoso Ltda, Case No. 46/2007 of the Third Civil Court of Punta Arenas. Claim regarding the constitution of transitory mining rightof-ways in the estate of the defendants for the execution of a seismic exploration project in the continental area of Magallanes, the provisory use of the right-of-ways has been authorized. The notification of the lawsuit to one of the legal representatives of the Company is still pending. The works have been executed and the case has been filed. Ramos Zamora Inés del Carmen with ENAP. Case No , 2nd Civil Court of Punta Arenas, damages indemnity. Extra-contractual responsibility. Spouse, children, live-in partner of José Raúl Segundo Álvarez Domínguez, former employee of ENAP dies in a car accident, claim moral damages and loss of future earnings due to the death of the spouse, father, and live-in partner, respectively. First instance sentence rejects the complete claim. The plaintiffs present an appeal, whose resolution is still pending, amount: ThUS$362. Claims for the lack of payment of invoices for gas sales. Currently, ENAP has filed 13 lawsuits in its favor related to the lack of payment of invoices by cliens in the amount of ThUS$55. Sued in labor lawsuits: 36 claims, of which 32 correspond to subsidiary and/or solidarily liability in the amount of ThUS$121, the other 4 correspond to direct lawsuits of ENAP for an undetermined amount as of this dateas the lawsuits are still in their preliminary stages. Sued in civil lawsuits: 3 cases, of which 1 is in favor of ENAP in the amount of ThUS$16 and the other 2 claims are against ENAP in the amount of ThUS$134. Sued in right-of-ways lawsuits: 2 claims, for an undetermined amount as the lawsuits are still in their preliminary stages. F-91

216 Other Lawsuits: Criminal lawsuit against Julio Enrique Rojas Peñaloza, Case No , Fraud crime against the Chilean Treasury due to situations prior to July 16, This lawsuit is accumulated to the lawsuit presented by the District Attorney, for the same situations mentioned above, ocurred after June 16, First instance, summary stage. Amount: ThUS$3,704. Opposition to the registration of the brand Magallanes, ENAP as habitual user of the name ENAP Magallanes, presents an opposition on June 8, 2008, to the registration request of the brand Magallanes requested by Mr. Miguel Leigthton Puga, first instance, discussion stage. There exists 4 petitions at the Court of Appeals filed by ENAP against the Labor Board, Walter Emmont Ronfeld, Sociedad Ganadera Tehuel Aike Limitada and other and Superintendencia de Seguridad Social [Social Security Superintendence], the amounts have not been determined yet. Subsidiary Enap Refinerías S.A. (ERSA) Sued in labor lawsuits: 29 lawsuits, from which 10 of them involve subsidiary liability for a total of ThUS$630 (4 of these are undetermined), 2 lawsuits deal with simulated contracts or legal acts and amount to ThUS$874; 6 cases were filed claiming an indemnity for work accidents in the amount of ThUS$593; 11 cases were filed claiming the rendering of labor services in the amount of ThUS$307 (8 of these claims are still undetermined). Sued in civil lawsuits: 6 lawsuits, one claiming a damages indemnity due to the death of an employee in the amount of ThUS$916; 1 claiming civil damages due to unjustified dismissal in the amount of ThUS$381; 1 for collection of fees in the amount of ThUS$71 and 1 for the appointment of an arbitrator, undetermined amount; 1 for damages indemnity of ThUS$147 and 1 for appeal of administrative fine of ThUS$35. Plaintiff in a tax lawsuit: Tax liability for Empresa Almacenadora de Combustibles S.A. (EMALCO), a company merged with Enap Refinerías S.A., due to differences affected by a tax rate of 35% as disallowed expenses of ThUS$330. Enap Sipetrol S.A. and foreign subsidiaries Enap Sipetrol Argentina S.A. a) Process for determining taxes due (VAT) 1. Argentine Tax Court, Room C, Speaker Office 80, Case N 21,248-I, Sipetrol Argentina S.A. vs. DGI, Appeal. The investigated period runs from October 1997 to December 1998; appeal filed February 20, F-92

217 The amount is of ThUS$45 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 2. Argentine Tax Court, Room A, Second Speaker Office, Case N 24,357-I, Sipetrol Argentina S.A. w/ DGI without Appeal VAT fine, period observed Apirl, July and August The amount is of ThUS$220 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a collection guarantee of the total amount, the AFIP established a preventive embargo of the Company under file /05 which is processed in the First Instance Court for contentious Administrative Proceedings No. 4, Secretary No. 8 of the Federal Capital. This measure has been appealed by the Company. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 3. Argentine Tax Court, Room D, Twelfth Speaker Office, Case N I, Sipetrol Argentina S.A. w/ DGI without Appeal, period observed June to December The amount is of ThUS$8 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the F-93

218 fees (expenses) for the professionals involved, which the administration will appeal in due time. 4. Argentine Tax Court, Room C, Eight Speaker Office, Case N , Sipetrol Argentina S.A. w/ DGI without Appeal, period observed January to December The amount is of ThUS$16 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 5. Argentine Tax Court, Room D, Twelfth Speaker Office, Case N I, Sipetrol Argentina S.A. without Appeal, period observed January to December The amount is of ThUS$44.7 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 6. Argentine Tax Court, Room A, Second Speaker Office, Case N I, Enap Sipetrol Argentina S.A. without Appeal, period observed January 2002 to December The amount is of ThUS$388 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as F-94

219 all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. Enap Sipetrol Argentina S.A. - YPF S.A. UTE Magallanes 1. Argentine Tax Court, Room B, Fifth Speaker Office, Case N I, Sipetrol Argentina S.A.-PF S.A. UTE Magallanes with DGI without Appeal, period observed June to December The amount is of ThUS$158 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 84 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 2. Argentine Tax Court, Room C, Ninth Speaker Office, Case N , Sipetrol Argentina S.A.-YPF UTE Magallanes w/ DGI without Appeal, period observed January to December The amount is of ThUS$1,513 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 84 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. F-95

220 3. Argentine Tax Court, Room C, Seventh Speaker Office, Case N , Sipetrol Argentina S.A.-YPF UTE Magallanes w/ DGI without Appeal, period observed January to December The amount is of ThUS$628 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 84 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 4. Argentine Tax Court, Room a, Twelfth Speaker Office, Case N , Sipetrol Argentina S.A.-YPF UTE Magallanes w/ DGI without Appeal, period observed January 2002 to December The amount is of ThUS$1,098 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 84 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. Enap Sipetrol Argentina S.A. - YPF S.A. - UTE CAM 2/A Sur. 1. Argentine Tax Court, Room A, First Speaker Office, Case N , Sipetrol Argentina S.A.-YPF SA UTE CAM 2/A SUR, period observed January 2003 to December F-96

221 The amount is of ThUS$1,272 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. b) Customs Fees Enap Sipetrol Argentina S.A. 1. Dirección General de Aduanas de Río Gallegos Expdte , establishes a charge due to differnces of export rights in the amount of ThUS$3,95. On September 24, 2009 was presented a Challenge resource. Since October 2, 2009 in evidencing stage. 2. Argentinean Tax Court, Case No A, trial to determine the supplementary liquidations of export taxes, date of appeal April 11, 2007, amount ThUS$1, On September 24, 2009, the Argentinean Tax Court pronounced its sentence, establishing unanimously: Revocation of Resolution No. 13/07 (AR RIGA) and, consequently, the charges 54 to 65 all belonging to 2004, at their own expenses. The Company appealed to the sentence of the Argentinean Tax Court in relation to the determination of the Expenses on their Behalf. 3. Argentinean Tax Court Dirección, Case No A (Claim Dirección General de Aduanas de Río Gallegos. Case No ), trial to determine the supplementary liquidations of export taxes, in the amount of ThUS$3, Against the resolution that decides to confirm the challenged charges, on June 4, 2009 was presented the appeal at the Argentinean Tax Court. On December 22, 2009, the DGA answered the appeal. 4. Argentinean Tax Court Dirección, Case No A (Claim Dirección General de Aduanas de Río Gallegos Case No ). In these cases the Official Bulletin published on September 21, 2006 and October 25, 2006 a list of pre-adjustments at the applicable value in conformity with Article 748 inc. b) of the Customs Code, claimed amount ThUS$3, Against the resolution that decides to confirm the challenges charges, was presented on June 4, 2009 an appeal at the Argentinean Tax Court. F-97

222 5. Dirección General de Aduanas de Río Gallegos, Case No. SIGEA trial to adjust the export liquidations corresponding to the custom charges No. 02 to 07, in the amount of ThUS$ On May 15, 2009 was presented an appeal to Challenger these charges. 6. Dirección General de Aduanas de Río Gallegos. Case No (Challenged 02/2007), trial to adjust the export liquidations corresponding to the custom charges No. 126 to 130 in the amount of ThUS$ On June 3, 2009 was presented an appeal to challenge these charges. 7. Dirección General de Aduanas de Río Grande, Province of Tierra del Fuego. Case No. DGA /2009, trial to adjust the export liquidations corresponding to the custom charges No. 13 to 15 in the amount of ThUS$9.7. On June 3, 2009 was presented an appeal to challenge these charges. 8. Dirección General de Aduanas de Río Grande, Provincia de Tierra del Fuego. Case No. DGA , trial to adjust the export liquidations corresponding to the custom charges No339/07 to 397/07, in the amount of ThUS$5, On January 7, 2010 was presented an appeal to challenge these charges. 9. Dirección General de Aduanas de Río Gallegos, Provincia de Santa Cruz. Case No.. DGA Adjustment of export liquidations corresponding to the custom charges No. 31 / 2009, claimed amount ThUS$9. The period to present an appeal to challenge this as defense is still pending. 10. Dirección General de Aduanas de Río Gallegos Provincia de Santa Cruz. Case No Adjustment of export liquidations corresponding to the custom charges No. 126 to 130, claimed amount ThUS$812.- As an reconsideration resource has been filed, the file is currently in the evidencing stage. 11. Dirección General de Aduanas de Río Gallegos, Provincia de Santa Cruz. Case No.. DGA Adjustment of export liquidations corresponding to the custom charges No. 61 and 62 / 2009, claimed amount ThUS$94. The period to present an appeal to challenge this as defense is still pending. Enap Sipetrol Argentina S.A. - YPF S.A. - UTE Magallanes 1. Dirección General de Aduanas de Río Gallegos. Case SIGEA N /06, ( , /06, SICOEX , Case /04). In relation to case No of the Ministry of Economy and Production (Res. MEyP N 101/207), process to determine the import taxes of merchandise to Territorial Sea in conformity with the established in the regulation of Decree 679/99. On July 20, 2005 was filed an Appeal at the Argentinean Ministry of Economy against the resolution of AFIP in the terms of Art. 94 of Law 19,359. F-98

223 The Ministry of Economy of Argentina on November 3, 2009 and through Resolution 246, rejected the appeal and put an end to the administrative proceeding, causing the Provisional Measures to cease their effect. Accordingly, the Customs Service is once again entitled, on one hand, to claim the VAT, and on the other, to apply the indicated verification procedure of merchandise. As of this date there are no tax liquidations. 2. Dirección Provincial de Recursos Hídricos, Consejo Agrario Provincial, Province of Santa Cruz. Note 16/DPRH/2010.Fee and Fine for Water consumption. The amount is of ThUS$22 (Tariff) plus ThUS$864,179 (Fine). The Dirección de Recursos Hídricos de la Provincia de Santa Cruz established a fine due to the lack of presenting monthly spreadsheets of water consumption during the period from January 2006 to November 2009 and requested the payment of the tarif for the m3 of water consumed during such period. The period to present an Administrative Appeal as defense is pending. Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. c) Other Lawsuits: Enap Sipetrol Argentina S.A. 1. Lower Court N 2 for Civil, Business, Labor and Mining Issues of the city of Rio Gallegos. Case N 2.278/04 entitled Haberkorn, Luis Alberto vs. Ultramar Argentina S.A. and Other. Layoff. Labor lawsuit. Plaintiff demands payment of differences regarding the final liquidation. The amount involved is ThUS$10. Enap Sipetrol Argentina S.A. is being sued for subsidiary labor liability. Proceedings at stage where parties may submit evidence. 2. Lower Court N 2 for Civil, Business, Labor and Mining Issues of the city of Rio Gallegos. Case N /08 entitled Cisneros, Maria Cristina vs. Enap Sipetrol Argentina S.A.. Labor lawsuit. The amount involved is ThUS$ The hearing seeking a conciliation of the parties was held (as required by article 47 of law 1444 of Provincial Labor Proceedings). Enap Sipetrol Argentina S.A. answered the lawsuit and requested to submit evidence 3. Lower Court N 2 for Civil, Business, Labor and Mining Issues of the city of Rio Gallegos. Case N 12,492/08 entitled Toledo, Fernando vs. Enap Sipetrol Argentina S.A.. Labor lawsuit. The amount involved is ThUS$37.7. Plaintiff sues Enap Sipetrol Argentina S.A. and YPF S.A. Plaintiff then decided not to sue YPF S.A. The hearing seeking a conciliation of the parties was held (as required by article 47 of law 1444 of Provincial Labor Proceedings). Enap Sipetrol Argentina S.A. answered the lawsuit. Evidence was submitted. F-99

224 4. Comodoro Rivadavia Lower Labor Court. Single Secretariat. Case N 4540/07 entitled Gomez, Rodrigo Sebastian vs. NYC S.R.L. and Another. Labor lawsuit (Statutory severance indemnity). The amount involved is ThUS$22.4. Plaintiff sues NYC S.R.L. as employer and Enap Sipetrol Argentina S.A. for subsidiary liability. Still in starting and integration stage of the lawsuit. 5. Buenos Aires Lower Labor Court No. 60. Case N 16284/08, Ovando, Abel vs. Servicios Petroleros S.A. and Others. Law 22,250, the plaintiff claims the salary differences, amount is ThUS$5.7. The plaintiff filed an appeal at the Court of Appeals against the first instance sentence which rejected the claim against Enap Sipetrol Argentina S.A. 6. Lower Labor Court of the Southern Legal Area, Comodora Rivadavia. Case No. 5513/09 Cerda Florín del Carmen vs. Key Energy Services S.A. and others. The plaintif claims for salary differences and the final liquidation, in the amount of ThUS$115. Enap Sipetrol Argentina SA is sued for for subsidiary liability. Currently in integration stage of the lawsuit. 7. Lower Labor Court No. 49 of the City of Buenos Aires, Case No. 669/09 Villar, Carlos Alberto vs. Enap Sipetrol Argentina S.A. Matter: Termination amount involved ThUS$238. On July 22, 2009 was notified the labor lawsuit ordering the transfer of the lawsuit for the period of 10 working days. At current is in force the period to answer the claim. The claim was answered, and a reconcilation hearing was held without positive results. The evidence stage was started. 8. Lower Court N 2 for Civil, Business, Labor and Mining Issues of the city of Rio Gallegos. Case No /09 entitled Parson Carlos c/ Ingeniería Seibo S.A. and others, amount envolved ThUS$91. The lawsuit is currently in the evidencing stage. 9. Civil and Business Federal Lower Court N 10, Secretariat N 9. Case N 12,500/07 entitled Granson, Pedro and Heirs vs. Enap Sipetrol Argentina S.A.. Easements Plaintiff seeks payment of damages amounting to ThUS$1,210. In the evidencing stage. There exists a preventive embargo in the amount of ThUS$476. This amount is not accumulative in relation to the previously established amount. 10. Dirección General de Rentas del Chubut. Lawsuit to determine officially in conformity to Provision SSC No. 1/2008 the amount of the royalty payment of ThUS$1, On July 2, 2009 was filed a Reconsideration Appeal against such determination. As per the preventive measure pursuing not to innovate sentenced by the Supreme Court of Justice of Argentina (see chapter 11 next), for the moment the Provice of Chubut is not allowed to try to collect this claim. F-100

225 11. Supreme Court of Justice of Argentina, Originating Instance Secretary "Case Enap Sipetrol Argentina SA vs. Province of Chubut. Matter: Action Declaring the Inconstitutionality" Case No. E Enap Sipetrol Argentina S.A. Action to Declare Certainty Preventive measures in the amount of ThUS$1, Considering the intention of the Province of Chubut to collect retroactively the difference of the hydrocarbon royalties timely credited by the company over the actual sales prices obtained by the firm, supported by Provision 1/2008 dated 09/01/2008 (BO 21/01/2008) of the undersecretary s office of Fuel of Argentina, which is in conflict with constitutional guidelines. A legal proceeding was presented for a Certainty Statement at the originating competence of the Supreme Court of Justice of Argentina (Arts. 116 and 117 of the National Constitution), requesting Preventive Measures in order not to Innovate, which would allow continuing with the payment of royalties according to law, until the controversy is substantiated and there exists a final sentence. The Argentinean Supreme Court of Justice declared itself suitable and granted the Company the Preventive Measure not to Innovate. At current the Province of Chubut and the Federal Planning Ministry are being notified. Ecuadorian Branch Enap Sipetrol S.A. (SIPEC) a) Tax Lawsuits Tax Lawsuits for business years 2002, 2003 and Audit of the National Board of Hydrocarbons for the economic years 2002, 2003 and In 2008 the NATIONAL BOARD OF HYDROCARBONS, started a special audit process to the investments, revenues, costs and expenses of SIPEC, corresponding to the period from October 30 to December 31, 2002, 2003 and From this audit and in spite of the arguments of SIPEC, which were only accepted in part, the NBH established an adjustment of ThUS$2,492 for the expenses incurred in the drilling of an horizontal stretch, the inicial tests and the remediation of well MDC-5 (sidetrack); an adjustment for the charge of Fees for service rendering for the planning, assistance and technical evaluation between Sipec and Sipetrol de Colombia in the amount of ThUS$1,914, excess of amortization of production investments ThUS$397 (2003); excess of amortization of production investments of ThUS$1,502 (2004). Through a griten document delivered to the secretary of the Minister of Energy and Mines, on November 30, 2006, SIPEC proposed its objections to the comments of the National Director of Hydrocarbons before the Minister of Energy and Mining. On December 28, 2009, a resolution was issued by the Minister of Non-Renewable of National Resources (before the Minister of Mines and Oil and before the Minister of Energy and Mines), denying the presented objections. As of today, SIPEC is preparing the corresponding objection demand, which shall be presented in May F-101

226 The Ministry of Energy and Mines cannot impose tax corrections, therefore its reports and conclusions shall serve as reference for any action taken by the Internal Revenue Service, IRS. 2. First Room of Tax District Court. Case N filed by PERENCO against the Ecuadorian IRS in connection with income tax in business year In February 2002, SIPEC sold its interest in Blocks 7 and 21. The Ecuadorian IRS launched an audit of blocks 7 and 21. In this case in particular, the Ecuadorian IRS considers that beginning in 2002 the companies should have filed a unified income tax return, but the partners continued to file individual tax returns. To date there is no Tax Court ruling. There is no amount at stake for SIPEC, because in business year 2002 SIPEC posted losses, and would not be affected by taxation. Tax Lawsuits for business year Second Room of Tax District Court. Case N against Ecuadorian IRS in connection with income tax in business year 2003, filed due to IRS tax assessment No. RNO-ATRADPU Faced with this IRS administrative action, SIPEC filed a tax lawsuit with the District Tax Court on October 28, Through a resolution dated November 27, 2008, the Second Room of the Tax District Court acknowledged the lawsuit and gave the Ecuadorian IRS 20 days to answer it. The claim was answered. The judges of Second Room of Tax District Court performed an accounting inspection proceeding and appointed experts who have already presented their reports, which were observed by the SIPEC. The case was submitted to a new allocation of court and was consequently re-assigned to the Fourth Room of Tax District Court. This Room is currently reviewing the evidence presented, while SIPEC is in process of preparing the written submission. To date, the amount involved, plus interest, is ThUS$ Tax Lawsuits for business year Administrative Complaint filed with Ecuadorian IRS for audit of business year Through assessment No , of November 27, 2008, the Ecuadorian IRS determined SIPEC s income tax and advances relating to business year 2004, calculating a total of ThUS$ On December 29, 2008, SIPEC filed with the Northern Regional Director of the Ecuadorian IRS. Through administrative resolution No RREC of June 15, 2009 (hereinafter Challenged resolution ), notified to SIPEC on the same date, the Ecuadorian IRS accepted partially the administrative Chaim proponed by SIPEC, accepting a portion of the detail related to Fuels, decreasingit from ThUS$52.4 to ThUS$20.7, ratifying the content of the rest of the detail that were object of challenge and ordering the payment of the allegedly owed tax in the amount of ThUS$2,357, plus interests as of April 17, 2005, up to the payment date, plus the amount of ThUS$471 corresponding to the sanction for surcharge of the F-102

227 determined tax obligation, establishing a total amount of ThUS$2,828. To date, the amount involved, plus interest, is ThUS$3,786. The interests do not cease with the presentation of the challenging claims. On July 13, 2009 SIPEC filed at the Tax Court a challenging claim of the previously mentioned lists, for which it presented a bank guarantee of 10% of the challenged amount. The case has already been assigned to the Second Room of the Tax District Court. On November 11, 2009 was presented the corresponding evidence and for January 27, 2010 has been established the accounting and financial inspection. It is difficult to established accurately the length of the lawsuit or the results of it. 2. Third Room of Tax District Court No. 1, Exceptions lawsuits No A, against Metropolitan District Municipality of Quito for tax of 1.5 per thousand on total assets of The amount involved is ThUS$4.0. Through resolution No issued on October 22, 2008, the Tax Financial Metropolitan Director for Quito cancelled the tax assessment. At this date, the Third Room has not pronounced sentence on the request of SIPEC to file the case, according to the previously mentioned resolution. The case was submitted to a new allocation of court and was consequently reassigned to the Fourth Room of Tax District Court. Tax Lawsuits for business year Audit of the Hydrocarbons National Bureau for commercial year In 2007 the Hydrocarbons National Bureau started a special audit of the investments, operating costs and expenses, and services rate of the Branch of Sociedad Internacional Petrolera S.A. for business year As a result of this audit, and in spite of the arguments of SIPEC which were only partially accepted, the Hydrocarbons National Bureau concluded that there are non-deductible financial expenses for payment of interest amounting to ThUS$1,744; for excessive posting of income tax amounting to ThUS$191; for excessive calculation of production amortization amounting to ThUS$959,116; for purchase of a PETREL software license amounting to ThUS$60. On a document filed with the secretariat of the Mining and Petroleum Ministry on December 20, 2007, SIPEC presented its objections to the Hydrocarbons National Bureau audit before the Mining and Petroleum Minister, who has not yet issued any reply. The Ministry of Energy and mines cannot impose tax corrections, therefore its reports and conclusions shall serve as reference for any action taken by the Internal Revenue Service, IRS. The IRS has not begun, up to the moment, any process to determine the concepts mentioned in this subheading. In case the IRS accepts the current report of the HNB it could generate a contingency at this date with interests of ThUS$3,626. F-103

228 2. Administrative Complaint filed with Ecuadorian IRS for audit of business year 2005 and Lawsuit at the Tax Court for Business Year Through assessment No RREC of September 2, 2009, through which the Regional Director North denied the administrative complaint proponed by ENAP SIPETROL on March 18, 2009, challenged the Act of Determination of Income Taxes for Business year On September 30, 2009, Enap Sipetrol S.A. presented a Chaim challenging the resolution that rejected the administrative complaint filed against the Act of Determination of Income Taxes for Business year The hearing of Lawsuit No will be performed at the Fourth Room of the Tax District Court No.1. On December 20, 2009 was presented the corresponding evidence and for March 23, 2010 has been established the accounting and financial inspection. 3. Second Room of Tax District Court No. 1, against Metropolitan District Municipality of Quito for tax of 1.5 per thousand on total assets of The amount involved is ThUS$57. Through resolution No issued on October 22, 2008, the Tax Financial Metropolitan Director for Quito cancelled the tax assessment. As of this date, the Third Room has not pronounced itself on the petition of SIPEC to file the case, in conformity with the previously mentioned resolution. Tax Lawsuits for business year Through Determination Act , of December 23, 2009, the Ecuadorian IRS determined SIPEC s income tax and advances relating to business year 2006, calculating a total of ThUS$3,475. On January 22, 2010, an Administrative Complain was presented challenging the all the amounts indicated in such determination act. The IRS opened a completion of testing within this claim, in which SIPEC presented a evidence document on April 13, Tax Lawsuits for business year First Room of Tax District Court No. 1, Exceptions lawsuits No A, against Metropolitan District Municipality of Quito for tax of 1.5 per thousand on total assets of The amount involved is ThUS$ ThUS$ 104. Through resolution No issued on October 22, 2008, the Tax Financial Metropolitan Director for Quito cancelled the tax assessment, leaving without effect the tax determination of 1.5 per thousand to the total assets of 2007, information regarding this exception lawsuit. Through the ruling of January 30, 2010, the First Room filed the proceedings of the presented exceptions. F-104

229 b) Labor Lawshuits 1. 4th Labor Court of Pichincha. Case No. N Tapia Cuji, Marco Antonio vs. SIPEC. Plaintiff claims being owed severance payment of ThUS$33.6 relating to 15% of income of year On October 28, 2008 the judge denied the lawsuit alleging lack of legitimate plaintiff. On November 6, 2008, plaintiff filed appeal at a higher court. The Higher Court in May 2009 ratified the sentence of the lower court. In June 2009 Marco Tapia presented an appeal at the Supreme Court of Justice. Sentence is still pending. 2. 4th Labor Court of Pichincha. Case No. Case N filed by Ricardo Vinicio Garcia Linto against subcontractors URAZUL, ARB, SAE, and SIPEC as contractor. Plaintiff claims being owed severance payment and profits. Documentation was submitted on January 19, Final hearing set for February 12, Amount involved is ThUS$190. SIPEC considers that it is not bound by any contract with the plaintiff. Sentence is still pending. 3. 2nd Labor Court of Pichincha. Case No. Case N filed by Tapia Cuji, Marco Antonio against SIPEC. Plaintiff claims being owed severance payment of ThUS$120.0 relating to 15% of income of year 2007, from January 1 to November 2, Preliminary hearing was performed on November 30, The final hearing has been established for September 30, Complaint filed in December 2007, with the Regional Labor Office of Quito. A group of 51 employees of the contractor company SAE, from which SIPEC hired maintenance services, claims being owed 15% of profits of business years 2005, 2006 and The Director of the Regional Labor Office of Quito has started a review to establish whether or not the employees are entitled to the profits they demand. SIPEC has filed all the relevant legal arguments in order to demonstrate that the way the profits from 2005, 2006, and 2007 were distributed was correct, and that the employees in question are not entitled to the earnings they claim. SIPEC even tried to leave on consignment the profits from business year 2007 with the Regional Labor Office of Quito so that it would distribute them appropriately. However, this labor authority did not accept such consignment. On November 21, 2008 the conciliation hearing was held before the Director of the Regional Labor Office of Quito, and the relevant evidence was submitted for inclusion in the proceedings. The Labor Ministry rejected the demand determining that no payment should be made regarding the income for the years 2006 and SIPEC came to an agreement with the employees of SAE through which it paid them revenues from May 1 to 31, 2008, this is as of the validity of the labor mandate 8 and on March 31, 2009 was signed with almost al former employees of SAE a settlement which puts an end to the labor relationships without any further F-105

230 claim. This settlement was signed before the labor inspector of Quito, who guaranteed it. Some of the former employees of SAE presented in May 2009, a complaint at the Labor Inspector Francisco de Orellana, they are not demanding a specific amount, but only the compliance of the labor obligations. On June 11, 2009, a hearing was held in which SIPEC presented the inadequacy of this claim as there exists already an administrative sentence on this same issue. 5. Work Inspector of Orellana. Claim presented by former employees of ECUAMBIENTE. Filed by former employees of the environmental services contractor ECUAMBIENTE. Hearing took place on June 11, 2009, SIPEC argued that these are specialized technical services. It is impossible to predict the progress of this issue or whether it will take political nuances at these are persons belonging to the community. We do not believe that this case will succeed, but we cannot deny that the neighboring communities regularly intend to increase the benefits received from the oil companies in their area. c) Environmental lawsuits On March 18, 2010, a large oil spill occurred of approximately 32 barrels of oil in the system VRF of the well BIGUNO 1of the camp PBH. This incident generated the following legal issues. 1. The Prosecuter of Orellana started a prior inquiry process as to determine the existence or not of negligence and if so, to continue with the lawsuit. On March 22 the Engineer Pablo Moreno, Field Superintendent on the day of the events, provided partially his version ot the prosecutor, which he shall continue during another hearing. On March 23, the police expert presented his report regarding the recognition of the scene of the incident. The previous inquiry can last up to one year, period in which the prosecutor can reject the lawsuit by issuing a rejection sentence which needs to be ratified by a judge, or start a fiscal proceeding against the legal representatives and/or responsible employees of the operations as he considers that there exist sufficient evidence regarding the crime. In this case, the proceedings are being presented before a criminal judge. 2. Benigno Palacios and his family, due to the oil spill, have presented a claim at the Office of the Public Defender, claiming indemnities for the damages suffered at his plantation of African Palmtrees affected by the spill. On April 13 a transactional agreement was signed through which SIPEC indemnified Mr. Palacios and his family with an approximate amount of ThUS$34. F-106

231 Egypt Appeal filed with the court of appeals of Cairo against sentence passed in lawsuit No. 379/2006 dealing with the voidance of a lease agreement, return of offices, and collection of rentals. The plaintiff is seeking the Company to pay 90 million Egyptian pounds (ThUS$15.0). The appeals filed were reviewed in November 2009 with favorable results for the plaintiff; another session will be held with the technical expert in February The company is waiting for the result of the appeal. Although the Company is not able to make a forecast of the result of the trial, it is highly probable that the sentence will be unfavorable, and therefore the loss has been recognized in the statement of income. d. Commercial Commitments: The Company has the following commercial commitments related to its operations: 1- Petropower Energía Ltda. Upon celebration of the partners agreement between Enap Refinerías S.A. and Foster Wheeler related to the project Petro power in January 2006, Enap Refinerías S.A. granted a liability statement regarding the obligations arising from such agreement. In relation to the project Petropower, the Parent Company entered in 1994 into an agreement committing itself to the payment of an annual processing fee of approximately US$17.4 million for the right to operate its delayed coking and hydrotreatment plant and an annual fee of approximately US$9.9 million for the supply of certain energy products. This agreement is subject to annual increases until the expiration of the agreement in Other conditions in the agreement require, in case of a reduction in the annual income defined in the processing contract and business agreements and after the Operator of the plant has contributed 10% of such shortfall that ENAP and its subsidiary Enap Refinerías S.A. participate in 50% and Foster Wheeler in 50% of the balance of such shortfall, which should not exceed US$1.4 million per year. In addition, Enap Refinerías S.A. is obligated to either purchase or arrange for the sale of assets of Petropower Energía Ltda. for not less than US$43 million at the expiration of the agreement (2018) or on any other date agreed by the parties. F-107

232 2. Innergy Holding S.A. On June 18, 2009, Innergy Soluciones Energéticas and Enap Refinerias S.A., signed an addendum to the purchase and sales contracts of Natural Gas current as of June 2009, in which are incorporated several modifications and through which are eliminated several obligations. The main changes established in such addendum are the following: a) Enap Refinerías will be forced to pay the transport tariffs of gas both in Chile as in Argentina only for the volumes actually provided by Innergy. b) Pay export duties and the incremental amount only fo the gas actually supplied by Innergy. c) The take or pay obligation is eliminated of any natural gas volume established in the previous contracts. 3. GNL Quintero S.A. ENAP jointly guarantees the payment obligations contracted by GNL Quintero S.A. prorata of ENAP s ownership interest in that company (20%), under the Engineering Contract, Procurement Contract and Construction Contract signed with CB&I UK Limited, with Southern Tropic Material Supply Company Limited and with CBI Montajes de Chile Limitada, respectively, dated April 30, 2007 for the construction of the LNG project. The guarantee is for a maximum monthly amount of US$ million. 4. GNL Chile S.A. On May 31, 2007, Enap Refinerías S.A. signed a natural gas sales contract with GNL Chile S.A. that guarantees the necessary supply for the operation of its Aconcagua Refinery in the district of Concón. This contract is for a 21-year period as of the ECOD, and it allows accessing a regassification capacity of 3.2 million cubic meter per day, and to the same amount of natural gas, as long as it has the corresponding contracts for the LGG supply. On the same date, GNL Chile S.A. signed a contract with BG allowing Enap Refinerías S.A. to access a maximum annual contractual amount of LNG, equivalent to 2.2 million cubic meters of natural gas per day. The start of the natural gas supply occurred in August The contract obligations for Enap Refinerías S.A. under the natural gas supply contract have been guaranteed by its parent company Empresa Nacional del Petróleo (ENAP). This sales contract is part of a series of commercial contracts of the LNG Project that were definitely signed on May 31, This project has the purpose of purchasing liquefied natural gas (LNG) abroad, storing it and regasifying it in the Regasifying Plant that will be located in the municipalities of Quinteros and Punchuncaví in the country s Region V, and the supply of natural gas to the central zone of the country. F-108

233 5. Petróleos Marinos de Chile Ltda. On May 1, 2006, Enap Refinerías S.A. entered into a contract with Petróleos Marinos de Chile Ltda. to transport through the latter, Fuel Oil, IFOS, and Cutter stock through a pipeline that connects the Quintero Terminal owned by Enap Refinerías S.A. to the fuels terminal located in Greda Alta and owned by Puerto Ventanas S.A. Under the contract, ENAP Refinerías S.A. is obligated, each year the contract is in force and regardless of the circumstances, to move a minimum of 550,000 tones. The contract will be in force for 36 months as from May 1, 2008, a date on which the pipeline starts operations. 6. Empresas de Gas de la V Región On February 9, 2005, Empresa de Gas de la V Región S.A. (GasValpo) and Enap Refinerías S.A. (ERSA) signed a natural gas suplly contract, through which GasValpo would suplly natural gas to ERSA for the use in its production processes in the V Region and whoe expiration date is April 25, In April 2009, due to the starting of operations of the storage and regassification terminal owned by the company GNL Quintera S.A., which allows ERSA to purchase natural gas at better commercial conditions, GasValpo made its current terms and conditions in such contract more flexible, eliminating the take or pay obligation for the reception of gas, it included the payment of a marketing fee that would give to right to access the natural gas coming from Argentina at the same price paid by GasValpo from its supplier. Nevertheless, ERSA shall continue paying the corresponding transport tariff; however, GasValpo is currently negotiating a modification to the Transport Contract with GasAndes, in order to reduce such tariff, but maintaining the same transport capacity available for ERSA. During 2009 the company achieved a decrease in the transport tariff of 55.05%. 7. New commercial contracts During the last quarter of 2009, the ENAP Group, within a new Commercial Policy, started a negotiation process with the Distributing companies amount which are included Copec, Terpel, Petrobras and Shell, among other. The main purpose of this new policy, together with the signing of new contracts, is to sell products with one-year contracts, in order to plan and guarantee the delivery of fuel, according to the volumes and dates programmed by our customers. This would allow the granting of discounts for programming according to the signed agreements. This negotiation process was completed during the first days of January 2010, achieving benefits for both parties that will allow operating under more optimal and secure conditions. F-109

234 c) Restrictions: ENAP In November 2007 the restrictions stipulated as covenants in the syndicated loans were lifted. At , the Company has no restrictions or covenants to comply with its creditor banks and public bonds. Enap Sipetrol Argentina S.A. According to applicable Argentine legislation the company must allocate 5% of the year s income to building a statutory reserve, which is an account forming part of the net shareholders equity, until such reserve is equal to 20% of the adjusted paid-in capital. d) Other contingencies: ENAP At this date the Company has been notified of 10 claimes filed by entities such as INP, Mutual de Seguridad, Compin, related to the payment of indemnities, which is currently in the preliminary stage and the amounts involved are undetermined as of this date. Spill San Vicente: There are 11 claims in the total amount of ThUS$86,122 correspondign to the damages indemnities for the extracontractual obligation regaring the oil spill incident occurred on May 25, Enap Refinerías S.A. (ERSA). On May 25, 2007, on oil spill occurred in the San Vicente Bay, Bío Bío Region, during the unloading of oil from the ship New Constellation to the Terminal B of the Bío Bío Refinery, owned by Enap Refinerías S.A. (ERSA). As a consequence of this spill 11 damage indemnity claims were filed as at December 31, 2007 against ERSA, in the total amount equivalent to ThUS$94,104. The lawsuits, except from the one of the Consejo de Defensa del Estado, are from fishermen and from individuals who collect seaweed and shellfish; the corresponding claims filed under numbers 4, 6, 7, 25, 26, 28, 33, 34, 37, 38, and 39, all from 2007, are being treated in conformity with the established in Law Decree at the Court of Appeals of Concepción. There are two lawsuits filed at the Civil Courts of Talcahuano, one started by the Municipality of Talcahuano under No. 3020, whose amount has not been determined yet and the other civil lawsuit has been filed by several owners of restaurants of Caleta Lenga, under No. 2099, in the amount of ThUS$740. The amount of ThUS$94,104 is composed, approximately, in 17% for the concept of moral damage, 14% for possible damages, 40% for loss of future earnings or loss of profits and 28% for environmental damages. F-110

235 During 2008, the Company was notified of 10 lawsuits, 9 of which at the Court of Appeals of Concepción, under No. 40, 42, 45, 46, 47, 1, 9, 10 and 13, in the amount of ThUS$166,003 and another at the Civil Court of Talcahuano, No. 108 in the amount of ThUS$77. During 2009, the Company was notified of 4 lawsuits, under No. s 5, 6, 10 and 17 in the amount of ThUS$66,388. The Company has qualified these lawsuits as insignificant events, as it has sufficient legal arguments and supporting evidence to estimate, reasonably, that it will enervate the filed legal proceedings, through the demonstration of the existence of the following facts: a) Lack of active legal standing of a significant portion of the plaintiffs; b) Attribution to the accident of inexisting environmental damages on behalf of the plaintiffs; c) Inaccuracy regarding the cause of the accident as indicated by the plaintiffs; d) Lack of causality relationship between the alleged damages and the Accident: as indicated by several studies, the pollution claimed by the plaintiffs is prior to the accident; e) Legal exclusion of a large portion of the alleged damaged by the plaintiffs: the applicable legal standards (Navigation Law) only contemplates as possible indemnity causes the loss of future earnings and the reasonable restoration measures of the environment and f) Lack of consistency between the magnitude of the claimed amounts and the economic significance or size of the supposedly affected activities, because the total damages are claimed to be approximately US$195 million, in relation to an economic industry whose annual income does not exceed US$500,000. In relation to the lawsuits, please note that the Court of Appeals of Concepción in its sentence of November 14, 2007, confirmed by the Supreme Court on December 18, 2007, rejected all petitions to the Court of Appeals filed against ERSA in relation to this accident, stating that the plaintiffs are not allowed to file a legal proceeding as an arbitral act or omission, e.g. only due to a personal desire o whim, because as explained previously, it has been proven that the underwater pipelines has been supervised and controlled prior to the activities of transferring the oil and that the alleged scenario of lack of real measures in case of an environmental emergency that has been alleged by the plaintiffs, is not accurate, as the broken line or pipeline was replaced and therefore the operation had been authorized, considering that it should be related to the eleventh, in which the Court considers as complied by the Company the Contingency Plan for the Control of Spills of Hydrocarbons, LPG and Chemical Products. ERSA has civil liability insurances that have been activated and which will cover this possible contingency. Management believes that the possible contingency could correspond to a possible monetary fine or sanction established by the competent authority, which due to its sanctioning nature is not covered by any insurance, but in such case the amount will not modify significantly the equity situation shown by the Company in its financial statements. F-111

236 Enap Sipetrol Argentina S.A. a) Exchange Summons Argentine Central Bank The Argentine Central Bank (BCRA). Exchange Summons BCRA No Case No /02. Sipetrol Argentina S.A. and Another. Law No. 19,359. Alleged omissions of paragraphs e) and f) of Article No. 1 of the Exchange Regulations occurred in Enap Sipetrol Argentina S.A. did not incorporate/liquidate 100% of the currencies from its sales of hydrocarbons in the local market, as it believed that the Regime on Free Disposal of Currencies was still in force, with the underlying obligation to incorporate/liquidate only 30% of these currencies in the internal market. Current status: The BCRA concluded the Instructive State (Charge, Discharge, Evidence Stage, Allegations) and the Case is currently ready to be send to the corresponding court. Enap Sipetrol Argentina S.A. - YPF S.A. UTE Magallanes 1. The Argentine Central Bank (BCRA). Exchange Summons BCRA No Case No /02. Sipetrol Argentina S.A. and Another. Law No. 19,359. Alleged omissions of paragraphs e) and f) of Article No. 1 of the Exchange Regulations occurred in Enap Sipetrol Argentina S.A. did not incorporate/liquidate 100% of the currencies from its sales of hydrocarbons in the local market, as it believed that the Regime on Free Disposal of Currencies was still in force, with the underlying obligation to incorporate/liquidate only 30% of these currencies in the internal market. As of this date, the BCRA concluded the instructive state (charge, discharge, evidence stage, allegations) and the case is currently ready to be send to the corresponding court). Federal Lower Court No. 1 of Rio Gallegos. Criminal Secretariat No. 2. Case No. 1413/05 entitled District Attorney Office of Santa Cruz. Denunciation. The denunciation arises from a report addressed by the Energy Secretariat of the Santa Cruz Province to the State District Attorney Office, informing a hydrocarbons spill out at sea, specifically in the Magallanes area. Several actions were undertaken, culminating, at the request of the District Attorney, on statements being taken on February 23, 2007 of two professionals, in accordance with article 294 of the Penal Proceedings Code. After the statements, the court ordered some other evidence and then indicted these professionals. This sentence was appealed at the Appeals Chamber of Comodoro Rivadavia, filing their respective defenses on October 8, Currently, proceedings are under way in the trial at the Appeals Chamber. On September 18, 2009 the defendants received the notifications from the Appeals Chamber of Comodoro Rivadavia, through which the legal prosecutions are confirmed. On September 29, 2009, was presented at the Federal Court of Rio Gallegos an Exception Proceeding and a Special Pronouncement. Extinction of the legal action due to prescription of the legal action, requesting to reissue such exception at the Appeals Chamber of F-112

237 Comodoro Rivadavia. The Appeals Chamber of Comodoro Rivadavia ordered to transfer the Case to the Federal Court of Rio Gallegos to process the filed Exception proceeding. Regardless of the Chamber s ruling, it will not undermine the equity of Enap Sipetrol Argentina S.A., because the amounts of the embargoes is personal, and amount to ThUS$5.7 each. Enap Sipetrol Argentina S.A. was notified by the Federal Court of the City of Río Gallegos regarding the extinction of the criminal proceeding started in 2005 by the Provice of Santa Cruz, and regarding the stay of proceedings of the accused professionals former employees of the company. This resolution is still valid, as no appeal has been presented by the Federal Prosecutor s Office or by the Provicen of Santa Cruz (through the State Prosecutor s Office), in their role as plaintiffs. Royalty Board, PublicUndersecretary office of Energy, Ministry of Production, Province of Santa Cruz. Case No /07 Enap Sipetrol Argentina SA - YPF SA UTE (MAGALLANES). Royalties over fuels. Amount involved ThUS$1, A request was presented to the View of the proceeding. AFIP with Enap Sipetrol Argentina S.A. Case No I. View and Determination of Debt due to the non Filing of Income Taxes for the fiscal years 2004 and 2005, Consideration of the Accounting Provisions for Closing and Abandoning of Wells Adjustments of Sworn Statements. Due to compensation action betwen the fiscal periods 2004/2005, the involved amount is ThUS$495.2, plus a fine of US$76.9. On December 22, 2009, the Company filed an appeal to the determination of the AFIP at the Argentinean Tax Court. e) Pledges from third parties ENAP At March 31, 2010, ENAP has received certificates of deposit from suppliers or contractors to guarantee compliance of service and construction contracts, for ThUS$83,425. Enap Refinerías S.A. (ERSA) In relation to the projects: Petropower, Petrosul, Etalsa, Hidrógeno con AGA, Prodisa and Enercon, the Company counts on the guarantee from Empresa Nacional del Petróleo in order to comply with the obligations of Enap Refinerías S.A. established in the corresponding commercial contracts. F-113

238 Enap Sipetrol S.A. As at March 31, 2010, Enap Sipetrol S.A. has received from different suppliers and contractors, the following guarentees: Supplier Guarantee Contract ARS US$ ABB SIPET/PP PC/ , , Baker Hughes Argentina SIPET/PP PC/ /PAMPA 70, , Baker Hughes Argentina Helix E2 Project/ BA/ 036/ 08 (Prov de trepanos) 16, , Bekon S.A UTEAM/RG/ , , BJ Services S.R.L Helix E2 PROJECT/ BA/ 032/08 67, , Bolland y Cia. SA SIPET/ PP PC/ PAMPA 177, , COPGO Wood Group SA SIPET/ PP PC / PAMPA 256, , COPGO Wood Group SA SIPET/ PP PC / PAMPA 476, , DAP Helicópteros Argentina UTEAM/RG/RG/146 Y UTECAM2/A-SUR/RG/ , Electrificadora del Valle SA UTEAM RG 048/2008 1,687, , Envirogroup S.A. UTEAM/RG/090 16, , Escarabajal Ingenieria S.R.L UTEAM/RG/298 98, , Establecimientos La Asuncion S.A. Garantia de anticipo y/o acopio 58, , Establecimientos Oeste S.A. SIPET/PP PC/ /PAMPA 20, , Fiori Aljandro CITO UTECAM2/ASUR/RG/ , , Geopatagonia SIPET/PP PC/ /PAMPA 173, , Huinoil SA UTECAM2/ ASUR/RG/002/ , , JOMAR UTEAM/RG/ , , JR Turismo Allemativo CTTO UTEAM/RG/2l0 30, , Kidde Argentina S.A. UTEAM/RG/110 88, , Kindruk Teodoro SIPET/ PP CRY /PAMPA 25, , Minvest S.A. Supply service - 1,153, Oliva Luis Nelson SIPET/PP PC/ / PAMPA 49, , Petrotank s.a UTECAM2/A SUR/RG/007-24, Petrnlank s.a UTEAM/BA/ , Qualicontrol UTEAM/BA/ , , Risk Control UTEAM/RG/011l/ , , Rosen Europe R.V. UTEAM/BA/ , , Schneider Electric Argentina S.A. Antieipo fe DC , Seibo Ingenieria S.R.L. UTEAM/RG/292 1,200, , Skanska SA PP/PC/ 038/2007 4,533, ,193, Skanska SA UTECAM2/ASUR/RG/OO2 240, , Skanska SA UTEAM/RG/077 2,930, , Skanska SA UTECAM2/ASUR/RG/ , , Skanska SA UTEAM/RG/077 2,930, , Skanska SA UTECAM2/ASUR/RG/ , , Skanska SA UTEAM/RG/077 2,930, , Skanska S.A. UTEAM/RG/ , , Smith International Inc. Pe CRV /PAMPA 172, , Sodexho Argentina S.A UTECAM2/A SUR/RG/ , , Sodexho Argentina S.A UTEAM/RG/ , , Sodexho Argentina SA UTEAM/RG/308 8, , Solar Turbines International Company UTEAM/BA/ , Tecnotrol S.R.L. SIPET/PC/CRV/ /PAMPA 36, , Teledrif SIPET/PP PC/ /PAMPA 74, , TIPI! Tecnologla Integral en Proteccion contra Incendios S.A , , Trans Patagonia Servicios SA UTEAM/RG/092/2008 Y UTECAM2/A-SUR-RG , , TRANSPLANS CITO UTEAM/RG/l48 73, , Weiz Instrumentos S.A. UTEAM/RG/099 4, , Weiz Instrumentos S.A. UTEAM/RG/039/ , , Wood Group SIPET/PP PC/ /PAMPA 1,500, , NYC SIPET/PC CRY /PAMPA 142, , Daniel Ricca S.A , CLINICA DEL VALLE S.R.L. PC/CPV/029/ , , JMP Comunicacions S.R.L. SIPET/ PC/ CRV / PAMPA 15, , Geopatagonia SIPET/PC CRV / PAMPA 90, , Oliva Aguilera Luis Nelson SIPET/PC CRV /PAMPA 629, , Oliva Aguilera Luis Nelson SIPET/PC CRLV / PAMPA 221, , INDUSTRIAS JUAN F. SECCO S.A. 456, , ATLAS COPCO ARGENTINA S.A.C.I , , Bolland y Cia. S.A. SIPET/PC CRV/ / PAMPA 388, , SAN ANTONIO INTERNACIONAL S.R.L SIPET/ PC- CVR / PAMPA 2,336, , GEOSERVICES AM BA / CAM2 BA , HIDROMEC AM BA , COPGO WOOD GROUP PC BA , ENVIROCONTROL AM BA , F-114

239 28. ENVIRONMENT The detail of the expenses incurred for the item of Environment as at March 31, 2010 and 2009, is as follows: a. ENAP Project Classification Description ThUS$ ThUS$ Liquid Industrial Residues Expense Transport of reinjection water Isla Tierra del Fuego 2 - Normalization of facilities Expense Handling of sewage water Bahía Laredo Procurement of environmental permitsexpense Obtaining of environmental permits for projects Environmental liabilities project Expense Remediation of pits 955 3,656 Environmental restorations Expense Environmental works executred by the Island and Continent Administration Handling of residues Expense Contract for the withdrawal disposal of Solid Industrial Residues and Total 1,588 4,306 The detail of disbursements after March 31, 2010 is as follows: Date on which the disbursement Project Classification Description Amount are expected to ThUS$ be made Liquid Industrial Residues Expense Transport of reinjection water Isla Tierra del Fuego 250 At December Normalization of facilities Expense Handling of sewage water Bahía Laredo. 980 At December Procurement of environmental permexpense Obtaining of environmental permits for projects 908 Net with project Environmental liabilities project Expense Remediation of pits 2,240 Net with project Environmental restorations Expense Environmental works executred by the Island and Continent 380 Monthly paymants Handling of residues Expense Contract for the withdrawal disposal of Solid Industrial Residues and 270 Monthly paymants Total 5,028 b. Enap Refinerías S.A Project Classification Concept ThUS$ ThUS$ New rental unit Asset Construction, advisories, material and equipment contracts 3,524 3,342 Extension of production capacity of diesel low sulphur Asset Construction, advisories, material and equipment contracts 4, Improvement in tank drainage handling Gasoline and Kerosene Asset Construction, advisories, material and equipment contracts 8 - Installation sistem to handle drainage and rainwater Qtro Asset Construction, advisories, material and equipment contracts 47 - Improvement treatment system of oil water Asset Construction, advisories, material and equipment contracts (391) 1,334 Installation of double seals process pumps Asset Construction, advisories, material and equipment contracts 53 - Subtotal Projects 7,932 5,017 Operating Expenses Environmental Unit Classification Concept MUS$ MUS$ Environmental services Expense Advisories Maintenance services Expense Advisories 0 2 Depreciation Expense Depreciation Disposal of residues Expense Advisories 313 1,165 Subtotal Expenses of Environmental Unit 364 1, Environmental Expenses of Operating Units Classification Concept MUS$ MUS$ Acid plant Expense Operating costs of the plant Sulphur plant Expense Operating costs of the plant Desulphuration plant of gasoline Expense Operating costs of the plant 1,157 1,135 Desulphuration plant of diesel Expense Operating costs of the plant Striper acid waters Expense Operating costs of the plant Treatment of effluents Expense Operating costs of the plant Subtotal Environmental expenses of Operating Units 1,649 1,618 Total 9,945 7,857 F-115

240 The detail of disbursements after March 31, 2010 is as follows: Amount of Estimated date Project Classificatión Concept Disbursement of disbursement ThUS$ New rental unit Cost of asset Construction, advisories, material and equipment contracts* 112, Extension of production capacity of diesel low sulphur Cost of asset Construction, advisories, material and equipment contracts* 4, Installation sistem to handle drainage and rainwater Qtro Cost of asset Construction, advisories, material and equipment contracts* 1, Improvement treatment system of oil water Cost of asset Construction, advisories, material and equipment contracts* 4, Installation of double seals process pumps Cost of asset Construction, advisories, material and equipment contracts* Total 124,116 (*) All future commitments represent works in progress of construction and infrastructure. c. Enap Sipetrol S.A. (Expense or Country asset) Description MUS$ MUS$ Ecuador Asset Environmental investment related to projects 16 - Ecuador Expense Operating expense environmental unit Argentina Asset Environmental investment related to projects - 81 Argentina Expense Environmental expense operating units Egypt Expense Environmental expense operating units Total Note 1: It includes: Environmental Monitoring, Minor Equipment, Remediation, Contingencies, SGA Implementation, Handling and Disposal of Waste Material. Note 2: No other companies of the consolidated group have incurred environmental expenses during the reported periods. The detail of disbursements after March 31, 2010 is as follows: Country Project Description Classification Amount Estimated dates of Ecuador MDC Replacement of ballast in MDC-03 platform Investment 1 Net with project Ecuador PBH - MDC Prov. monitoring PAR 2 and Paraiso Station liability samples Investment 7 Net with project Ecuador PBH - MDC Construction of floor in cellar Investment 8 Net with project 29. TRADE DEBTORS AND OTHER ACCOUNTS PAYABLE a) The detail is as follows: Total Current Total Non Current ThUS$ ThUS$ ThUS$ ThUS$ Trade accounts payable 1,144,990 1,320,756 3,649 3,403 Other creditors 1,494 1, Other payables 68,666 56, Total 1,215,150 1,378,646 3,679 3,744 F-116

241 b) Detail of future maturities ThUS$ ThUS$ Up to 30 days 386, ,769 Between 31 and 60 days 221,891 - Between 61 and 90 days 471, ,763 Between 91 and 180 days 86, ,481 Over 180 days 49,446 49,633 Total 1,215,150 1,378, PERSONNEL COSTS The detail of this item at March 31, 2010 and 2009 is as follows: ThUS$ ThUS$ Wages and salaries 39,802 37,156 Short term benefits for employees 33,317 30,721 Other personnel expenses 1,477 1,532 Other long-term benefits 6,473 10,379 Total 81,069 79, DISCONTINUED OPERATIONS North Bahariya The Board of Directors Meeting Nº 214, held on August 28, 2007, authorized the beginning of the North Bahariya project sales process. On April 14, 2008, the subsidiary Sipetrol International S.A., and the Egyptian company Sahara North Bahariya Limited, signed a Sale and Purchase Agreement through which Sipetrol International S.A. agreed to sell its total participation in the North Bahariya Block, located in the Western Desert of Egypt. This operation was completed on March 9, 2009, moment on which the Ministry of Oil granted its approval and the control of North Bahariya was transferred to the buyer. The sales price was of ThUS$65,000, plus interests, generating revenues of ThUS$45,751. F-117

242 The results of the exploitations in final interruption that have been included in the consolidated statement of income, are detailed next: Statement of Income ThUS$ ThUS$ Revenues - 1,266 Cost of Sales - (1,531) Income before taxes - (265) Subtotal - (265) Income (loss) of sale of operation - 46,016 Subtotal - 46,016 Total income from discontinued operations - 45,751 F-118

243 32. CONSOLIDATION ENVIRONMENT Functional Ownership percentage Percentage with voting rights Company Country currency Relationship Activity Enap Refinerias S.A. Chile US dollar 99,98% 99,98% 99,98% 99,98% Direct Subsidiary Purchase and refining of crude oil and by-products Enap Sipetrol Chile US dollar Exploration, production and marketing of hydrocarbons and render advisory services in Chile 100% 100% 100% 100% Direct Subsidiary and abroad Petro Servicios Corp. S.A. (Argentina) Argentina US dollar 100% 100% 100% 100% Direct Subsidiary Oil services Gas de Chile S.A. Chile Pesos Import, export and operation in general of all kinds of fuels and by-products, specially natural 100% 100% Direct Subsidiary gas in any of its phases: Manu Perú Holding S.A. Perú US dollar 100% 100% 100% 100% Import and marketing of fuels and lubricants through wholesalers Direct Subsidiary Éteres y Alcoholes S.A. (Etalsa) Chile US dollar 41,74% 41,74% 41,74% 41,74% Special purpose entity Manufacturing of other chemical products N.C.P. Petrosul S.A. Chile US dollar 47,39% 47,39% 47,39% 47,39% Special purpose entity Data processing services and Refinería Concón S.A., of its accounts Energía Concón S.A. (Enercon) Chile US dollar 49,00% 49,00% 49,00% 49,00% Special purpose entity Feasibility study Productora de Diesel S.A. (Prodisa) Chile US dollar 45,00% 45,00% 45,00% 45,00% Special purpose entity Processing and construction services of refineries, by-products Cía. de Hidrógeno del Bío - Bío S.A. (CHBB) Chile US dollar 10.00% 10.00% 10.00% 10.00% Special purpose entity Construction and operation of an industrial plant, located in the facilities of Enap Refinerías S.A., in the district of Talcahuano and destined to the production of high quality hydrogen Enap Sipetrol Argentina S.A. (Filial de Enap Sipetrol S.A) Enap Sipetrol (UK) Limited (Filial de Enap Sipetrol S.A) Sipetrol International S.A. (Uruguay) (Filial de Enap Sipetrol S.A.) Sociedad Internacional Petrolera Enap Ecuador (filial deenap Sipetrol S.A.) Argentina US dollar 100% 100% 100% 100% Reino Unido US dollar 100% 100% 100% 100% Uruguay US dollar 100% 100% 100% 100% Ecuador US dollar 100% 100% 100% 100% Indirect Subsidiary Indirect Subsidiary Indirect Subsidiary Indirect Subsidiary Generation of Uniones Transitorias de Empresas (UTE) [similar to Joint Ventures], collaboration groups, joint venture, consortiums or other kinds of associations to explore, exploit and transport hydrocarbons Prospections, explore, develop, maintain and work with land, wells, mines and mining exploitation rights, drilling rights and concessions in areas containing oil, gas or other minerals. Make and administrate investments. One or more of the activities related to the exploration, exploitation or benefits from fields containing hydrocarbons. Exploration, exploitation, processing, distribution, marketing, transport and oil services F-119

244 Net income Assets Liabilities Equity Ordinary Ordinary (loss) Company Current Non Current Current Non Current income expenses for the year ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Enap Refinerias S.A. 1,876,076 2,084,501 2,774, , ,447 1,932,856 1,956,062 (90,417) Enap Sipetrol 49, ,462 17, , ,420 21,738 10,449 15,567 Petro Servicios Corp. S.A. (Argentina) 1, , (716) Gas de Chile S.A. 3, , Manu Perú Holding S.A. 49,707 54,527 20,909-83,325 59,605 56,765 4,939 Éteres y Alcoholes S.A. (Etalsa) 3,605 18,454 4,690 4,257 13,112 1, Petrosul S.A. 2,783 21,535 2,758 7,583 13,977 1, Energía Concón S.A. (Enercon) 30, ,727 32, ,252 10,052 12,043 5,150 4,711 Productora de Diesel S.A. (Prodisa) 13,799 70,015 5,389 65,041 13,384 1, Cía. de Hidrógeno del Bío - Bío S.A. (CHBB) 2,493 26,223 2,673 13,691 12,352 1, Enap Sipetrol Argentina S.A. (Filial de Enap Sipetrol S.A) 67, , ,606 19, ,221 45,751 37,359 2,859 Enap Sipetrol (UK) Limited (Filial de Enap Sipetrol S.A) 1, , Sipetrol International S.A. (Uruguay) (Filial de Enap Sipetrol S.A.) 26,541 25,191 6,183 21,849 23,699 10,996 5,244 2,208 Sociedad Internacional Petrolera Enap Ecuador (filial de Enap Sipetrol S.A.) (14) Net income Assets Liabilities Equity Ordinary Ordinary (loss) Company Current Non Current Current Non Current income expenses for the year ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Enap Refinerias S.A. 1,951,227 2,133,848 2,787, , ,438 7,207,398 7,131, ,625 Enap Sipetrol 39, ,583 4, , ,421 1,654 (3,530) 13,838 Petro Servicios Corp. S.A. (Argentina) 1, ,520 1, (78) Gas de Chile S.A. 3, , (15) Manu Perú Holding S.A. 64,639 48,784 37,747-75, ,704 (226,657) 11,994 Éteres y Alcoholes S.A. (Etalsa) 3,820 22,122 4,742 8,618 12,582 4,092 (550) 1,947 Petrosul S.A. 2,756 25,567 2,864 11,727 13,732 2,501 (700) 866 Energía Concón S.A. (Enercon) 47, ,690 34, ,633 10,285 31,081 (2,633) (123) Productora de Diesel S.A. (Prodisa) 13,444 86,810 9,887 77,557 12,810 16,405 (10,159) 1,789 Cía. de Hidrógeno del Bío - Bío S.A. (CHBB) 2,070 27,827 3,166 14,892 11,839 4,822 (1,210) 2,132 Enap Sipetrol Argentina S.A. (Filial de Enap Sipetrol S.A) 61, , ,935 19, , ,745 (170,016) (21,793) Enap Sipetrol (UK) Limited (Filial de Enap Sipetrol S.A) 1, , Sipetrol International S.A. (Uruguay) (Filial de Enap Sipetrol S.A.) 21,886 31,841 5,895 26,341 21,491 28,064 (17,957) 32,963 Sociedad Internacional Petrolera Enap Ecuador (filial deenap Sipetrol S.A.) (15) F-120

245 33. NON CURRENT ASSETS OR GROUP OF ASSETS HELD FOR SALE The detail of the non-current assets or groups of assets for your disposal is as follows: ThUS$ ThUS$ Balance at the beginning of the year - 17,507 Transfer from non current assets available for sale 1,966 6,202 Disposal of assets available for sale - (23,709) Total 1,966 - a) In Board Meeting No. 253, correspond to the availability for sale of the floors 4 and 5, parking spaces and warehouses of the Building Malasia, which is part of a leasing contract. The Board authorized the exercise the purchase option in anticipation and to sell it subsequently. b) Corresponds to the sale of ownership interest of Sipetrol International in the North Bahariya Block Egypt (Note 31). 34. EXCHANGE DIFFERENCES At March 31, 2010 and 2009, the detail for the items assets and liabilities generating exchange differences are as follows: Concept ThUS$ ThUS$ Cash and cash equivalents (1,997) 2,293 financial assets (9,791) 19,916 Other non-financial assets, current 12,467 12,125 Trade and other receivables (18,235) 47,968 Due from related companies, current (2,997) (67) Income tax receivable 1, Inventories (104) - Other non-financial assets, non-current - 36 Rights receivable (644) 410 Other non-financial liabilities, current (7,052) (2,890) Trade debtors and other accounts payable 3,021 (5,219) Due to related companies, current 1,605 (2,694) short-term accruals 1,315 (2,477) Long term accruals 5,127 (10,968) Liabilities long term - Other 19,591 (27,806) Forward income (loss) 5,043 (34,030) Other 1,144 (1,963) Total 9,623 (5,354) F-121

246 35. FOREIGN CURRENCY Currency Funcional Currency Up to 90 Over 91 days up to Over 1 year More than 5 Up to 90 Over 91 days up t Over 1 year More than 5 Liabilities Days 1 year up to 5 years years Days 1 year up to 5 years years Other financial liabilities current US Dollars Dollars 64,263 1,227, , ,449 UF Dollars 17, ,971 2,737 Trade debtors and other accounts payable US Dollars Dollars 63,670 1,055, ,945 1,189,825 Chilean Pesos Dollars 80, ,580 1,566 Argentine Pesos Dollars 15, ,730 Due to related companies, current US Dollars Dollars 15, , Chilean Pesos Dollars Other short-term accruals US Dollars Dollars - 37, ,571 44,217 Chilean Pesos Dollars 59 8, Deferred tax liabilities US Dollars Dollars 4, Chilean Pesos Dollars 19, ,711 UF Dollars Argentine Pesos Dollars 3, ,006 Current accruals for employee benefits US Dollars Dollars 7, ,181 Chilean Pesos Dollars 2,117 27, ,556 UF Dollars 17,386 Other non-financial liabilities, current US Dollars Dollars 1, , UF Dollars Liabilities included in group of assets classified as held for sale. US Dollars Dollars - 1, Otros pasivos no financieros corrientes Other financial liabilities non-current US Dollars Dollars , ,125 1,654, ,502 UF Dollars - - 1,265, ,191 5,109 Liabilities non-current US Dollars Dollars - - 3,349-3,403 Chilean Pesos Dollars Other long-term accruals US Dollars Dollars ,990 16,890 61,614 Deferred tax liabilities US Dollars Dollars , , , ,539 Chilean Pesos Dollars Argentine Pesos Dollars ,049-10,333 Non-current accruals for employee benefits US Dollars Dollars Chilean Pesos Dollars - - 1,170 3,513 1,440 3,349 UF Dollars , ,160 42, ,339 Other non-financial liabilities non-current US Dollars Dollars - - 1, , Total 296,236 2,358,806 2,368, , ,715 1,408,518 2,385, ,665 F-122

247 36. EFFECTS OF THE EARTHQUAKE The earthquake that struck the south-central area of the country at daybreak of February 27, altered the operations of the refineries of Biobio and Aconcagua, mainly due to the power cut off and to the structural damages which due to safety reasons forced the stoppage of production. Both refineries where submitted to an exhaustive inspection to establish the amount of the damages and to determine the necessary measure to start operating again in a secure manner. A preliminar analysis of the situation indicated that the start of operations of the refinery of Aconcagua would take less time than the start of operations of the Biobio refinery. The Aconcagua refinery started its operations, gradually, during the month of March. In relation to the Biobio refinery, it presented severe damages, reason why the starting of operations has only been performed, gradually, as of the second fortnight of May The Group counts on insurances that allow covering the damages to the property, damages due to stoppages and civil damages caused as a consequence of the quake. These insurances have already been activated and both our brokers, as well as the insurance companies and liquidators are working on this situation. A preliminary estimation of the valuation of the damages, subject to possible subsequent variations depending on new findings, determined based on the damages caused to the assets of ENAP and its subsidiaries and to the losses associated to the interruption of the business due to the stoppages of the plant, indicates an estimation of approximately US$76 million for Plants and Equipment (VAT included) and US$78 million for the stoppage damages, which totals US$155 million. A portion of these effects have been recognized in profits and losses at March 31, 2010, through the recognition of the impairment of Property, Plant and Equipment of ThUS$64 million (net of taxes), as indicated in note 7 in relation tot he impairment losses. Regarding the stoppage losses, its effects are being shown in profits and losses as of the date of the earthquake, as higher or lower expenses and consequently lower margins and up to a maximum of 60 days, period corresponding to the deductible of the insurance. After such date, the costs and expenses will be recognized as an accounts receivable from the insurance. In conformity with the previously described, the results as at March 31, 2010, do not include the revenues for recovery of insurance claims, which will be recognized according to the progress in the liquidation process of this event. 37. SUBSEQUENT EVENTS Through Official Letter No dated April 29, 2010, the Contraloría General de la República [General Controllership of the Republic] announced the following, that, in conformity to the established in Article 15 of Law N , note that the functions and responsibilities that the Minister and the Ministry of Mining held in Empresa Nacional del Petróleo, have been transferred, in compliance with legal provisions, to the Minister and the Ministry of Mining, respectively. F-123

248 In conformity with the indicated in the aforementioned document, as of May 2010, the Board of Directors of Empresa Nacional del Petróleo will be chaired by Mr. Ricardo Raineri Bernain, Minister of Energy, in replacement of Mr. Laurence Golborne Riveros, Minister of Mining * * * * * * F-124

249 Deloitte Auditores y Consultores Limitada RUT: Av. Providencia 1760 Pisos 6, 7, 8, 9, 13 y 18 Providencia, Santiago Chile Fono: (56-2) Fax: (56-2) deloittechile@deloitte.com INDEPENDENT AUDITORS REPORT To the Chairman and Directors Empresa Nacional del Petróleo We have audited the accompanying consolidated statements of financial position of Empresa Nacional del Petróleo and subsidiaries at December 31, 2009 and 2008, the opening statement of financial position at January 1, 2008 and the related consolidated statements of comprehensive income, changes in net equity and cash flows for the years ended December 31, 2009 and These consolidated financial statements (including the related notes) are the responsibility of the management of Empresa Nacional del Petróleo. Our responsibility is to express an opinion on these consolidated financial statements, based on our audits. We did not audit the financial statements at December 31, 2009 and 2008 and the opening statements of financial position at January 1, 2008 of certain affiliates, whose financial information shows net assets (liabilities) of 2.1%, 0.3% and -0.2% of the corresponding consolidated totals as of such dates and a net income representing 37.3% and 0.4% of the total income for the years ended December 31, 2009 and Such financial statements were audited by other auditors, whose reports were provided to us, and our report presented hereby in relation to the amount corresponding to these affiliates, is sole based on the reports issued by those auditors. We conducted our audits in accordance with auditing standards generally accepted in Chile. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company s management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and on the reports of other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of Empresa Nacional del Petróleo and subsidiaries as at December 31, 2009 and 2008 and at January 1, 2008, and the results of their operations, the changes in net equity and their cash flows for the years ended December 31, 2009 and 2008, in conformity with International Financial Reporting Standards. January 29, 2010 F - 125

250 ENAP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AT DECEMBER 31, 2009, DECEMBER 31, 2008 AND JANUARY 1, 2008 (In thousands of US dollars - ThUS$) ASSETS Note N ThUS$ ThUS$ ThUS$ Current assets: Cash and cash equivalents 26 76, , ,414 Trade and other receivables, net , ,234 1,179,409 Due from related companies 24 57,009 48, ,992 Inventories 14 1,060, ,597 1,598,480 Hedge assets 13 2,824 24,636 25,664 Advance payments 13,625 17,737 22,358 Income tax receivable , , ,477 Other assets 4, Non current assets and groups held for sale 33-17,508 20,766 Total current assets 2,231,409 2,203,143 3,439,340 Non-current assets: Other financial assets Trade and other receivables, net 15 25,965 20,947 6,701 Due from related companies 24 12,964 12,648 14,654 Equity method investments in associates , ,957 78,181 Property, plant and equipment, net 7 2,596,990 2,462,984 2,400,779 Investment property 9 2,066 2,072 2,078 Deferred taxes assets , , ,639 Hedge assets 13 54, ,124 Other assets 33,976 66,703 70,593 Total non-current assets 3,328,344 3,114,616 2,704,284 TOTAL ASSETS 5,559,753 5,317,759 6,143,624 The accompanying notes are an integral part of these consolidated financial statements F-126

251 NET EQUITY AND LIABILITIES Note N ThUS$ ThUS$ ThUS$ Current liabilities: Loans accruing interests , , ,472 Trade payables and other accounts payable 29 1,372,576 1,600,916 2,549,856 Due to related companies 24 27, ,697 Provisions 19 99, ,971 58,660 Income tax payable 23 32, ,510 85,182 Other liabilities 7,338 8,538 6,495 Deferred income Hedge liabilities 13 8,890 18,446 2,302 Total current liabilities 2,151,234 2,874,726 2,952,735 Non-current liabilities: Loans accruing interests 18 2,365,088 1,437,402 1,436,235 Trade payables and other accounts payable 29 3,744 3,557 3,958 Due to related companies 24-3,686 4,721 Provisions , , ,807 Deferred tax liabilities , , ,325 Other liabilities 1, Deferred income Hedge liabilities 13 68, ,316 24,739 Total non-current liabilities 2,964,679 2,246,399 2,098,542 Net equity attributable to majority shareholders: Paid-in capital 16 1,182,700 1,182, ,700 Other reserves 16 99, , ,844 Retained earnings (accumulated losses) 16 (875,814) (1,109,495) (20,069) Net equity attributable to majority shareholders 406, ,641 1,047,475 Non - controlling interest 17 37,618 11,993 44,872 Total net equity 443, ,634 1,092,347 TOTAL NET EQUITY AND LIABILITIES 5,559,753 5,317,759 6,143,624 F-127

252 ENAP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (In thousands of US dollars - ThUS$) Note N ThUS$ ThUS$ Ordinary revenue 20 7,097,503 12,182,732 Cost of sales (6,819,499) (12,926,900) Gross Margin 278,004 (744,168) Other operating revenues 82, ,338 Administrative expenses (97,333) (107,348) Other operating expenses (100,211) (117,427) Financial expenses 22 (172,438) (201,378) Equity in earnings of associates accounted under the equity method 10 72,687 2,730 Exchange differences 34 51,575 (129,056) Other income (losses) 7,792 8,072 Income (loss) before taxes 122,731 (1,186,237) (Expense) revenue from income taxes 23 31, ,085 Income (loss) from continued operations after taxes 154,632 (962,152) Income (loss) from discontinued operations net of taxes 31 45,751 6,647 Income (loss) 200,383 (955,505) Income (loss) attributable to holders of equity instruments in the controlling entity's net equity and minority interests (presentation) Income (loss) attributable to holders of equity instruments in the controlling entity s net equity 195,923 (960,360) Income (loss) attributable to non controlling interest 17 4,460 4,855 Income (loss) 200,383 (955,505) The accompanying notes are an integral part of these consolidated financial statements F-128

253 ENAP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (In thousands of US dollars - ThUS$) ThUS$ ThUS$ Income (loss) for the year 200,383 (955,505) Other income and expenses with charge or credit to net equity Cash flow hedging (33,912) (48,965) Translation adjustments 4,713 (3,163) Income tax related to the components of other income and expenses with charge or credit in net equity 24,649 7,777 Other income and expenses with charge or credit to net equity, total (4,550) (44,351) Results of Comprehensive income and expenses, total 195,833 (999,856) Results of Comprehensive income and expenses attributable to majority shareholders 191,373 (1,004,711) Results of Comprehensive income and expenses attributable to non-controlling interest 4,460 4,855 Results of Comprehensive income and expenses, total 195,833 (999,856) The accompanying notes are an integral part of these consolidated financial statements F-129

254 ENAP AND SUBSIDIARIES STATEMENT OF CHANGES IN NET EQUITY AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (In thousands of US dollars - ThUS$) Changes in capital Changes in ordinary Changes in other reserves net equity Changes in shares Reserves Other changes in attributable to non Total capital in for proposed Translation Revaluation Hedging sundry retained controlling controlling net shares dividends reserves reserves reserves reserves earnings company interest equity ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Note 16 (b) 16 ( c ) 16 ( c ) 16 ( c ) 16 ( c ) 16 ( d ) 17 Opering balance as at 01/01/2009 1,182,700 - (75,396) 198,016 (36,251) 25,067 (1,109,495) 184,641 11, ,634 Result of comprehensive income and expenses - - 4,713 - (9,263) - 195, ,373 4, ,833 Other increase (decrease) in net equity (2,246) (5,304) 37,758 30,208 21,165 51,373 Changes in equity - - 4,713 (2,246) (9,263) (5,304) 233, ,581 25, ,206 Total balance at 31/12/2009 1,182,700 - (70,683) 195,770 (45,514) 19,763 (875,814) 406,222 37, ,840 Opering balance as at 01/01/ ,700 - (72,233) 198,016 4,937 4,124 (20,069) 1,047,475 44,872 1,092,347 Result of comprehensive income and expenses - - (3,163) - (41,188) (960,360) (1,004,711) 4,855 (999,856) Other increase (decrease) in net equity 250, ,943 (129,066) 141,877 (37,734) 104,143 Changes in equity 250,000 - (3,163) - (41,188) 20,943 (1,089,426) (862,834) (32,879) (895,713) Total balance at 31/12/2008 1,182,700 - (75,396) 198,016 (36,251) 25,067 (1,109,495) 184,641 11, ,634 The accompanying notes are an integral part of these consolidated financial statements F-130

255 ENAP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (In thousands of US dollars - ThUS$) Note N ThUS$ ThUS$ Cash flows provided by (used in) operations, direct method Receivables from clients 8,358,593 15,652,756 Payment to suppliers (7,937,124) (12,397,110) Remunerations paid (280,753) (312,440) Payments received and reissued for value added tax (181,268) (3,844,348) Other collections (payments) (39,884) 701,163 Cash flows provided by (used in) operations (80,436) (199,979) Amounts received for dividends classified as from operations 8,835 27,956 Payments for dividends classified as from operations (3,217) (1,731) Amounts received for interests classified as from operations ,306 Payments for dividends classified as from operations (12,817) (176,737) Amounts received for returned income taxes 122,207 Payment for income taxes (116,720) (116,289) Other entries (disbursements) from other operating activities 82,568 21,165 Cash flows provided by (used in) other operating activities 81,194 (171,330) Net cash flows provided by (used in) operating activities 758 (371,309) Net cash flows provided by (used in) investment activities Amounts received from disposal of property, plant and equipment 6,025 Amounts received from disposal of affiliates 3, Amounts received from disposal of non-current held for sale and discontinued operations 69,460 Reimbursement of advance payments of borrowing in cash and borrowings received 23,800 96,877 Other cash flows provided by (used in) investment activities 6,205 Amounts received for interests classified as from investment 5,082 Addition of property, plant and equipment (486,983) (407,008) Payments to acquire affiliates (11,704) (21,475) Borrowings to related companies (9,640) (59,880) Borrowing to non-related parties (947) (17,993) Payments to acquire other financial assets (58) (517) Other disbursements for investments (1,898) (8,664) Net cash flows provided by (used in) investment activities (409,111) (405,995) Net cash flows provided by (used in) financing activities Amounts received for the issuance of net equity instruments 252,620 Obtaining of borrowings 2,677,517 1,910,139 Borrowings from related parties 10,317 Income from other financing sources 5,099 Payments of borrowings (2,282,614) (1,344,325) Reimbursement of liabilities from financial leases (1,921) Payment of borrowings to related parties (3,194) Payments for interests classified as financial (75,060) (29,085) Net cash flows provided by (used in) financing activities 330, ,349 Net increase (decrease) in cash and cash equivalents (78,209) 12,045 Effects of variations in the exchange rate over cash and cash equivalents 4,556 - Cash and cash equivalents, statement of cash flows, initial balance , ,414 Cash and cash equivalents, statement of cash flows, final balance 26 76, ,459 The accompanying notes are an integral part of these consolidated financial statement F-131

256 ENAP AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands of US dollars - ThUS$) 1. GENERAL INFORMATION The Empresa Nacional del Petróleo (hereinafter ENAP or ENAP Group ) is the parent of the group of companies referred to in these consolidated financial statements. On October 4, 2002, the Company was registered in the Securities Register of the Superintendency of Securities and Insurances, under number 783. As such, the Company is subject to the regulations of the above Superintendency. ENAP was formed by Law of June 19, 1950 and is owned by the Chilean Government, and its main activity is exploring, exploiting and marketing of hydrocarbons and its derivatives. 2. DESCRIPTION OF THE BUSINESS According to the abovementioned law and its subsequent amendments, its main activity is exploring, exploiting or monetizing ore deposits containing hydrocarbons, which is authorized to be performed both inside as outside the country. ENAP has the following subsidiaries: ENAP Refinerías S.A., ENAP Sipetrol S.A., Petro Servicio Corp. S.A. and Gas de Chile S.A. and it also has branches in Argentina and Ecuador, as well as participations in other special purpose entities as detailed in Note No The subsidiary Enap Refinerías S.A. ( ERSA ) refines both local petroleum acquired from ENAP and petroleum imported from foreign suppliers. Petroleum and product imports are financed by ENAP through direct payments to suppliers. In addition, it provides reception and storage services for hydrocarbons, through its terminals and storage tanks. The direct subsidiaries Petro Servicio Corp. S.A. and ENAP Sipetrol S.A. execute outside the country one or more of the activities related to the exploration, exploitation or monetization of the hydrocarbon-bearing deposits. ENAP Sipetrol S.A. has branches in Ecuador, Argentina and Venezuela (the latter without any economic activity) and Associates in Argentina, United Kingdom (UK), Ecuador, Uruguay and its joint business described in the chart of Note No. 11. ENAP Sipetrol (UK) Limited (United Kingdom) is in the process of closing down its operations, which is expected to be completed in ENAP Sipetrol S.A. has a 100% ownership interest in the capital stock. F-132

257 The subsidiary ENAP Refinerías S.A. is a privately held corporation, voluntarily registered in the Securities Register of the Superintendency of Securities and Insurance on June 25, 2004, under number 833. The subsidiary ENAP Sipetrol S.A. is a privately held corporation, voluntarily registered in the Securities Register of the Superintendency of Securities and Insurance on June 23, 2008, under number SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1 Accounting principles These consolidated financial statements are stated in thousands of US dollars and were prepared based on the accounting records kept by ENAP and its Subsidiaries and have been prepared in accordance with IFRS, issued by the International Accounting Standard Board (hereinafter IASB ), and were approved by the Board of Directors in a Board meeting held on February 8, The preliminary IFRS consolidated statements of financial position at December 31, 2008 and the consolidated opening statement of financial position at January 1, 2008, were prepared exclusively to be used by Company Management, as part of the conversion process to IFRS for the year ended December 31, The consolidated financial statements of ENAP and Subsidiaries as at December 31, 2008, which were issued by the Company on February 6, 2009, were prepared in conformity with accounting principles generally accepted in Chile, which were considered as the previous accounting principles, as defined in IFRS 1, for the preparation of the IFRS consolidated statement of preliminary position. The accounting principles generally accepted in Chile differ in certain aspect from IFRS. These consolidated financial statements reflect the financial position of the ENAP Group at December 31, 2009 and the results of its operations, changes in net equity and cash flows for the period then ended. Preparation of these consolidated financial statements under IFRS requires the use of estimates and assumptions by the Management of the ENAP Group. These estimates are based on the best knowledge of the management on the amounts reported, events or actions. Responsibility for the information and estimates made The Senior Management of the ENAP Group is responsible for the information contained in these consolidated financial statements. In these consolidated financial statements the Senior Management of the ENAP Group and its consolidated entities have used estimates to quantify some of the assets, liabilities, income, expenses and commitments recorded therein. F-133

258 These estimates are explained in greater detail in Note 6 and involve the following: Impairment of assets Useful lives of property, plant and equipment Reserves of crude oil and gas Fair value of derivative instruments and other financial instruments Provisions for litigation and other contingencies Calculation of the tax on benefits and assets for deferred tax Regardless of the fact that these estimates were made with the best information available at the time, they may possibly need to be revised in future years as a result of future events; this would be done prospectively, as stipulated in IAS 8, by recognizing the effect of the change in the estimate in the respective comprehensive income statement. Please find next a description of the main accounting policies adopted in the preparation of these consolidated financial statements. As required by IFRS 1, these policies have been defined according to the IFRS in force as at December , applied consistently to all year-ends presented in these consolidated financial statements. a) Bases of preparation and period These consolidated financial statements of the ENAP Group includes the statement of financial position and the statement of changes in equity as at January 1, 2008, (transition date), December 31, 2008, and December 31, 2009 and the statements of comprehensive income and cash flows as of and for the years ended December 31, 2009 and 2008, and have been prepared in conformity with International Financial Reporting Standards ( IFRS ), which have been adopted in Chile under the following denomination: Normas de Información Financiera de Chile (NIFCH), and they represent the integral, explicit and unreserved adoption of the mentioned international standards. b) Bases de consolidation The consolidated financial statements of ENAP ( the parent company and its subsidiaries) include all the assets, liabilities, revenues, expenses and cash flows after eliminating inter-company balances and transactions. i) Subsidiaries: The subsidiaries (including the Special Purpose Entities - SPE) are those on which ENAP directly or indirectly exercises control, with the latter being understood to mean the ability to direct the financial and operational policies of a company in order to obtain benefits from its activities. This ability is generally, although not exclusively, evidenced in direct or indirect ownership of 50% or more of the company s ownership rights. Similarly, this method is used to consolidate those entities whose activities are understood to be completed to the company s benefit, while being exposed to all the risks and rewards of a dependent entity, regardless the company not holding an ownership interest of 50% or more. When assessing whether the ENAP Group controls another entity consideration is given to the existence and the effect of the possible voting rights currently exercised. The subsidiaries are consolidated as of the date on which the control is transferred to the Group, and they are excluded from consolidation on the date on which control is not longer exercised. F-134

259 In the attached chart are detailed the direct and indirect subsidiaries (including the Special Purpose Entities SPE), which are included in the consolidation of the ENAP Group. Relationship Company Domicile with the parent Shareholder percentage Enap Refinerías S.A. Chile Direct subsidiary 99,98% 99,98% 99,96% Petro Servicios Corp. S.A. (Argentina) Argentina Direct subsidiary % % % Enap Sipetrol S.A. Chile Direct subsidiary % % % Enap Sipetrol Argentina S.A. (Subsidiary of Enap Sipetrol S.A) Argentina Indirect subsidiary % % % Enap Sipetrol (UK) Limited (Subsidiary of Enap Sipetrol S.A) United Indirect subsidiary Kingdom % % % Sipetrol International S.A. (Uruguay) (Subsidiary of Enap Sipetrol S.A.) Uruguay Indirect subsidiary % % % Sociedad Internacional Petrolera Enap Ecuador (Subsidiary of Enap Sipetrol Ecuador Indirect subsidiary % % % Manu Perú Holdings S.A. (Subsidiary of Enap Refinerías S.A.) Perú Indirect subsidiary % % % Compañía Hidrógeno del Bío-Bío S.A. Chile Special purpose entity 10.00% 10.00% 10.00% Energía Cón-Cón S.A. (Enercon) Chile Special purpose entity 49.00% 49.00% 49.00% Éteres y Alcoholes S.A. (Etalsa) Chile Special purpose entity 41,74% 41,74% 41,74% Petrosul S.A. Chile Special purpose entity 47,39% 47,39% 47,39% Productora Diesel S.A. (Prodisa) Chile Special purpose entity 45.00% 45.00% 45.00% Gas de Chile S.A. (a) Chile Direct subsidiary % 0.00% 0.00% (a) On June 17, 2009 was purchased the remaining 50% of Gas de Chile S.A., through ENAP and Enap Refinerías S.A. (5%), company which as of June 2009 is being consolidated by ENAP ii) Joint Ventures Joint Ventures are those entities in which the situation described in the previous numeral i), is generated through an agreement of the other shareholders and jointly with them. Joint ventures are consolidated using the proportional consolidation method, which dictates the inclusion in the consolidated financial statements of the proportional assets, liabilities, expenses and income of these companies equivalent to the ENAP Group's ownership interest in them. Joint ventures are understood to be those in which there is joint control. This only occurs when the activities strategic decisions, both financial and operational, require the unanimous consent of the parties sharing the control. Assets, liabilities, income and expenses involved with the joint ventures are stated in the consolidated statement of financial position and in the consolidated statement of comprehensive income in accordance with their specific nature. iii) Associates Associates are those entities over which the ENAP Group is in the position to exercise a significant influence, but not a control or joint control, through the ability of participating in the decisions regarding their operating and financial policies. In conformity with the equity method, the investment in an associate is recorded initially at cost and its book value will increase or decrease in order to recognize the portion corresponding to the investor in income or loss obtained by the entity in which the investment is held, after the acquisition date. The investor will recognize, in his income or loss, the corresponding participation in such income or loss. This requires recording the initial investment at cost for the ENAP Group and afterwards, in subsequent periods, adjusting the book value of the investment to show the participation of the ENAP Group in the results of the associates, less the impairment of goodwill and other changes in the net assets of the associate. F-135

260 The net income (loss) obtained by these companies each year is reflected in the consolidated statement of comprehensive income as Equity in earnings (losses) of associates recorded using the equity method". Losses of the associates attributed to the investor, which exceed the latter s interest in such associates, are not recognized, unless the ENAP Group has an obligation to cover them. iv) Branch A Branch is considered to be an extension of the same company to serve markets outside the area where the ENAP parent company is located. From a legal perspective, the branches main feature is that they are an integral part of the parent company. The branch concept dictates financial and legal dependence on the parent, and ownership resides in the same legal entity with the same treatment under law. It has the same name, maintains the structure of the company, does not have its own capital or any separate liability, although it may have relative administrative autonomy in terms of internal relations. v) Special Purpose Entity ( SPE ) A Special Purpose Entity (SPE) is an entity set up for a specific purpose or limited duration. These SPEs frequently function as agent organizations. Such entities serve to isolate financial risk. Thus, although the ENAP Group s ownership interest in Energía de Con-Con S.A. (hereinafter Enercon ), Éteres y Alcoholes S.A. (hereinafter Etalsa ), Petrosul S.A. (hereinafter "Petrosul ), Productora Diesel S.A. (hereinafter Prodisa ) and Compañía de Hidrógeno del Bío-Bío S.A. (hereinafter CHBB ) is less than 50%, they are considered to be Subsidiaries, because, pursuant to agreements or covenants between shareholders, or as a result of their structure, the ENAP Group directly or indirectly exercises control over the above companies. The minority interests corresponding to the percentage of third party participation in the Subsidiaries has also been recognized. The results of the intercompany operations of the ENAP Group and associates have been eliminated in the participation percentage owned by ENAP in the latter. The accounting principles and procedures used by the ENAP Group s companies were standardized with those of the Parent, in order to present consolidated financial statements based on uniform valuation standards. The financial statements of subsidiaries entities, whose functional currency is different from the Parent, were translated using the following procedures: a) The assets and liabilities are converted at the respective balance sheet s year-end exchange rate. b) Income and expenses are converted at the average exchange rate of the period in which they occurred. F-136

261 c) The net equity is maintained at the historical exchange rate at the acquisition or contribution date, and at the average exchange rate at the generation date in the case of the retained earnings. All exchange rate differences produced as a result of the translation of the financial statements are recognized in the item "Translation reserve within the Net Equity. When a company with a functional currency other than the US dollar is disposed of, the exchange rate differences deferred as a component of the net equity and related to such company will be recognized in the statement of comprehensive income at the same time that the income arising from such disposal is recognized. The results of businesses acquired during the period will be allocated to the consolidated financial statements as of the actual date of acquisition; the results of businesses sold during the period are included in the consolidated financial statements for the period until the actual date of sale. Gains or losses from the sale are calculated as the difference between the income from the sale (net of expenses) and the assets attributable to the ownership interest sold. vi) Other Investments These correspond to investments not recorded under subsidiaries, associates or joint ventures which are recorded as indicated in note 3.n.ii Current and non-current financial assets. c. Functional currency: The functional currency for each entity of the ENAP Group will be determined as the currency of the main economic environment in which it operates. Transactions other than those performed in the entity s functional currency will be converted at the exchange rate in effect on the date of the transaction. Monetary assets and liabilities denominated in currencies other than the functional one will be converted again at the year end exchange rates. Gains or losses from the reconversion will be included in net income or losses for the year, within other financial items. The functional currency and currency of presentation of the ENAP Group is the US dollar. In the consolidation, entries in the statement of income corresponding to entities with a functional currency other than the US dollar will be translated into the latter currency at average exchange rates. The entries of the statement of financial position have been translated at the year-end exchange rates. Exchange rate differences from the conversion of the net assets of such entities are recorded in equity and recorded in a separate translation reserve. F-137

262 d. Foreign currency translation and indexation - Assets and liabilities denominated in Chilean pesos, in Unidades de Fomento (UF) and other currencies are translated into US dollars Chilean pesos at the closing rates of exchange, as per the following detail: US$ US$ US$ Chilean Pesos 507,10 636,45 496,89 Argentine Pesos 3,80 3,45 3,15 GBP 0,62 0,69 0,5 Unidad de Fomento 0,02 0,03 0,03 Euro 0,70 0,71 0,68 e. Offsetting balances and transactions: As a general standard, assets and liabilities, income and expenses, are not offset in the financial standards, except for those cases in which offsetting is required or is allowed by some standard and the presentation is a reflection of the substance of the transaction. Income or expenses originating in transactions, which, for contractual or legal reasons, consider the possibility of offsetting and which the ENAP Group intends to liquidate for their net value or realize the assets and pay the liabilities simultaneously, are stated net in the statement of income. f. Foreign currency: Transactions in a currency other than a company s functional one are considered to be foreign currency transactions and they are recorded in their functional currency at the exchange rate in effect on the date of the operation. At each year end, the balance sheet amounts of monetary items in a foreign currency are valued at the year-end exchange rate, and the exchange rate differences arising from such valuation are recorded in the statement of comprehensive income. Exchange rate differences resulting from long-term financing operations forming part of the net investment in a foreign company are recorded in Translation differences, in the equity of the attached consolidated statements of financial position. g. Property, plant and equipment: Property, plant and equipment are recorded at cost, excluding regular maintenance costs and less accumulated depreciation and value impairment losses. The cost of property, plant and equipment includes their purchase price plus all costs directly related to the location of the asset and getting it into an operating condition, as provided for by management, and the initial estimate of any cost involved in dismantling and removing the asset or restoring the physical site where it is located. Financing interest costs directly attributable to the purchase or construction of assets requiring a substantial period of time before being ready for use or sale will also be capitalized as a property, plant and equipment cost. F-138

263 Repair, preservation and maintenance expenses are charged to income for the year in which they occur. Some ENAP Group property, plant and equipment elements require regular inspections. In this regard, elements subject to replacement are recognized separately from the rest of the asset, detailed at such a level that they can be amortized in the period from the current repair to the next one. The Hydrocarbon Exploration and Production operations are recorded in conformity with the successful-efforts method. The accounting treatment of the various costs incurred under this method is as follows: Costs originating in the acquisition of new rights or interests in areas with proven or unproven reserves are capitalized in Property, Plant and Equipment, when incurred. Costs involved in acquiring interests in exploration areas are capitalized at purchase cost and amortized with a charge to income in Exploration costs, in accordance with the criterion specified. If no reserves are found, these previously capitalized expenses are recorded as expenses in the statement of comprehensive income. If the exploration produces positive results, leading to a commercially workable discovery, the costs are reclassified in Property, Plant and Equipment, at their net book value when so determined. Wells are only classified as commercial, if they are expected to generate sufficient volume of reserves to justify their commercial development. The exploration costs, as for example geology and geophysics expenses, costs associated with maintaining unproven reserves and other exploration-related costs, prior to drilling are charged to income when incurred. Drilling costs incurred in prospecting campaigns, including stratigraphic test wells, are capitalized and presented in the item Property, Plant and Equipment, pending the decision as to whether proven reserves justifying their commercial development were discovered. If no proven reserves were discovered, the initially capitalized drilling costs are charged to income. The drilling costs of wells leading to a positive discovery of commercially workable reserves are capitalized and presented in Property, Plant and Equipment. Development costs incurred in extracting proven reserves and treating and storing the oil and gas (including the drilling costs of production wells and developing dry wells, platforms, recovery improvement systems, etc.) are capitalized and presented in Property, Plant and Equipment. Costs for the future abandonment and dismantling of oil fields are calculated on a field by field basis and capitalized at present value. This capitalization is calculated with an offset to Non-current provisions. F-139

264 Investments capitalized according to the above criteria are amortized as follows: a) Investments involved in the acquisition of proven reserves are amortized over the estimated useful life of the field indexed to the existing ratio between the year s production and the field s proven reserves at the start of the amortization period. b) Investments related to unproven reserves or fields in the process of being evaluated are not amortized. These investments are analyzed at least once a year, or earlier if there is any indication of impairment, and in case of impairment, this is recognized and charged to income for the year. c) Costs originating in drillings and subsequent investments made to develop and extract the reserves of hydrocarbons are amortized over the estimated useful life of the field indexed to the existing ratio between the year s production and the field s proven reserves at the start of the amortization period. Changes in estimates of reserves are considered in calculating the amortizations on a prospective basis. At the closing date, or whenever there is an indication that there might be an impairment of the value of the assets, their recoverable value is compared to their net book value. Any impairment or reverse of impairment arising as a result of such a comparison will be recorded and charged or credit to net income for the year, as appropriate. The identification of the environmental investment, whose purpose is to minimize the environmental impacts, the protection and the improvement of the environment, is performed considering the nature, the policies and the performed activities, in accordance with technical criteria related to the issue, in general are considered as guidelines the standards issued by the American Petroleum Institute (API). F-140

265 h. Depreciation: Property, plant and equipment, except those related to hydrocarbon exploration and production activities, are amortized using the straight line method by distributing the acquisition cost of the assets less the estimated salvage value over the estimated useful life of the assets. The main components of property, plant and equipment and their useful lives are presented below: Buildings 30 and 50 Plants and Equipment: Plants 10 and 15 Equipment 10 and 18 Computer equipment 4 and 6 Fixed facilities and accessories 10 and 20 Motor vehicles 7 Improvements to leased assets: Buildings 10 Years of useful life Investments in exploration and production exhaustion installments Other property, plant and equipment 3 and 20 Property, plant and equipment related to hydrocarbon exploration and production activities are amortized using the production unit amortization method (depletion rate). The salvage value and useful life of the fixed assets are reviewed every year and their depreciation begins when the assets are in a condition to be used. Land is recorded separately from any buildings or facilities that may be constructed on it, and has an indefinite useful life; therefore, it is not subject to depreciation. At least every year, the ENAP Group evaluates the existence of any possible impairment in the value of its property, plant and equipment. i. Investment property: The item Investment property includes mainly buildings and land that are used for earning income through leases or an increase in their value when sold. The investment property is stated at their net acquisition value from their corresponding depreciation and the impairment losses that they have experienced. The investment properties, excluding the land, are depreciated by distributing in accordance with the straight-line method the cost of the different elements that make them up between the years of useful life. j. Goodwill: This is the positive difference between the price paid in acquiring the companies and the realizable value of the identifiable assets, liabilities and contingent liabilities of the acquired companies at the date of acquisition. F-141

266 Goodwill is not amortized and, as stipulated in IFRS 3, it is valued subsequently at cost less accumulated impairment losses. k. Intangible assets: Intangible assets acquired separately are measured at cost in the initial recognition. After the initial recognition, intangible assets are recorded at cost less any accumulated amortization and any accumulated impairment loss. The useful lives of intangible assets are specified as finite or indefinite. Intangible assets with an indefinite useful life are subject to a value impairment test every year, either individually or at cash generating unit level. l. Assets held for sale: Non-current assets are classified as available for sale, if their book value is recovered via a sale, not via their continued use. This condition is only considered to be met when the sale is highly probable and the asset is not available for sale immediately in its current state. The sale is considered highly probable, if it will be completed within one year of the classification date. These assets are presented at the lesser of their book value and their fair value less the cost of sale. m. Value impairment of non-financial assets: The intangible assets with an indefinite useful life and goodwill, are not subject to amortization and shall be subject to annual tests in relation to the impairment losses of their value. The assets subject to amortization are subject to impairment loss tests as long as there is evidence that, as a result of one or more events occurred after the initial recognition, the book value can not be recovered. An impairment loss is recognized for the excess of book value of the assets over its recoverable amount. The recoverable amount is the higher between the fair value of an asset less its costs of sale and its value in use. In order to evaluate the value impairment losses, the assets are grouped at the lowest level in which there are separately identifiable cash flows (cash generating units). The non-financial assets, different to goodwill, that would have suffered an impairment loss are subject to reviews at each date of the statement of the financial position, to verify whether reverses of the loss were produced. This methodology is applied to the following assets: Fixed assets related to hydrocarbon exploration and production operations. Goodwill Intangible assets Investments in subsidiaries n. Financial assets: Financial assets at their fair value through profit or loss are financial assets held for negotiations. A financial asset is classified in this category if it is acquired mainly with the purpose of selling in it in the short term. F-142

267 The investments in marketable securities are recorded initially at cost and subsequently their values are updated based on their market value (fail value). The investment in shares are recorded at fail value, the results obtained are recorded in other operating income. i) Loans and accounts receivable The loans and accounts receivable are non derivative financial assets with fixed or calculable payments, which are not quoted on an active market. They are included in current assets, except for maturities over 12 months as of the date of the balance sheet that are classified noncurrent assets. The loans and accounts receivable include the commercial debtors and other accounts receivable. ii) Financial assets held to maturity The financial assets held to maturity are non-derivative financial assets with fixed or calculable payments and fixed maturities, which the ENAP Group has the positive intent and ability to hold to maturity. If the Group sells an insignificant portion of the financial assets held to maturity, the complete category would be reclassified as available for sale. These financial assets include non-current assets, except for those with a maturity of less than 12 months as of the date of the Statement of Financial Position, which are classified as current assets. iii) Financial assets available for sale Financial investments available for sale are non-derivative financial assets designated specifically in this category, or not classified in any other category. They are included in noncurrent assets unless the Management pretends to dispose the investment in the following 12 months after the date of the Statement of Financial Position. iv) Impairment of financial assets Financial assets, other than those valued at fair value through profit and loss, are assessed for indicators of impairment at the date of each statement of financial position. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For financial assets carried at amortized cost, the impairment loss corresponds to the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. The financial investments of the ENAP Group are maintained at institutions with the highest credit quality and maintained in the short-term, and therefore they do not present at this date any impairment indicator regarding their book value. F-143

268 Recognition and measurement of financial assets The acquisitions and disposals of financial assets are recognized on the negotiation date, which is the date on which the Group commits itself to acquire or sell an asset. The investments are recognized initially at fair value plus transaction costs for all financial assets not recorded at fair value with changes in net income for the year. The financial assets at fair value with changes in net income for the year are recognized initially by their fair value, and the transaction costs are recorded in net income for the year. The investments are disposed of in the accounting when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and benefits derived from such ownership. The financial assets available for sales and the financial assets at fair value with changes in net income for the year are recorded subsequently by their fair value (with a counterparty in equity and net income for the year, respectively). The loans and accounts receivable, and the financial assets held to maturity are recorded by their amortized costs in accordance with the method of the effective interest rate. Gains or losses from changes in fair value of financial assets at fair value with changes in net income for the year are included in the statement of comprehensive income for the year in which such changes in fair value occurred. The revenues from dividends of financial assets at fair value with changes in net income for the year are recognized in the statement of comprehensive income in the item Other operating income when the rights of the Group to receive the payments from the dividends has been established. The changes in the fair value of financial investments in debt instruments in foreign currency classified as available for sale are separated between exchange rate differences from the modifications in the amortized cost of the instrument and other changes in their book value. The exchange rate differences are recognized in net income (loss) for the year and the other changes in the book value are recognized in net equity, and the latter are the ones presented in conformity with IAS 1 through the statement of comprehensive income. The exchange rate differences over financial investments in equity instruments held at fair value with changes in net income for the year, are presented as part fof the income (loss) in fair value. The exchange rate differences over such instruments classified as financial assets available for sale, are included in the net equity in the corresponding reserve account, and are presented in accordance with IAS 1, through the statement of other comprehensive income. When the value of the instrument classified as available for sale is sold or its value is impaired, the accumulated adjustments for fluctuations in their fair value recognized in equity are reclassified in the statement of income. The interests from the values available for sale calculated using the effective interest method are recognized in the statement of income in the item other ordinary income. The dividends generated by instruments available for sale are recognized in these statement of income in the item other operating income when the right of the Group to receive the payment of the dividends has been established. F-144

269 The fair values of the investments quoted are based on the current purchase prices. In case the market for a financial assets is not active (and for the instruments that are not quoted), the Group establishes the fair value by using valuation techniques that include the use of values observed in recent arm s length transactions, the reference to other substantially similar instruments, the analysis of the discounted cash flows, and the price fixing models of options making maximum use of he market information and relying as least as possible on specific internal information of the Group. In case none of the above techniques can be used to establish the fair value, the investments are recorded at their purchase cost net of impairment loss, as appropriate. The Group evaluates at the date of each Statement of Financial Position whether there exists objective evidence that a financial assets or a group of financial assets may have suffered an impairment loss. In the case of equity instruments classified as available for sale, to determine whether the instruments have suffered impairment losses will be considered whether there has been a significant or extended decrease in the fair value of the instruments below their cost. If there exists any kind of evidence of this kind for the financial assets available for sale, the accumulated loss, determined as the difference between the purchase cost and the current fair value, less any impairment loss of the value in this financial assets previously recognized in net income, is eliminated from net equity and is recognized in the statement of income. The impairment losses of the value recognized in the statement of income for equity instruments are not reversed through the statement of income. o. Derivative and hedging financial instruments: The ENAP Group usually holds derivative financial instruments, such as forward currency contracts and interest rate swaps, to hedge risks associated with fluctuations in the interest rate and exchange rate and Zero Cost Collar options; they all correspond to hedge contracts, and therefore the effects originated due to the changes in the fair value of this kind of instruments, are recorded in hedge assets and liabilities, as long as the hedging of this entry has been stated as effective, in accordance with its hedge purpose. The corresponding unrealized income or loss is recognized in profit or loss for the year in which the contracts are liquidated o when they do not longer comply with hedging characteristics. Such derivative financial instruments are initially recognized at fair value on the date on which the derivative contract is signed, and they are then re-measured to fair value. The method to recognize the loss or gain depends on whether the derivative has been appointed as a hedge instruments and, if so, from the nature of the item that is being hedged. The Group currently hold only instruments appointed as fair value hedges of recognized liabilities (fair value hedges), hedges of an actual risk associated to a recognized liability or an expected highly probable transaction (cash flow hedges). The fair value of the currency forward contracts is calculated in reference to the current forward exchange rates of contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined based on the market values of similar instruments. F-145

270 The total fair value for the hedge derivatives is classified as a non-current asset or liability if the remaining maturity of the hedged item is higher than 12 months and as a current asset or liability if the remaining maturity of the hedged item is lower than 12 months. i) Cash flow hedges The effective portion of the changes in fair value of the derivatives that are assigned and which qualify as cash flow hedges are recognized in equity through the statement of comprehensive income. The income or loss related to the ineffective portion is recognized immediately in the statement of comprehensive income. The amounts accumulated in net equity are reclassified in the statement of comprehensive income when the hedged item affects net income (for example, when the hedged forecasted sale occurs or when the hedged flow is executed). However, when the hedged foreseen transaction results in the recognition of a non-financial asset (for example inventories or fixed assets), the gains or losses previously recognized in net equity are reclassified as part of the initial cost of the asset. The deferred amounts are finally recognized in the costs of goods sold, in case of inventories, or in the depreciation in case of fixed assets. When a hedge instrument matures or when it is sold, or when it does not comply anymore with certain criteria to be recognized through the hedging accounting treatment, any accumulated loss or gain in net equity to this date stays in the net equity and is recognized when the expected transaction affects the statement of income. When a projected transaction is not expected to occur, the accumulated gain or loss in equity is transferred to the statement of comprehensive income. ii) Embedded derivatives ENAP assesses the existence of embedded derivatives in contracts of financial instruments to determine whether their characteristics and risks are strongly related with the main contract, as long as the main contract is not measured at fair value. Embedded derivatives are separated from the main contract, which is not measured at fair value through profit or loss, when the analysis shows that the financial characteristics and risks of the embedded derivatives are not closely related to the main contract. p. Recognition of revenue and expenses: Revenue from sales and services are recognized by the ENAP Group when the relevant risks and benefits of ownership of the products are transferred to the buyer, and the products are delivered to their agreed location. Revenue is measured at the fair value of the consideration received or receivable, and represents the receivable amounts for the rendered services during the ordinary course of operations, net of any discount or related tax. F-146

271 The ENAP Group recognizes income when these can be reliably measured, and it is probable that the future economic benefits will flow towards the Group, as described next: i) Sale of assets: The sales revenues of assets are recognized when the Group has delivered the products to the customer and when there exists no pending obligation to be complied with which could affect the acceptance of the products by the customer. The delivery will not occur until the products have been send to the indicated location by the buyer, the obsolescence risks and loss have been transferred to the customer, and the customer has accepted the products in conformity with the sales contract, the acceptance period has expired, or when the ENAP Group has objective evidence that the necessary acceptance criteria have been complied with. The sales are recognized according to the price established in the sales contract, net of volume discounts and the expected returns at the sales date. It is supposed that there exists no significant financing component, as the sales are performed with a reduced average collection period, which is in line with the normal practices of the market. ii) Sale of services: The revenues from the sales of services are recognized in conformity with the percentage of completion (POC) method. According to this method, revenues are recognized generally in conformity with the provided services as of this date as a percentage over the total services to be provided. iii) Income from dividends: Dividends are recognized when the right of the ENAP Group to receive the payment is established. iv) Interest income: Interests are recognized by using the effective interest rate method. v) Deferred income: Deferred income corresponds to income received in advance from a usufruct contract signed. This income is amortized using the straight-line method on an accrual basis. vi) Expenses: Expenses are recognized when there is a reliably measurable reduction in an asset or increase in a liability. q. Inventories: Raw materials, products in progress, finished products and materials are valued initially at cost. After initial recognition, they are valued at the lesser of the net realizable value and cost. The ENAP Group uses the first-in first-out (FIFO) method for all the inventory items, except for materials which are value using the Weighted Average Price method. The net realizable value represents the estimated price of sale at year-end less all estimated finishing costs and costs that will be incurred in the marketing, selling and distributing processes. r. Provision for employee benefits: Costs associated with the employees contractual benefits, related to services rendered by employees during the year, are charged to income for the respective period. F-147

272 The obligations recognized for the concept of severance payments arise as a consequence of the collective agreements signed with the employees of the Group, which states the commitment agreed by the company. The ENAP Group recognizes the cost of employee benefits according to an actuarial calculation, as required by IAS 19 "Employee benefits, which includes variables as for example the life expectation, salary increases, etc. To determine such calculation a 5.5% discount rate has been used. s. Provisions and contingent liabilities: Provisions are recorded for current, legal or assumed obligations arising as a result of a past event, whose payment is expected to involve a disbursement of resources and whose amount and time of payment can be reliably estimated. Contingent liabilities are obligations arising from past events, whose confirmation is subject to the occurrence of events beyond the control of the company, or current obligations arising from past events, whose amount cannot be reliably estimated, or whose payment does not involve a disbursement of resources. The ENAP Group does not record contingent assets or liabilities, except for those stemming from contracts with valuable consideration, which are recorded as a provision and then reviewed at each balance sheet date and, if necessary, adjusted to reflect the best estimate at the time. t. Income taxes and deferred taxes - The Parent Company and its Chilean subsidiaries determine the tax base and calculate their income taxes in conformity with the legal provision in force during each period. In the case of the foreign subsidiaries, these present individually their tax returns, in conformity with current tax standards in the operating country. The deferred taxes generated by temporary differences and other events giving rise to differences between the accounting and tax base of assets and liabilities are recorded according to the indicated in IAS 12 Income Taxes. The income tax is recorded in the Consolidated Profit or Loss Account or in the net equity accounts of the Consolidated Statement of Financial Position according to where the profits or losses originating them were recorded. The differences between the accounting value of the assets and liabilities, and their tax base generate the balances of deferred taxes for assets or liabilities which are calculated using the tax rates that are expected to be in force when the assets and liabilities are realized. The variations generated in the year in the asset or liability deferred taxes are recorded in the profit or loss account of the Consolidated Statement of Comprehensive Income or directly in the equity accounts of the Statement of Financial Position, as corresponding. The assets for deferred taxes are recognized only when it is expect that the Company will dispose of sufficient future tax income to recover the deductions for temporary differences. F-148

273 u. Financial liabilities: The loans, obligations with the public and the financial liabilities of similar nature are recognized initially at their fair value, net of any transaction costs incurred. Subsequently they are valued at amortized cost and any difference between the funds obtained (net of necessary costs to obtain them), and the reimbursement amount, and they are recognized in the statement of income throughout the useful life of the financial debt instrument, using the effective interest rate method. The financial obligations are classified as current assets unless the ENAP Group has the inconditional right to defer its liquidations during at least 12 months after the balance sheet date. v. Financial leases The policy of the ENAP Group states that when the lessor transfers substantially all the inherent risks and advantages of the ownership of the asset to the lessee. The ownership of the asset, as the case may be, may or may not be transferred. When the companies of the ENAP Group act as lessee of an asset under a finance lease, the cost of the leased assets is presented in the consolidated statement of financial position, according to the nature of the asset referred to in the contract, and, simultaneously, a liability for the same amount is recorded in the statement of financial position. This amount will be the lesser of the fair value of the leased asset and the sum of the current values of the amounts to be paid to the lessor plus, if applicable, the price of exercising the purchase option. These assets are amortized using similar criteria to those applied to the property, plant and equipment used by the Company itself or within the term of the lease, whichever is shorter. Financial expenses arising from the revision of the liability are charged to Financial expenses in the consolidated statement of comprehensive income. w. Distribution of dividends The dividend distribution policy used by ENAP is the one established through the official letter and/or Law Decrees issued by the Treasury Department, which constitute the legal obligation that originate their recording. x. Environment The policy of the ENAP Group is to capitalize the environmental expenses associated to the project and to recognize with charge to profit and loss the rest of the disbursements. y. Commercial creditors The commercial creditors are recognized initially at fail value and subsequently at amortized costs by using the method of the effective interest rate and afterwards, when the nominal value of the accounts payable differs significantly from its fair value, the recognition is at nominal value. z. Cash and cash equivalents The ENAP Group considers liquid financial assets, deposits or liquid financial investments, which may be easily converted into cash within no more than three months and where the risk of a change in their value is insignificant, to be cash equivalents. Operating activities: these are the activities that constitute the main source of ordinary income of the ENAP Group, as well as other activities that can not be classified as investment or financing activities. F-149

274 Investment activities: these correspond to activities of acquisition, sale or disposal through other methods of long-term assets and other investments not included in cash and cash equivalents. Financing activities: these are the activities that cause variations in the composition of the net equity, and of the financial liabilities. 3.2 New accounting pronouncements As of the issuance date of these consolidated financial statements, the following accounting pronouncements had been issued by the IASB, but their effective application is for periods starting on or after January 01, Reviewed and modified standards New IFRS IFRS 9 Financial Instruments: Amendments IFRS 1 (Reviewed), First adoption of International Financial Reporting Standards. IFRS 2 Share-based payment IFRS 3 (Reviewed) Business Combination IAS 27 (Reviewed), Consolidated and Individual Financial Statements IAS 24 Disclosure of Related Parties IAS 32 Classification of Issuance Rights IAS 39 Financial Instruments Recognition and Measurement Elegible hedged items Improvements to IFRS set of amendments to twelve International Financial Reporting Standards New Interpretations IFRIC 17 Distribution of non-cash assets to owners IFRIC 19 - Extinguishing financial liabilities with equity instruments Amendments to Interpretations IFRIC 14 The limit on a defined benefit asset, minimum funding requirements and their interaction Date of compulsory application Annual periods starting on or after January 1, Annual periods starting as of July 1, Annual periods starting on or after January 1, Annual periods starting as of July 1, Annual periods starting as of July 1, Annual periods starting on or after January 1, Annual periods starting on or after February 1, Retrospective application for annual periods starting on or after July 1, 2009 Annual periods starting on or after January 1, Annual periods starting on or after July 1, Annual periods starting on or after July 1, Annual periods starting on or after January 1, F-150

275 The management believes that these standards, amendments and interpretations, will be adopted in the consolidated financial statements of the ENAP Group as of January 1, 2010, and that the adoption of such standards, amendments and interpretations will not have a significant impact in the consolidated financial statements of the Group in the year of its initial application. 4. FIRST APPLICATION OF IFRS Until December 31, 2008, ENAP and its subsidiaries prepared their financial statements in conformity with accounting principles generally accepted in Chile and standards and instructions issued by the SVS. As of January 1, 2009, the financial statements of the ENAP Group are prepared in conformity to IFRS. Based on the above, the Company defined as its transition period to the IFRS the year 2008, defining it as period for the measurement of the effects of the first application as at January 1, According to IFRS 1, in the preparation of the aforementioned consolidated financial statements have been applied all mandatory exceptions and some of the optional exemptions to the retroactive application of IFRS Exemptions to the retroactive applications chosen by the ENAP Group. a. Business combinations - The ENAP Group has applied the exemption stipulated in IFRS 1 for business combinations. Therefore, it has not restated the business combinations that occurred before the date of transition of January 1, b. Fair value or revaluation as deemed cost - The ENAP Group has chosen to measure its land assets at their fair value at the date of transition of January 1, c. Compound financial instruments - the ENAP Group has not issued any compound financial instruments, so this exemption does not apply. d. Assets and liabilities of subsidiaries, associates, investees and joint ventures with different transition dates - This exemption does not apply, since both ENAP and its subsidiaries adopted IFRS for the first time on the same date - January 1, And its investees, associates and joint ventures made adjustments to their financial statements to state them under IFRS at the date of first adoption by ENAP - January 1, e. Share-based payment transactions - This exemption does not apply to the ENAP Group. f. Liabilities for removal, restoration and similar services included in the cost of fixed assets - The ENAP Group has decided to use this exemption in IFRS 1 and, therefore, it has valued the liability at the date of transition to IFRS according to IAS 37, it has estimated the amount that would have been included in the cost of the related assets and calculated the accumulated depreciation of this amount at the date of transition to IFRS. F-151

276 g. Initial valuation of financial assets and liabilities at their fair value - The ENAP Group has not applied the exemption in IAS 39 regarding initial recognition at fair value with changes to income for financial instruments for which there is no active market. Therefore, this exemption is not applicable Reconciliation of IFRS and Chilean Generally Accepted Accounting Principles The reconciliations presented below quantify the impact of the transition to IFRS for the ENAP Group. Details of the impact of the transition, as shown by the reconciliation, are as follows: a. Reconciliation of consolidated net Equity at January 1 and December 31, 2008 under Chilean Generally Accepted Accounting Principles (Chilean GAAP) and under IFRS Equity at ThUS$ ThUS$ Equity based on Chilean generally accepted accounting principles 261, ,573 IFRS adjustments * Higher value due to revaluation of fixed assets, as per criteria of IAS 16 (1) 198, ,050 * Deflation of property, plant and equipoment (2) (56,508) (58,516) * Recognition of dismantling provision of property, plant and equipment (8) 14,859 32,410 * Net effect on deferred taxes 14,354 (2,967) * Amortized cost of the debt (5,443) (5,443) * Provision for dividends payable to the treasury from 2007 profits (3) (49,632) (49,632) * Accumulated depreciation for decommisioning provision (3,743) - * Presentation of derivatives as per IAS 39 (4) (36,252) 62,168 * Effect of retained earnings due to deflation of property, plant and equipment (1,953) - * Effect of recognition of special purpose entities (4,030) 22,502 * Minority Interests (5) 11,993 44,872 * Recognition of onerous contracts (6) (55,884) (55,884) * Recognition of effect of IFRS in investees (7) (82,378) (82,378) * Effect of convergence in related parties (3,666) (3,662) * Other (4,443) 1,254 IFRS equity 196,634 1,092,347 Reconciliation of consolidated Statements of Comprehensive Income at December 31, 2008 under Chilean Generally Accepted Accounting Principles (Chilean GAAP) and under IFRS. F-152

277 Accumulated Reconciliation of income ThUS$ Loss according to Chile GAAP (957,791) Depreciation critical spare parts (1,514) Lower depreciation from reprocessing in Fixed assets depreciation expense (2) 1,765 Severance indemnity (actuarial valuation) - Impuestos diferidos 2,986 Financial expense from amortized cost of debt (1,242) Normalización Pozos Argentina Loss in recognition of special purpose entities (1,827) Loss in minority interest 4,897 Income from onerous contracts (3,024) Otros 245 Loss according to IFRS (955,505) b. Explanation of the most significant adjustments 1. Revaluation of fixed assets under deemed cost As part of the first adoption process, the ENAP Group decided to value its fixed assets comprised of land at their fair value as attributed cost. 2. Restatement of assets because of change of functional currency As of January 1, 2005, the ENAP Group adopted the US dollar as its functional currency, which generated a translation adjustment of the monetary assets and liabilities as established in IAS 21, stating that the transactions have to be translated to their historical acquisition cost, which means as of the transaction date. This implied revaluing the book value of our fixed assets for IFRS transition purposes. 3. Provision for dividends payable to the treasury from 2007 profits By means of Official Letter No. 1272, dated December 28, 2007, the Treasury Department suspended temporarily the dividend transfer policy for the years 2006 and 2007; consequently, and as there has been no subsequent pronouncement regarding the elimination of the obligation on behalf of ENAP, for the future dividend distribution was recorded a provision of 100% of the 2007 revenues. F-153

278 4. Presentation of derivatives according to IAS The ENAP Groups holds derivative financial instruments under cash flow hedge accounting and in conformity with current legislation regarding these financial assets and liabilities, these have been recorded at fail value in net equity. 5. Effect on minority interest As a result of incorporating the special purpose entities into the consolidated financial statements, additional minority interest has been generated. Although we do not own more than a 50% interest in the equity of these entities, but we nonetheless exercise control over them. 6. Recognition of onerous contracts This corresponds to contracts which at the moment of translation to IFRS and as established in IAS 37 they would fall under the category of onerous contracts, which implied recognizing as a liability the future expenses that such contracts would generate. 7. Recognitiont of effect of IFRS in investees This corresponds to the recognition of the IFRS effects from the translation process of the investee Innergy Holding S.A. 8. Decommissioning of fixed assets Due to the adoption of IFRS, the Group included, as part of its fixed assets expenses, the decommissioning expenses of the Platforms, which, due to first adoption and as they were recognized as expenses in prior years, have been capitalized as a credit to net equity, in the amount of ThUS$32,410 as at January 01, 2008 and which amounted to ThUS$14,859 as at December 31, The original amount is amortized through the depreciation effect. 5. FINANCIAL RISK MANAGEMENT AND HEDGE DEFINITION During the normal course of its business and financing activities, ENAP is exposed to different financial risks that could have a significant effect on the economic value of its cash flows and assets and, therefore, on its results. The Group has an organization and information systems, managed by the Corporate Finance Management, for identifying such risks, determining their magnitude, proposing mitigating measures to the Board, implementing such measures and controlling their effectiveness. Next is presented a definition of the risks faced by the Group, including their characterization and quantification for ENAP, as well as also a description of the mitigating measures currently being used by the company, if applicable. F-154

279 a. Market risk This is the possibility that the fluctuations of market variables, such as interest rates, foreign currency exchange rates, prices or indices of crude oil and by-products, etc., may cause financial losses due the devaluation of cash flows or assets or the revaluation of liabilities, as a result of their being denominated in, or indexed to, such variables. a.1. Interest rate risk - ENAP s financing structure considers a mixture of sources of funds subject to a fixed rate (mainly bonds) and variable rate (bilateral loans, syndicated loans, notes payable or forfeiting, short-term bank loans and suppliers financing). The portion of financing subject to a variable interest rate, usually consisting of the 3 or 6 month LIBOR floating rate plus a spread, exposes the company to changes in its financial expenses due to fluctuations in the LIBOR rate. ENAP's total financial debt at December 31, 2009 is summarized in the table below, separating the fixed rate debt with the floating rate debt: Fixed Floating In millions of U.S. dollars rate rate Total Short term bank debt Long term bank debt Project debt of subsidiaries Financial lease Notes payable International bonds Local bonds Total 1,360 1,563 2,923 Note: The data in the attached table correspond solely t the principal, not to any accrued interest or other concepts. The international and local bonds are presented at face value, not at amortized cost as in the balance sheet. As the interest rate is applied at face value of the bonds, such value allows quantifying adequately the exposure of the Group at fixed or variable rate, as observed in this section. The local bonds denominated in UF are presented with their face value equivalent in US$ as at December 31, Risk mitigating instruments: To reduce the variability of its financial expenses, ENAP obtained several hedging instruments for some of the debt items in the above table. Interest rate swaps were obtained to establish the rate associated to the current financial obligation. Interest rate swaps were obtained to transfer ThUS$ of the long-term debt bank debt to a fixed rate. F-155

280 Furthermore, interest rate collars were obtained to keep the interest rate on ThUS$ of the long-term bank debt within a pre-defined range. The subsidiaries (SPE) have obtained interest rate swaps to transfer to a fixed rate 100% of its floating rate debt. Residual risk exposure: Considering the existence of the hedge instruments indicated above, the net balance of obligations of the Group whose financing cost is fully subject to fluctuations in the LIBOR rate is ThUS$ , which amounts to 15% of the total. As such, a 1% increase in the applicable LIBOR rate (quarterly or twice yearly, depending on the type of debt) would generate an annual increase of about ThUS$4.360 in the company s financial expenses. a.2. Exchange rate risk The functional currency of the ENAP Group is the US dollar. However, there are some relevant items of the financial statements denominated in local currency (Chilean pesos or UF - inflation index-linked unit of account), as for example the sales invoicing and the financial obligations. These are exposed to changes in their dollar value as a result of fluctuations in the Chilean peso/usd or UF/USD parities. Mitigating measures: The exposure of the exchange rate variations from invoicing is minimized basically via a product pricing policy, based on the parity of the import, a mechanism whereby the local price of sale of the products is recalculated on a weekly basis in accordance with the exchange rate in effect. The main balance sheet items exposed are local bonds (denominated in UF - inflation indexlinked unit of account) and accounts receivable from local sales (denominated in Chilean pesos). ENAP performs hedging operations to mitigate the exchange rate risks associated with both items. The capital owed for ENAP s local bonds at December 31, 2009 is UF 13 million. Based on that amount and the CLP/USD and CLP/UF parities in effect on that date (CLP507.1 and CLP20,942.88), a reduction of CLP10 in the CLP/USD exchange rate would produce an increase in value of the bonds measured in US dollars of ThUS$ In order to mitigate this risk, ENAP has entered into cross-currency swap contracts, whereby the company receives cash flows in UF from the other parties equal to the cash flows payable to the bond holders and pays them fixed cash flows in US dollars, thereby being free from the above exchange rate risk. The balance of accounts receivable from local sales at December 31, 2009 was ThUS$ As such an increase of CLP10 in the exchange rate would produce a reduction of ThUS$ in the dollar value of the accounts receivable. F-156

281 In order to minimize this risk, ENAP has a hedging policy in place, which consists of entering into weekly forward exchange rate contracts for an amount equivalent to 70% of the estimated sales for the week and for terms corresponding to the estimated collection dates of the respective invoicing. a.3. Commodities price risk The business of ENAP s R & L line consists mainly of buying crude oil on the international market for refining and subsequent sale of its by-products in the domestic market, based on import parity prices. The refining mark-up obtained by ENAP is subject to the fluctuation in the international prices of crude oil, of refined products and the difference between them (international margin or crack ). Considering an average level of refining of 72 million barrels per year, a variation of USD1/barrel in the difference would, ceteris paribus, have an effect on income of ThUS$ As a central strategy for mitigating the risk of variation in the refining mark-up, ENAP has aligned its investments to increase its productive flexibility and the quality of its products. To date, no financial derivatives were obtained to offset the refining mark-up, but the price levels offered by the market are being monitored constantly. Furthermore, given the time between the purchase of the crude oil and the sale of its byproducts, ENAP is also subject to the time spread or risk that the prices of the products when sold will be lower than the prevailing prices when the crude oil was bought. Losses or gains caused as a result of the above increase the volatility of ENAP s operating result. On average, ENAP imports about 6 million barrels of crude oil per month. A drop of USD 1/barrel in the price of the by-product during the refining inventory cycle has an immediate effect of ThUS$6.000 on ENAP s refining mark-up. In order to mitigate this risk, ENAP has a hedging strategy in place consisting of entering into option collars for a percentage of its sales designed to protect the price of the respective volume of crude oil by keeping it within a price range. This strategy is complemented by the use of swap sales contracts of refined products. Furthermore, the business of the E&P Line (Exploration and Production) consists mainly in the exploration and exploitation activities of hydrocarbon reserves and their sales in the international market. Consequently, its results are directly related with the international oil and gas prices. In order to mitigate such risk, ENAP centers its efforts in the constant operational improvement in order to maintain a cost efficient structure. The Company does not use sistematically the derivaties as a hedge mechanism for the sales of its own production, although certain specific operations of this kind have been performed. For example, in May 2009 was obtained a oil swap operations in order to establish the sale price of a portion of the production of Enap Sipetrol in Ecuador. Such operation expired on December 31, F-157

282 b. Liquidity risk This risk is associated with the company s ability to amortize or refinance its financial commitments at fair market prices and its ability to implement its business plans with stable sources of financing. The table below shows the balance of current financial obligations at December 31, 2009, according to their maturity dates: In millions of U.S. dollars Total Short term bank debt Long term bank debt Project debt of subsidiaries Notes payable Financial lease International bonds Local bonds Total ,161 2,923 In order to minimize the liquidity risk, ENAP holds a mixture of short and long-term debts in its financing structure, diversified by type of creditor and market, and makes arrangements in advance to refinance its short term obligations. c. Credit risk This risk refers to the ability of third parties to fulfill their financial obligations towards ENAP. There are 3 different categories: c.1. Financial assets - These are the balances of cash and cash equivalent, time deposits, operations with repurchase agreements and marketable securities as a whole. ENAP s ability to recover these funds at maturity depends on the creditworthiness of the bank in which they are deposited. In order to mitigate this risk, ENAP has a finance policy specifying the creditworthiness parameters that must be met by financial institutions in order to be considered eligible as a depositary of the above products, as well as each institution s concentration ceilings. c.2. Obligations of the other parties in derivatives - These are the favorable ENAP market values of current derivative contracts with banks. In order to mitigate this risk, ENAP has a derivative management policy specifying creditworthiness parameters that must be met by financial institutions in order to be considered eligible as the other parties to derivative contracts. F-158

283 c.3 Trade debtors - The risk of uncollectibility of ENAP s trade debtors is significantly low, insofar as nearly all local sales (>95%) are invoiced to the 4 main fuel distributors or liquefied gas distributing companies. The incorporation of new clients is subject to an analysis of their financial creditworthiness and their approval by ENAP s Credit Committee. This committee coordinates the collection actions required, if payments are delinquent, with Credit and Collection Units. As at December 31, 2009, the total exposure of the Group to the accounts receivable amounts to ThUS$832,914, as indicated in Note 15. There are no guarantees for significant amounts to cover such exposure, because as indicated above, almost all sales correspond to distributing companies of fuel or liquefied gas, with whom the Group operates based on credit sales without guarantees. The estimation of the doubtful accounts as at December 31, 2009 amounts to ThUS$1.282, which implies 0.2% of the total amount. 6. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS In applying the accounting policies of the ENAP Group, which are described in Note 3, management makes future estimates and judgments regarding the book values of its assets and liabilities. The estimates and associated judgments are based on past experience and on other factors considered relevant. Actual results could differ from these estimates. The Company should make estimates and judgments that have significant effects on the figures presented in the financial statements. The changes in assumptions and estimations could have a significant impact on the financial statements. Next are detailed the estimation and critical judgments used by the management: a) Impairment of assets - At the closure date of each year, or on such date on which it is considered necessary, we analyzed the value of the assets to determine whether there exists any sign that such assets had suffered an impairment loss. In case there exists any sign of impairment an estimation will be performed of the recoverable amount of such asset to determine, in each case, the amount of the necessary correction. In case of identifiable assets that do not generate independent cash flows, the recovery of the Cash Generating Unit to which the asset belongs is estimated. In the case of the Cash Generating Units to which tangible or intangible assets have been assigned with an indefinite useful life, the recovery analysis is performed automatically by the system at year-end or under circumstances considered necessary to perform such analysis. The recoverable amount is the higher of the market value less the necessary cost for its sale and the usage value, understanding by this the actual value of the estimated future cash flows. For the calculation of the recovery value of immobilized material, the usage value is the criterion used by ENAP. F-159

284 To estimate the usage value, the Group prepares the future cash flows provisions before taxes as of the most recent budgets approved by Company Management. These budgets incorporate the best available estimations of income and expenses of the Cash Generating Units using the best estimates, the prior experience and the future expectations. These flows are discounted to calculate the current value at a certain rate, before taxes, considered by the cost of business capital in which the Company operates. For its calculation is considered the current cost of money and risk premiums used in general by the business. In the case the recoverable amount is lower than the net carrying amount of the assets, the corresponding provision for impairment loss is recorded for the difference, charged to the Profit or Loss Account. The impairment losses recognized in an asset in prior years are reversed when a change occurs in the estimations over the recoverable amount increasing the value of the assets with a credit to profit or loss with the limit of the carrying amount that the assets would have had, had the impairment not been performed. Useful lives of Property, Plant and Equipment - Group Management ENAP determines the estimated useful lives and respective depreciation charges for its fixed assets. This estimate is based on the projected life cycles of the products for its high technology segment. This could change significantly as a result of technical innovations in response to severe sector cycles. Management will increase the charge for depreciation when the useful lives are less than the estimate or depreciate or eliminate technically obsolete assets that were abandoned or sold. The ENAP Group reviews the estimated useful lives of its property, plant and equipment assets at the end of each annual financial reporting year. b) Reserves of crude oil and gas - Estimates of reserves of crude oil and gas are an integral part of the ENAP Group's decision-making process. The volume of reserves of crude oil and gas is used for calculating the depreciation, using the production unit ratios, and also for evaluating the recoverability of the investment in Exploration and Production assets. c) Fair value of derivative instruments and other financial instruments - The fair value of the financial instruments not traded in an active market is determined using valuation techniques. The ENAP Group uses its judgment to select a variety of methods and make assumptions based mainly on existing market conditions at each balance sheet date. The assumptions for derivative financial instruments are based on market rates quoted and adjusted to the specific characteristics of the instrument. Other financial instruments are valued using the discounted cash flow analysis based on assumptions supported, whenever possible, by observed market prices or rates. d) Provisions for litigation and other contingencies - The final cost for claims and lawsuits could vary due to estimates based on different interpretations of the regulations, opinions and final evaluations of the amount of the damages. Therefore, any change in the circumstances involved in this contingency could have a significant effect on the amount of the contingency provision recorded. F-160

285 The ENAP Group makes estimates and relies on its judgment when recording costs and stipulating provisions for environmental remediation and clean-up. These estimates and judgments are based on current information about expected remediation costs and plans. The costs of environmental provisions could differ from the estimates due to changes in laws and regulations, the discovery and analysis of the conditions at the location, and also changes in clean-up technology. Therefore, any change in the factors or circumstances involved in this provision, and also in the standards and regulations, could have a significant effect on the provisions recorded for such costs. e) Calculation of taxes on deferred tax benefits and assets - Proper valuation of the taxes on benefits depends on several factors, including rate estimates and the realization of deferred tax assets and the timeliness of the payments of taxes on benefits. Current charges and payments could differ materially from such estimates due to changes in tax regulations and unforeseen future transactions having an impact on the Group s tax balance sheets. F-161

286 7. PROPERTY, PLANT AND EQUIPMENT Changes in property, plant and equipment items at December 31, 2009 and 2008 and January 1, 2008 are presented below Current year Construction in Progress Land Buildings, Net Plant and Equipment, Net Information Techonology Equipment, Net Fixed Installations and Accessories, Net ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Opening balance at , ,340 14, ,622 2,343 30,357 Additions 201,122 20,535 3,822 23, ,930 Transfers of non-current assets and disappropriation groups Withdrawals and write-offs - (4,328) (17) - Depreciation expenses - - (1,709) (74,017) (1,051) (3,402) Other increases (decreases) (103,754) - 4,221 54, ,679 Changes, Total 97,368 16,207 6,334 4,519 (905) 1,207 Ending balance at , ,547 20, ,141 1,438 31,564 Previous year Construction in Progress Land Buildings, Net Plant and Equipment, Net Information Techonology Equipment, Net Fixed Installations and Accessories, Net ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Opening balance at , ,452 13, ,640 3,078 30,120 Additions 186,433 4,888 1,165 21, ,135 Withdrawals and write-offs - - (114) (11,129) - - Depreciation expenses - - (1,699) (71,317) (1,023) (3,143) Impairment loss recognized in the statement of income Other increases (decreases) (137,054) - 2, ,403-2,245 Changes, Total 49,379 4,888 1,432 63,982 (735) 237 Ending balance at , ,340 14, ,622 2,343 30,357 F-162

287 The balances of the item as at December 31, 2009 and 2008 and January 1, 2008 are presented below: Property, Plant and Equipment, Gross ThUS$ ThUS$ ThUS$ Construction in progress 396, , ,182 Land 231, , ,452 Buildings 69,303 61,260 58,139 Plant and equipment 1,311,708 1,233,986 1,099,472 IT Equipment 8,793 8,735 8,555 Fixed installations and accessories 66,029 62,426 59,043 Motor vehicles 4,632 4,567 3,478 Other Property, Plant and Equipment 943, , ,087 Investment in Exploration and Productions 2,992,262 2,906,090 2,869,542 Total 6,024,642 5,666,400 5,410,950 Property, Plant and Equipment, Accumulated Depreciation ThUS$ ThUS$ ThUS$ Construction in progress Land Buildings 48,480 46,771 45,082 Plant and equipment 805, , ,832 IT Equipment 7,355 6,392 5,477 Fixed installations and accessories 34,465 32,069 28,923 Motor vehicles 3,252 3,124 2,959 Other Property, Plant and Equipment 197, , ,103 Investment in Exploration and Productions 2,330,870 2,240,480 2,149,795 Total 3,427,652 3,203,416 3,010,171 Property, Plant and Equipment, Net ThUS$ ThUS$ ThUS$ Construction in progress 396, , ,182 Land 231, , ,452 Buildings 20,823 14,489 13,057 Plant and equipment 506, , ,640 IT Equipment 1,438 2,343 3,078 Fixed installations and accessories 31,564 30,357 30,120 Motor vehicles 1,380 1, Other Property, Plant and Equipment 745, , ,984 Investment in Exploration and Productions 661, , ,747 Total 2,596,990 2,462,984 2,400,779 F-163

288 Additional information a) Properties and buildings recorded at fair value As part of the first adoption process of IFRS, the ENAP Group decided to measure certain land assets at fair value as deemed cost at the date of transition as of January 1, The total fair value of the land amounted to ThUS$198,050. These values were calculated by an independent specialist from the industry in which the ENAP Group operates. b) Construction in progress The amount of construction in progress at December 31, 2009 is ThUS$ 396,929, ThUS$299,561 at December 31, 2008 and to ThUS$250,182 at January 1, 2008, amounts that are directly related with the operating activities of the Group, as for examples: stoppages of plant, purchase of equipment and constructions. c) Leased assets The following assets acquired under finance leases are presented in Other Property, Plant and Equipment: i. Corporate offices acquired under finance leases with Banco Santander Chile. At December 31, 2009, the net value is ThUS$15,208, at December 31, 2008 it is ThUS$15,361 and at January 1, 2008 it is ThUS$ 15,351. Payments are made monthly and the contract terminates in August ii. Offices acquired under a finance lease with Compañía de Seguros de Vida Santander S.A., now Metlife Chile Seguros de Vida S.A., consisting of offices 401, 402 and 501, 5 warehouses and 27 parking spaces in the building located at Avenida Tajamar 183, Las Condes, Santiago. The duration of the contract is 240 months, terminating on July 11, The net value at December 31, 2009 is ThUS$1,998, at December 31, 2008 ThUS$2,022 and at January 1, 2008 ThUS$1,923. F-164

289 The current value of the future payments from such financial leases is the following: Gross Interest Current value Gross Interest Current value ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Less than one year 2,364 (662) 1,702 1,929 (379) 1,550 Between one and five years 11,325 (1,910) 9,415 9,363 (1,466) 7,897 More than five years 5,372 (263) 5,109 6,141 (394) 5,747 Total 19,061 (2,835) 16,226 17,433 (2,239) 15,194 d) Decommissing, withdrawal or restoration costs As part of its fixed asset costs the Group recorded Platform decommissing costs for a net amount at December 31, 2009 of ThUS$11,664, at December 31, 2008 of ThUS$ 13,623 and at January 1, 2008 of ThUS$ 35,905. e) Capitalization of Interests Item Project Company ThUS$ ThUS$ ThUS$ Investment in Exploration and Production Magallanes Area Sipetrol Argentina - 2,523 - Construction works Lease Enap Refinerias S.A. 1,216 - Total 1,216 2,523 - Applied rate 4.97% 6.56% - f) Insurance The Group has insurance policies to cover any potential risks to property, plant and equipment, as well as any potential claims that could be filed in connection with their use. The directors consider that these policies are sufficient to cover any pertinent risks. F-165

290 g) Depreciation cost The charge to income for depreciation of fixed assets included in exploitation costs and administrative and selling expenses is as follows: ThUS$ ThUS$ In exploitation costs 221, ,301 In administration expenses 4,126 7,325 Total 225, , IMPAIRMENT LOSSES (i) Impairment loss As at December 31, 2009, no impairment losses were recorded. During 2008 occurred an impairment loss of ThUS$2,383 in the item Investment in Exploration and production. These impairment losses recognized in the previous year were caused by the investment in the oil fields CAM 2 Sur Argentina, belonging to the segment E&P. The investment costs are presented net of impairment losses. (ii) Provisions At December 31, 2008, there was a decrease in the Mehr block included in the Investments in exploration and production item. OMV, as operator of the Mehr block and representing the consortium made up of Repsol and ENAP Sipetrol S.A., through its subsidiary Sipetrol International S.A., delivered a letter addressed to the Exploration Director of the National Iranian Oil Company (NIOC) on January 24, 2009, reporting that a unanimous decision had been made to not continue with the negotiations for developing the Band-e-Karkheh field. This decision is due to the fact that it has not been possible to reach an agreement with NIOC regarding the Development Plan needed to exploit this discovery made by the consortium. Considering that contractual obligations were fulfilled, the consortium informed NIOC that it would be activating the clause entitling it to recover exploration expenses and the remuneration fee, according to the terms stipulated in the Exploration Services Contract signed by the consortium and NIOC. In spite of the mentioned in the previous paragraph, taking into account management s judgment and analysis, the ENAP Group maintains a provision for the amount of the investment of ThUS$ 27,262. F-166

291 (iii) Withdrawals and write-offs In the item Investments in Exploration and Productions are presented withdrawals and writeoffs performed by the ENAP Group as at December 31, 2009 and 2008, as per the following detail: ThUS$ ThUS$ Dry well E2 - Argentina 40,157 Dry well Sidi Abd El Rahman Offshore - Egypt 10,480 Withdrawals of CEOP 6,640 Withdrawals of environmental capitalizations, first adoption - 21,046 Total 57,277 21, INVESTMENT PROPERTIES The detail and fluctuations in the investment properties of the ENAP Group at December 31, 2009, December 31, 2008 and January 1, 2008 are as follows: ThUS$ ThUS$ ThUS$ Opening balance 2,072 2,078 2,084 Additions - - Deinvestments - - Depreciation expense (6) (6) (6) Final balance 2,066 2,072 2,078 The investment properties of the ENAP Group correspond mainly to land and properties held for leasing. The depreciation method in use is the straight-line method and the useful life period assigned to such items fluctuates between 10 and 20 years. The accumulated depreciation amounts to ThUS$-43, ThUS$-37 and ThUS$-31, at December 31, 2009 and 2008 and at January 1, 2008, respectively. Income earned by the ENAP Group from its investment properties, which are all leased under operating leases, was ThUS$ 27 at December 31, 2009 (ThUS$34 at December 31, 2008), the contracts are established on an annual basis and renewable for similar periods, and as long as there exist interested third parties. F-167

292 10. EQUITY METHOD INVESTMENTS IN ASSOCIATES a) Detail of the investments Companies Country of origin Functional Currency Ownership Percentage Percentage with Voting Stock Exchange Value Rights % % % % A&C Pipeline Holding I.Cayman US$ Compañía Latinoamericana Petrolera S.A. Chile $ Empresa Nacional de Geotermia S.A. Chile $ Energia Andina S.A. Chile US$ Gasoducto del Pacífico Cayman Ltd Chile US$ Gasoducto del Pacífico (Chile) S.A. Chile US$ Gasoducto del Pacífico Argentina S.A. Argentina US$ Geotermica del Norte S.A. Chile $ 48, , GNL Chile S.A. Chile US$ GNL Quintero S.A. Chile US$ Innergy Holding S.A. (a) Chile US$ Norgas S.A. Chile $ Oleoducto Trasandino (Argentina) S.A. Argentina US$ Oleoducto Trasandino (Chile ) S.A. Chile $ Petropower Energia LTDA (a) Chile US$ Golfo Guayaquil Petroenap Compañía de Economia Mixta Ecuador US$ Primax Holding S.A. Ecuador US$ Forenergy S.A. Chile $ Primax S.A. Peru US$ Biocomsa S.A. Chile US$ (a) These investments are considered regardless the fact ownership is lesser than 20%, due to the existence of significant transactions between the investor and the investee; in addition, the ENAP Group participates in its commercial and financial decisions. F-168

293 b) Movement of Investments The following is a detail of the main investments in investees recorded under the equity method, as at December 31, 2009 and 2008, and at January 1, 2008: Companies Balance at Additions Income /(Loss) Dividendo Translation Increase Balance at in Equity Received Difference (Decrease) Ref ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ A&C Pipeline Holding (1) 84 Compañía Latinoamericana Petrolera S.A. (e ) 3,661 - (312) (3,775) 388 Empresa Nacional de Geotermia S.A. (f) 610 2,685 (2,903) Energia Andina S.A. 5,971 - (486) - - (67) 5,418 Gas de Chile S.A. (c ) (277) 1 Gasoducto del Pacífico Cayman Ltda. (b) Gasoducto del Pacífico (Chile) S.A. (b) - 6,778 (21,792) ,217 5,203 Gasoducto del Pacífico Argentina S.A. (b) - 2,458 (5,806) (4,151) - 14,051 6,552 Geotermica del Norte S.A. (d) 8,241 12,292 (71) - - 2,063 22,525 GNL Chile S.A. (a ) GNL Quintero S.A. (h) 38,537 - (1,480) - (17,086) 19,971 Innergy Holding S.A. (a ) Norgas S.A. 2,044-2,364 (1,504) ,853 Oleoducto Trasandino (Argentina) S.A. 4,776 - (670) - - (20) 4,086 Oleoducto Trasandino (Chile ) S.A. (g) 5,901 - (49) (5,450) 1,154 Petropower Energia LTDA 10,311-3,909 (1,186) (737) (1,865) 10,432 Golfo Guayaquil Petroenap (30) 10 Compañía de Economia Mixta Primax Holding S.A (69) 63 Forenergy S.A Primax S.A. 37,267-10, (655) 47,011 Biocomsa S.A Total 117,957 24,503 (16,761) (6,841) 1,199 8, ,270 (a) The participation in profits or losses in investees, includes a loss of ThUS$312 corresponding to GNL Chile S.A. and a profit of ThUS$89,760 corresponding to Innergy Holding S.A. The recognition of the equity value for both companies was discontinued in prior years as they presented negative equities, which is presented in Note 19. F-169

294 (b) During the month of June 2009, ENAP increased its ownership in teh companies Gasoducto del Pacífico S.A. to 25%, Gasoducto del Pacífico Cayman Ltd. to 22.8%, and Gasoducto del Pacífico Argentina S.A. to 22.8% obtaining hereby a significant influence, in order to unify the gas transport business. The effects generated by these participation increases, as mentioned in the following chart, have been recorded under the equity method of accounting, as at December 31, 2009, until the acquisition of these investments they were classified as part of the Other non-current assets in the amount of ThUS$34,268. (c) (a) On June 17, 2009 was purchased the remaining 50% of Gas de Chile S.A., through ENAP and Enap Refinerías S.A. (5%), company which as of June 2009 is being consolidated by ENAP, in accordance with the consolidation chart of Note 3.1.b. (d) The increase of the participation was generated because in December 2009, a capitalization of the accounts receivable was performed in the amount of ThUS$12,292. (e) The variation of the investment ThUS$(3,775) corresponds to the decrease of capital which was compensated in the accounts payable current as of such date. (f) In February 2009 was performed a capital contribution of ThUS$2,685. (g) The variation of ThUS$5,450 is explained by a capital decrease performed during 2009, which have their payments still pending in the amount of ThUS$784. (h) The decrease of the investment of ThUS$17,086 is explained by the recognition in equity if the cash flow hedge, effect that in the case of ENAP is recognized in the account hedge reserve. F-170

295 Companies Balance at Additions Income /(Loss) Dividendo Translation Increase Balance at in Equity Received Difference (Decrease) ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ A&C Pipeline Holding Compañía Latinoamericana Petrolera S.A. 4,855 - (286) - (908) - 3,661 Empresa Nacional de Geotermia S.A. 1,545 - (704) - (231) Energia Andina S.A. - 6,000 (29) ,971 Gas de Chile S.A (2) Geotermica del Norte S.A. 2,083 8,568 (810) - (1,600) - 8,241 GNL Chile S.A. (a ) GNL Quintero S.A. 3,200 35,680 (343) ,537 Innergy Holding S.A. (a ) Norgas S.A. 3, (1,049) (230) - 2,044 Oleoducto Trasandino (Argentina) S.A. 5,304 - (93) - - (435) 4,776 Oleoducto Trasandino (Chile ) S.A. 6,122 - (49) - (172) 5,901 Petropower Energia LTDA 14,924-5,828 (29,379) - 18,938 10,311 Golfo Guayaquil Petronap Compañía de Economia Mixta Primax Holding S.A (728) 30 Forenergy S.A (31) - (5) Primax S.A. 36,900-8,097 (7,730) ,267 Total 78,181 50,744 12,559 (38,158) (3,144) 17, ,957 (a) The participation in profits or losses in investees, includes a loss of ThUS$1,029 corresponding to GNL Chile S.A. and a loss of ThUS$8,800 corresponding to Innergy Holding S.A. The recognition of the equity value for both companies was discontinued in prior years as they presented negative equities, which is presented in Note 19. F-171

296 c) Detail of financial information The summary of the main balances of the financial statements of the investees with significant influence is as follows: Detail ThUS$ ThUS$ Assets 1,925,624 1,862,076 Liabilities (1,470,202) (1,365,107) Equity (455,422) (496,969) Income 2,274,773 2,063,011 Expenses (2,012,053) (2,014,750) Net income 242,773 48,261 d) Investments in other companies In the item other non-current assets are included the investments in other companies, as per the following detail: Other companies ThUS$ ThUS$ Electrogas S.A. 2 2 Inversiones Electrogas S.A. 5,130 5,130 Sociedad Nacional de Oleoductos S.A. (a) 12,705 12,705 Sociedad Nacional Maritima S.A. (b) 1,668 1,668 Asociación Gremial de Industriales Quimicos A.G 6 6 Terminales Marítimos Patagónicos S.A. 7,664 7,664 Total 27,175 27,175 (a) The accounts receivable and payable with these companies are part of the items Trade debtors and Commercial creditors for the years ended December 31, 2009 and 2008, as per the following detail: Description Tax Number Company of transaction Currency ThUS$ ThUS$ ThUS$ Amounts receivables Sociedad Nacional Marítima S.A. Purchase of services US$ Sociedad Nacional de Oleoductos S.A. Purchase of services US$ Amounts payable Sociedad Nacional Marítima S.A. Purchase of services US$ 205 3,149 4, Sociedad Nacional de Oleoductos S.A. Purchase of services US$ 888 2,698 2,807 F-172

297 Transactions Tax Number Company Description of transaction ThUS$ ThUS$ Sociedad Nacional Marítima S.A. Sea transport of products 48,361 43, Sociedad Nacional Marítima S.A. Sale of services Sociedad Nacional Marítima S.A. Lease of ships Sociedad Nacional de Oleoductos S.A. Transport of products through oil pipeline 44,432 48, Sociedad Nacional de Oleoductos S.A. Sale of several services F-173

298 11. PARTICIPATION IN JOINT VENTURES Next is presented a detail of the participation in joint ventures as at December 31, 2009 and 2008 and at January 1, 2008: Ownership Investment amount Less: Net amount of the percentage in joint ventures impairment losses investment in joint ventures Joint Ventures ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ a. Exploitation Magallanes Area (a) , , , , , ,060 Campamento Central Cañadón Perdido (b) ,051 35,682 29, ,051 35,682 29,553 Cam 2A Sur (c) ,056 13,226 31,610 12,217 12,217 10, ,009 21,540 East Rast Qattara (d) ,456 16,448 16, ,456 16,448 16,066 b. Exploration E2 (former CAM3 and CAM1) (a) , , La Invernada (b) Block 2 - Rommana (c) ,400 2,400 2, ,400 2,400 2,424 Block 8 - Sidi Abd El Rahman (d) ,818 1,930 1, ,818 1,930 1,818 Block Mehr (e) ,262 27,262 19,394 27,262 27, Total 208, , ,568 39,479 39,479 10, , , ,498 Details of the main operations under common control, for which income is earned and expenses incurred for Exploitation and Exploration activities, are presented below: F-174

299 a. Exploitation (a) Magallanes Area On January 4, 1991, Sipetrol Argentina S.A. and Yacimientos Petrolíferos Fiscales S.A. entered into a Unión Transitoria de Empresas (UTE, similar to a joint venture) contract, for hydrocarbon development and drilling activities in the Magallanes Area, a block located in the eastern mouth of the Strait of Magellan, Argentina. Enap Sipetrol Argentina S.A., as operator of this contract, is responsible for performing all operations and activities in this area. (b) Campamento Central - Cañadón Perdido In December 2000, ENAP Sipetrol S.A. signed an agreement with YPF S.A. whereby the latter assigns and transfers to ENAP Sipetrol Argentina S.A. 50% of the concession that YPF S.A. holds for exploiting hydrocarbons in the areas known as Campamento Central - Cañadón Perdido, in the province of Chubut, Argentina, which is subject to Law and its enabling regulations. In this case, the operator is YPF S.A. (c) Cam 2A Sur Regulatory decision 14 of January 29, 1999, awarded YPF and ENAP Sipetrol Argentina S.A. the right to explore the area known as CAM 2A Sur. On October 7, 2002, ENAP Sipetrol Argentina S.A. and YPF S.A. entered into a UTE (similar to a joint venture) in the Tierra del Fuego Provinces. (d) East Rast Qattara As part of the bidding process opened in 2002 by the Egyptian General Petroleum Company (EGPC) for tenders to be submitted for various blocks in the Western Desert, the East Rast Qattara block was awarded to the subsidiary Sipetrol International S.A., together with the Australian company Oil Search Ltd., on April 16, The contract was signed on March 30, 2004 in the presence of the Egyptian Oil Ministry, with an ownership interest of 50.5% for Sipetrol International S.A., Egyptian branch, as the operator, and 49.5% for Oil Search Ltd. The exploitation stage started in December On August 28, 2008, Oil Search sold its full ownership interest to Kuwait Energy Company. F-175

300 b. Exploration (a) E2 (Formerly CAM 3 and CAM 1) The CAM-1 (Cuenca Austral Marina 1) area was awarded on September 4, 2003 to ENAP Sipetrol Argentina S.A. and Repsol-YPF S.A. by the Energy Secretariat of the Ministry of Federal Planning, Public Investments and Services, which accepted the tender submitted by the companies during the International Public Bidding called for this project. The CAM-1 area is located in the Atlantic Ocean in southern Argentina and is adjacent to other concessions where ENAP Sipetrol Argentina S.A. is currently exploring and producing hydrocarbons. ENAP Sipetrol Argentina S.A. and YPF have formed a UTE (similar to a joint venture) to carry out hydrocarbon explorations in this area and exploit it commercially, if oil is found. In October, 2005, ENAP Sipetrol Argentina S.A. was informed by the Energy Secretariat that the CAM-1 exploitation area would be registered to ENARSA (a State-owned company). This was based on the fact that the area had been awarded to ENAP Sipetrol Argentina S.A. and YPF S.A. in 2003 by the Energy Secretariat, but approval by administrative decree issued by the Executive was pending. On September 26, 2006, ENARSA, ENAP Sipetrol Argentina S.A. and YPF S.A. signed a joint venture agreement, whereby the parties agreed to enter into a UTE with each party holding a 33.33% interest. ENARSA, as the owner of CAM 1 (hereinafter E2), contributed this block, and ENAP Sipetrol Argentina S.A., jointly with YPF S.A., contributed the CAM 3 block. ENAP Sipetrol and Repsol YPF expressly reversed CAM-3 to the Energy Secretariat, so that the latter could then award it to the new the consortium. Within the framework of the agreement signed between ENARSA, YPF S.A. and ENAP Sipetrol Argentina S.A. for the joint exploration, development and possible exploitation of the new E2 area, the Energy Secretariat accepted the transfer of the CAM-3 area to ENARSA, which, together with the former CAM-1 area, now makes up the E2 area that is the subject of the agreement. Likewise, the Energy Secretariat accepted offsetting the promised investments pending in the CAM-3 area with the promise to drill a second exploration well in the new E2 area. On March 31, 2008, the parties signed the E2 Area Hydrocarbon Exploration and Exploitation UTE (similar to a joint venture), with the purpose of regulating the rights and obligations of ENAP Sipetrol Argentina S.A., YPF S.A. and Energía Argentina S.A. (ENARSA) as partners and co-participants in exploring and exploiting the E2 area. This UTE was registered on April 17, 2008 with the Corporate Records Office under number 63, Book 2 of the Company Joint Venture Contracts. F-176

301 (b) La Invernada This block was opened for bidding by the Hydrocarbons Department of the Province of Neuquén on June 9, 2003 and awarded to Wintershall Energía S.A. (WIAR) effective October 29, The exploration contract was signed by WIAR and the Department of Hydrocarbons on November 11, After evaluating the possibility of finding oil in this block, the Company entered into a Joint Study and Bidding Agreement with WIAR to obtain an entry option for a 50% interest under ground floor conditions. On December 21, 2004, Decree 2949 of the Province of Neuquén approved the assignment of 50% of Wintershall Energía S.A. s interest in the Exploration Contract and License to ENAP Sipetrol Argentina S.A. The UTE (joint venture) contract was signed on March 29, 2005 and registered on May 10, 2005 with the Corporate Records Office under number 74, Book 01. On September 24, 2008, the Operator submitted the application for total roll-back of the La Invernada exploration area to the Under-secretariat of Hydrocarbons and Energy of the Province of Neuquén. At the issuance date of these financial statements, the Company is waiting for an answer to this application from the above Under-secretariat, and the financial statements do not include any recorded values associated with this project. (c) Block 2 - Rommana In December 2006, through its subsidiary Sipetrol Internacional S.A., ENAP Sipetrol S.A. was awarded two exploration contracts, subject to the terms, procedures and approvals required by the Egyptian authorities. Block 2 on land will be operated by Sipetrol Internacional S.A., with a 40% interest in a consortium made up of PTT Exploration and Production Public Company Limited ("PTTEP") and Centrica, each with a 30% interest. This area is located to the north of SINAB, covering a surface area of 6,200 km2. On September 18, 2007, the Concession Agreement for the block was signed and the exploration stage began. (d) Block 8 - Sidi Abd El Rahman In December 2006, through its subsidiary Sipetrol Internacional S.A., ENAP Sipetrol S.A. was awarded two exploration contracts, subject to the terms, procedures and approvals required by the Egyptian authorities. Block 8, off-shore, will be operated by Edison International SPA, with a 40% interest in the consortium made up of PTT Exploration and Production Public Company Limited ("PTTEP") and Sipetrol International S.A., each with a 30% interest. This area is located in the northeast of Egypt, in the Mediterranean Sea, and covers a surface area of 4,294 km2. On September 18, 2007, the Concession Agreement for the block was signed and the exploration stage began. F-177

302 (e) Block Mehr Through its subsidiary Sipetrol International S.A., ENAP Sipetrol S.A. holds a 33% interest in the Mehr Block, in partnership with Repsol YPF and OMV, being the latter the operator. Since obtaining the concession in 2001, the area has been in its exploration phase and one discovery has been made. On June 30, 2007, the NIOC (National Iranian Oil Company) declared the Block to be commercially viable, thereby kicking off negotiations for a development plan for the area and the respective development contract. In December, 2008, a document was received from NIOC containing comments on the development plan proposed by the consortium. Since it was not economically viable for the companies making up the consortium (Sipetrol, OMV and Repsol), a unanimous decision was made to withdraw from the negotiation process, reserving the right to demand reimbursements of expenses incurred in the exploration stage, as stipulated in the exploration services contract. OMV, as operator of the Mehr block and representing the consortium made up of Repsol and ENAP Sipetrol S.A., through its subsidiary Sipetrol Internacional S.A., delivered a letter addressed to the Exploration Director of the National Iranian Oil Company (NIOC) on January 24, 2009, reporting that a unanimous decision had been made to not continue with the negotiations for developing the Band-e-Karkheh field. This decision is due to the fact that it was not possible to reach an agreement with NIOC regarding the Development Plan needed to exploit this discovery made by the consortium. Considering that contractual obligations were fulfilled, the consortium informed NIOC that it would be activating the clause entitling it to recover exploration expenses and the remuneration fee, according to the terms stipulated in the Exploration Services Contract signed by the consortium and NIOC. Regardless, based on management s judgments and estimates, the subsidiary Sipetrol International S.A. has deemed it appropriate to record a provision of ThUS$ 27,262 for the amount of the investment. F-178

303 Next are detailed the assets, liabilities of each of the joint ventures: Joint ventures a. Exploitation Current assets Non-current assets in Current liabilities Non-current liabil in joint ventures joint ventures in joint ventures joint venture ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Magallanes Area (a) 18,946 20,088 7,905 94,595 56,975 43,278 38,110 17,578 16,292 6,189 1,037 Campamento Central Cañadón Perdido (b) 15,890 17,764 15,201 79,338 50,457 83,228 31,963 15,550 31,307 5, Cam 2A Sur (c) 2,445 5,663 1,824 12,206 16,084 9,987 4,917 4,957 3, East Rast Qattara (d) 17,508 23,197-22,741 6,997-4,715 16,550-18,341 - b. Exploration E2 (former CAM3 and CAM1) (a) , , La Invernada (b) Block 2 - Rommana (c) 219 5, , , Block 8 - Sidi Abd El Rahman (d) 1, , ,605 - Block Mehr (e) Total 57,151 73,059 24, , , ,493 81,406 59,055 51,359 32,554 2,248 The amounts specified below detail the net sales, costs of sales and results of each of the joint ventures. Joint ventures a. Exploitation Ordinary income Cost of sales Net income (loss) from joint ventures in joint ventures in joint ventures ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Magallanes Area (a) 66,584 85, ,831 86,506 19,354 2,764-3,618-26,113 Campamento Central Cañadón Perdido (b) 37,358 43,310 51,344 35,203 39,634 38, ,053 Cam 2A Sur (c) 4,328 7,552 6,184 4,993 15,655 5,041-3,311-6, East Rast Qattara (d) 26,517 14, ,815 9, ,457-6,657-1,267 b. Exploration E2 (former CAM3 and CAM1) (a) , ,146 7,791 - La Invernada (b) Block 2 - Rommana (c) Block 8 - Sidi Abd El Rahman (d) , ,932-1,235 - Block Mehr (e) Total 134, ,547 58, , ,252 62,644-39,053-10,187-21,382 c) Joint Ventures Agreements of ENAP in Chile Dorado Riquelme Block: On August 24, 2009, started the CEOP with Methanex 50% and ENAP 50%, being ENAP the operator, initiating the first exploration period of 36 months. By the end of September 2009 was declared the commercial viability of the Palenque Field, adding to the discovered wells, additional wells for the development of this field. Since the start of the CEOP until December 31, 2009, 6 blocks have been drilled, being 2 of these development blocks of the Palenque area and 4 exploratary blocks in the areas called Tropilla, Punta del Cerro and Cruceros. Similarly, the existing surface facilities in the block have been enlarged to allow the production of the found gas and for the testings of the new exploration wells that turn to be succesfull, which has allowed obtaining a maximum production volume of 1 million cubic meters per day in December F-179

304 Lenga Block On January 15 was terminated the drilling, the testing of geophysical profiles and the tubing of the well Carmen BX-1, the first drill included as contract obligation. Likewise, in the second well Carmen B-X1 has been completed the drilling and is currently in the evaluation stage. Coirón Block The Company decided to cancel and repeat the bidding process for drilling equipment, due to the excessive prices requested in the bids. The bid for drilling and wire-line services is in its final stage. Caupolicán Block The negotiation of the Joint Operating Agreement (JOA) continues. At December 31 there exists an agreement on almost 90% of the clauses. On December 9 a special partner meeting was held with OCM character, in which the program and the budget for the first contract year was agreed which covers from April 28, 2009 to April 27, The agreed progam includes the following: Programming of 300 Km2 of seismic 3D Programming of first exploration well Reentering in Clarencia 1-A Various studies A portion of this program was being carried out since last May. On December 11 was held the first meeting of the Coordination Committee between the contractor (Petromagallanes/Enap) and the State represented by the Ministry of Mining. In this meeting was formalized the working program and the budget for the first contract year. 12. OTHER BUSINESS Below are detailed the main operations for the exploitation activities. (a) Pampa del Castillo - La Guitarra On September 25, 2001, Pecom Energía S.A. assigned to Sipetrol Argentina S.A. 100% of the rights to the exploitation concession of the hydrocarbon area referred to as Pampa del Castillo - La Guitarra, located in the province of Chubut, Argentina. F-180

305 (b) Paraíso, Biguno, Huachito y Mauro Dávalos Cordero On October 7, 2002, a contract was signed with Empresa de Petróleos del Ecuador - PETROECUADOR and its subsidiary Empresa Estatal de Exploración y Producción de Petróleos del Ecuador - Petroproducción, to exploit and develop the oilfields Paraíso, Biguno, Huachito (PBH) and Mauro Dávalos Cordero (MDC), located in the eastern Ecuador basin. By means of this specific service contract, the Company committed to making investments in the development of these fields for an amount estimated in US$90 million, which include drilling 16 wells (9 in PBH and 7 in MDC), the construction of a production station in MDC, the adaptation of facilities and a camp. At the same time, it acquired the exploration and operations rights, assuming 100% of the operation and management costs of the fields. On August 08, 2006, the MDC field contract with PETROECUADOR was modified, and ENAP SIPEC agreed to increase the investment program to include the drilling of 7 wells and expansion of production facilities. These new wells will certify additional reserves, increasing current reserves from 31.6 to 57.0 million barrels of crude oil. The detail of Other Business in which the ENAP Group participates through Enap Sipetrol S.A. as at Decembr 31, 2009 and 2008 and January 1, 2008, is as follows: Amount of investment in joint Net amount of the investment Less: Impairment losses ventures in joint ventures Business ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Pampa el Castillo (a) 147, ,425 82, , ,425 82,600 Paraíso, Biguno, Huachito (b) 26,039 27,286 29, ,039 27,286 29,519 Mauro Dávalos Cordero (b) 75,831 71,675 70, ,831 71,675 70,882 Total 249, , , , , ,001 Current assets Non-current assets in Current liabilities Non-current liabilities in other business in other business in other business in other business Projects ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Pampa el Castillo (a) Paraíso, Biguno, Huachito (b) Mauro Dávalos Cordero (b) Total Ordinary income Cost of sales Income (loss) in other business in other business in other business Projects ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Pampa el Castillo (a) 91, , ,646 74,131 73,933 85,640 7,512 11,797 19,599 Paraíso, Biguno, Huachito (b) 14,221 29,595 22,282 9,809 11,756 10,533 2,827 16,808 11,033 Mauro Dávalos Cordero (b) 53,389 99,882 66,160 26,397 38,906 26,163 18,791 37,640 24,587 Total 159, , , , , ,336 29,130 66,245 55,219 F-181

306 13. FINANCIAL INSTRUMENTS a) Classification of assets and liabilities financial instruments The detail of the financial instruments of assets, the classification per nature and category as at December 31, 2009 and 2008 and January 1, 2008, is as follows: December 31, 2009 Financial assets held for negotiation Financial assets at fair value through profit and loss Investment held to maturity Loans and accounts receivable Financial assets available for sale Hedge derivatives ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Derivative instruments ,824 Other financial assets , Total current ,923-2,824 Derivative instruments ,614 Other financial assets , Total non current ,929-54,614 December 31, 2008 Financial assets held for negotiation Financial assets at fair value through profit and loss Investment held to maturity Loans and accounts receivable Financial assets available for sale Hedge derivatives ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Derivative instruments ,636 Other financial assets , Total current ,091-24,636 Derivative instruments Other financial assets , Total non current , Total ,686-24,888 January 01, 2008 Financial assets held for negotiation Financial assets at fair value through profit and loss Investment held to maturity Loans and accounts receivable Financial assets available for sale Hedge derivatives ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Derivative instruments ,664 Other financial assets ,282, Total current ,282,401-25,664 Derivative instruments ,124 Other financial assets , Total non current 21,355-30,788 F-182

307 The detail of financial statements of liabilities, the classification per nature and category as at December 31, 2009 and 2008 and January 1, 2008, is as follows: December 31, 2009 Liabilities Financial liabilities held for negotiation Financial liabilities at fair value through profit and loss Loans and accounts receivable Hedge derivatives ThCh$ ThCh$ ThCh$ ThCh$ Loans accruing interests ,509 - Derivative instruments ,890 Other financial liabilities - - 1,400,200 - Total current liabilities - - 2,002,709 8,890 Loans accruing interests - - 2,365,088 - Derivative instruments ,484 Other financial liabilities - - 3,744 - Total non-current liabilities - - 2,368,832 68,484 December 31, 2008 Liabilities Financial liabilities held for negotiation Financial liabilities at fair value through profit and loss Loans and accounts receivable Hedge derivatives ThCh$ ThCh$ ThCh$ ThCh$ Loans accruing interests ,171 - Derivative instruments ,446 Other financial liabilities - - 1,601,019 - Total current liabilities - - 2,585,190 18,446 Loans accruing interests - - 1,437,402 - Derivative instruments ,316 Other financial liabilities - - 7,243 - Total non-current liabilities - - 1,444, ,316 Total - - 4,029, ,762 F-183

308 January 1, 2008 Liabilities Financial liabilities held for negotiation Financial liabilities at fair value through profit and loss Loans and accounts receivable Hedge derivatives ThCh$ ThCh$ ThCh$ ThCh$ Loans accruing interests ,472 - Derivative instruments ,302 Other financial liabilities - - 2,551,553 - Total current liabilities - - 2,800,025 2,302 Loans accruing interests - - 1,436,235 - Derivative instruments ,739 Other financial liabilities - - 8,679 - Total non-current liabilities - - 1,444,914 24,739 Total - - 4,244,939 27,041 b) Assets and liabilities for hedge instruments The ENAP Group, in compliance with financial risk management policy described in Note 5, acquires financial derivatives to cover its exposure to the interest rate variations, currency (exchange rate) and fuel prices. The interest rate derivatives are used to establish or limit the variable interest rate of the financial obligations and correspond to interest rate swaps and zero-cost collars. The currency derivatives are used to establish the exchange rate of the US dollars in comparison to the Chilean peso (CLP), Unidad de Fomento (UF) and Euros (EUR), among other, due to investments or existing obligations in currencies other than the US dollar. These instruments correspond mainly to Forwards and Cross Currency Swaps. The WTI derivaties (zero cost collar and 3W zero cost collar) destined to protect, within a range, the price of a percentage of its crude oil shipments. This strategy is complemented by the use of swap sales contracts of refined products. F-184

309 The detail of the hedge assets and liabilities, considering the nature of the operations, is as follows: Hedge assets Current Non Current Current Non Current Current Non Current ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Exchange rate hedging Cash flow hedge 2,824 54, ,128 Interest rate hedging Cash flow hedge , WTI hedging Cash flow hedge ,582-24,066 - Total 2,824 54,614 24, ,664 5, Hedge liabilities Current Non Current Current Non Current Current Non Current ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Exchange rate hedging Cash flow hedge ,817 2,113 4,128 Interest rate hedging Cash flow hedge 5,340 68,484 5, ,499-20,611 WTI hedging Cash flow hedge 3,550-12, Total 8,890 68,484 18, ,316 2,302 24,739 F-185

310 The detail of the hedge instruments portfolio of ENAP, is as follows: Detail of Hedge Instruments Descriptionof Hedge Instrument Description of instruments against which is hedged Fair value of Instruments against which is ThUS$ hedged ThUS$ ThUS$ Cross-Currency Swap Exchange rate and Interest rate Unguaranteed obligations (Bonds) 51,049 (37,737) (3,884) Cross-Currency Swap Exchange rate and Interest rate Financial lease 3, ,128 SWAP Interest rate Bank loans (67,259) (97,461) (16,446) Zero Cost Collar Interest rate Bank loans (6,596) (10,172) (1,952) Zero Cost Collar WTI Inventories (2,038) 12,190 23,877 3W Zero Cost Collar WTI Inventories (1,512) - - Forward Exchange rate Trade receivables and other receivables 2, (1,976) Total (19,936) (132,874) 3,747 F-186

311 At year-end December 31, 2009, ENAP has recognized in profits and losses the following amounts for ineffectiveness and for the value of money in time of the derivatives: Income (loss) for for value ineffectiveness in time ThUS$ ThUS$ Cross-Currency Swap Exchange rate and Interest rate - - Cross-Currency Swap Exchange rate and Interest rate - - SWAP Interest rate (281) - Zero Cost Collar Interest rate - (716) Zero Cost Collar (*) WTI - (2,077) 3W Zero Cost Collar (*) WTI - (2,015) Forward Exchange rate 20 - Total (261) (4,808) (*) These amounts have been recorded in the item Cost of sales c) Other data on financial instruments Next are detailed the maturities of the hedges: December 31, 2009 Notional After Financial derivaties Fair Value Total ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Exchange rate hedging Cash flow hedge 57, ,230 1, ,512 1,663 1,726 1,790 5, ,576 Interest rate hedging Cash flow hedge (73,855) 105, , , ,750 36,639 38, ,716 1,127,218 Total (16,386) 790, , , ,413 38,365 40, ,826 1,961, Total Fair Value Thousands Thousands ThUS$ of Barrels of Barrels WTI hedging Cash flow hedge (3,550) 5,950 5,950 December 31, 2008 Notional After Financial derivaties Fair Value Total ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Exchange rate hedging Cash flow hedge (37,431) 376,316 1,365 1, ,378 1,525 1,582 1,641 5, ,354 Interest rate hedging Cash flow hedge (107,633) 89,529 80,571 82,073 82, ,750 36,639 38, , ,747 Total (145,064) 465,845 81,936 83, , ,275 38,221 40, ,847 1,443, Total Fair Value Thousands Thousands ThUS$ of Barrels of Barrels WTI hedging Cash flow hedge 12,190 6,040 6,040 F-187

312 The contractual notional amount of the contracts celebrated does not represent the risk taken on by ENAP and SPE s, as this amount only responds to the basis on which the calculations of the derivative liquidation have been made. d) Hierarchies of the Fair Value The Group calculates the fair value for the financial derivatives by using market parameters, which are adjusted to the maturity profil of each operation. The forward operations hedging the exchange rate exposure of the accounts receivable from sales invoices in Chilean pesos are recorded using as reference the forward peso- US dollar curve available in the market. The cross currency swap operations hedging the exposure to the fluctuation of the US dollar of the financial liabilities denominated in UF are recorded as the present value for the future flows in UF (asset) and US dollar (liability). To calculate such present values are used the rate curves of the UF and market LIBOR, which are adjusted to the relevant dates of the flows included in each operation. The interest rate swap operations hedging the exposure to the fluctuation of the LIBOR rate of the financial liabilities that accrue a variable rate based on LIBOR are recorded as the present value of the future flows. To calculate such present values are used the rate curves of the market LIBOR, which are adjusted to the relevant dates of the flows included in each operation. The option operations on WTI hedging the exposure to the variation of the international price of the crude oil imports of ENAP are recorded by using calculation tools provided by financial information platforms. Such tools use the future curves of the WTI prices in the market, adjusting these to the maturity profile of each operation. The financial instruments recognized at fair value in the statement of financial situation, are classified according to the following hierarchies: (a) Level 1: Quoted price (not adjusted) in an active market for identical assets and liabilities. (b) Level 2: Different inputs to the quoted prices which are included in Level 1 and which are observable for assets and liabilities, whether directly (as price) o indirectly (as derivated from a price); and (c) Level 3: Inputs for assets or liabilities that are not based on observable market information (not observable inputs). F-188

313 Financial instruments measured at fair value Level 1 Level 2 Level 3 ThUS$ ThUS$ ThUS$ ThUS$ Hedge assets Cash flow hedge 57,438-57,438 - Total 57,438-57,438 - Hedge liabilities Cash flow hedge 77,374-77,374 - Total 77,374 77, INVENTORIES As at December 31, 2009, December 31, 2008 and January 1, 2008 this item is composed as follows: Inventories ENAP Consolidated Detail ThUS$ ThUS$ ThUS$ Crude oil in inventories 283, , ,906 Crude oil in transit 120, , ,440 Finished products 536, , ,650 Products in transit 30,175 70, ,280 Material in warehouse and in transit 89,646 88,758 78,204 Total 1,060, ,597 1,598, Additional Inventory Information ThUS$ ThUS$ Discounts Importe de reversiones inventory de amounts rebajas de importes de inventarios Inventory costsl recognized as expense during the period 6,311,902 11,980,384 At September 30, 2009, was performed a ThUS$11,553 adjustment to value finished products according to their respective realizable values, given that their production prices and purchase prices both exceeded them. The mentioned adjustment is present decreasing the value of the inventories of finished products with charge to the exploitation costs. F-189

314 15. TRADE RECEIVABLES AND OTHER RECEIVABLES As at December 31, 2009, December 31, 2008 and January 1, 2008 this item is composed as follows: Total Current Total Non Current Item ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Trade debtors 747, , , Sundry debtors 84, , , Other receivables 3,025 10,307 9,181 25,947 20,928 6,682 Allowance for doubtful accounts (1,282) (1,282) (300) Totales 832, ,234 1,179,409 25,965 20,947 6,701 The balances included in this item do not accrue interests. The average collection period to clients is of 21 days, without considering the other receivables or the sundry debtors a) Aging of matured accounts receivable, but not impaired Next is detailed the aging of the matured accounts receivable, but not impaired: ThUS$ ThUS$ ThUS$ Up to 90 days 102,173 43,763 85,026 Over 90 days up to 1 year 10,062 43,374 33,063 Over 1 year 8,117 5,478 3,574 Totales 120,352 92, ,663 F-190

315 b) Allowance for doubtful accounts The amounts of the allowance for doubtful accounts as at December 31, 2009, December 31, 2008 and January 1, 2008 are as follows: ThUS$ ThUS$ ThUS$ Up to 90 days Over 90 days up to 1 year Over 1 year 1,282 1, Total 1,282 1, Considering the creditworthiness of the debtors and the historical behavior of the collection, the Group has estimated that the allowance for doubtful accounts as at December 31, 2009 is sufficient. The fair values of trade debtors, sundry debtors and other receivables correspond to the same commercial values. 16. EQUITY a) Changes in equity: Through Order No of December 28, 2007, the Treasury Department temporarily suspended for the period 2007, the policy of transferring profit from ENAP to the Chilean Government. At the same time, it transitorily annulled for that year, the transfer of net income for any reason, to complete the 14% profit on equity with retained earnings from previous periods. Article 2 of Law N authorized the Treasury Department to perform for a single time, an extraordinary contribution of capital to ENAP in the amount of ThUS$250,000, which will be financed with available resources in financial assets of the National Treasury. Such contribution was carried out through Supreme Decree N 1389 of October 29, 2008 through which the Treasury Department proceeded to the modification of the current budget of the National Treasury that allowed the capital contribution that was made effective on November 10, Through Order N 64 of January 1, 2009 the Treasury Department authorized the following: a) Suspend temporarily for 2009, the transfer policy of 100% of the annual dividends of the subsidiaries to ENAP, corresponding for the year ended December 31, 2008; F-191

316 b) Temporarily suspend for 2009, the transfer policy of profit from ENAP to the Chilean Government (for the profit generated in 2008). The profit distribution policy that governs ENAP, established by Treasury Resolution No. 25 of August 11, 2005, which established that ENAP had to transfer a minimum amount of resources to the Chilean State, whether as income tax (40%) and/or as anticipated revenues, corresponding to 14% of profitability over equity, with retained earnings of prior periods. b) Paid-in capital The detail of the paid-in capital as at December 31, 2009, December 31, 2008 and January 1, 2008 is the following: Issued capital ThUS$ ThUS$ ThUS$ Paid-in capital 1,182,700 1,182, ,700 Total 1,182,700 1,182, ,700 Capital management The main purpose of the capital management, referred to the management of the equity of the Company, is the administration of the capital of the ENAP Group, as per the following detail: Ensure the normal functioning of its operations and the continuity of the Business in the long term. Ensure the financing of new investments in order to maintain a continuous growth in the future. Maintain an adequate capital structure according to the economical cycles that impact the business and the corresponding nature of the industry. Maximize the value of the ENAP Group in the long and medium term. According to the above, the capital requirements are incorporated based on the financing needs of the Group, trying to maintain an adequate liquidity level and complying with the financial requirements established in the current debt contracts and in the commitments agreed on with the owner. The ENAP Group manages its capital structure and performs adjustments based on the predominating economic conditions, in order to mitigate the risks associated to the adverse market conditions and to materialize the opportunities that could be generated to improve the liquidity position of the ENAP Group. F-192

317 c) Other Reserves As at December 31, 2009, December 31, 2008 and January 1, 2008 this item is composed as follows: Detail ThUS$ ThUS$ ThUS$ Translation of foreign currency (iii) (70,683) (75,396) (72,233) Revaluation of properties (i) 195, , ,016 Hedging (ii) (45,514) (36,251) 4,937 Other sundry reserves (iv) 19,763 25,067 4,124 Total 99, , ,844 i) Revaluation of properties As part of the first adoption process of IFRS, the ENAP Group decided to measure certain land assets at fair value as deemed cost at the date of transition as of January 1, The total fair value of the land amounted to ThUS$198,016. These values were calculated by an independent specialist from the industry in which the ENAP Group operates. ii) Hedge Reserves Total Total Movement Total ThUS$ ThUS$ ThUS$ ThUS$ Balance at the beginning of the period 4,937 4,937 (4,937) - Income /(loss) recognized ion the cash flow hedges of: Cross Currency Swap / Bonds and Financial lease (11,087) (10,835) Option ZCC. 3WZCC,SWAP / WTI - 12,190 (11,648) 542 SWAP and Option ZCC interest rate bank loans - (61,461) 11,597 (49,864) Contratos Forward of foreign exchange ,749 2,803 Swap of investee GNL Quintero - - (20,586) (20,586) Deferred income tax derivatives - 7,777 24,649 32,426 Total 4,937 (36,251) (9,263) (45,514) F-193

318 iii) Translation reserves of foreign currencies ThUS$ ThUS$ ThUS$ Balance at the beginning of the year (75,396) (72,233) (72,233) Result of changes in investees with accounting in local currency 4,713 (3,163) - Total (70,683) (75,396) (72,233) iv) Other sundry reserves ThUS$ ThUS$ ThUS$ Initial balance 25,067 4,124 4,124 Equity adjustment in Petropower Energia Ltd. -3,786 20,943 - Adjustment to reserves in Innergy Holding S.A. -1, Total 19,763 25,067 4,124 d) Withheld results ThUS$ ThUS$ ThUS$ Balance at the beginning of the year (1,109,495) (20,069) (20,069) Variation adjustments first adoption (45,351) (72,526) - Income (loss) for the year 195,923 (955,505) - Net variation retained earnings (accumulated loss) 83,109 (61,395) - Total (875,814) (1,109,495) (20,069) F-194

319 17. NON-CONTROLLING INTEREST The detail per company of the effects originated by the participation of third parties in the equity and the results of the subsidiary companies as at December 31, 2009, December 31, 2008 and January 1, 2008, is the following: Company Non - Controlling interest Equity in income ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Other companies (Special Purpose Entities) 37,501 11,797 44,554 4,430 4,638 Enap Refinerías S.A Total 37,618 11,993 44,872 4,460 4, LOANS ACCRUING INTERESTS The detail of the loans accruing interests as December 31, 2009, December 31, 2008 and January 1, 2008 is the following: Current Non Current Not guaranteed ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Borrowings from financial institutions 457, ,692 54, , , ,676 }Bonds payable (*) 23,846 5,866 6,083 1,269, , ,002 Credit lines - 8, Financial lease 1,766 1,842 1,530 17,458 12,821 17,156 Notes payable (forfaiting) - 304, , Subtotal 483, , ,408 1,934, , ,834 Guaranteed Borrowings from financial institutions 119,464 24,490 40, , , ,401 Subtotal 119,464 24,490 40, , , ,401 Total 602, , ,472 2,365,088 1,437,402 1,436,235 * At amortized cost F-195

320 a. Loans from Financial Entities The detail per currency and maturity of the loans from financial entities (guaranteed and not guaranteed) accruing interests as at December 31, 2009, December 31, 2008 and January 1, 2008 is the following: December 31, 2009 Company Name Creditor Currency Payment of Interests Nominal rate Effective rate Guarantee Nominal value Undetermined ThUS$ ThUS$ Enercon BNP - Paribas US dollars Half-yearly 4.64% 4.64% Guaranteed 410,000 - Etalsa Kreditanstalt fur Wiederaufbau US dollars Half-yearly 4.52% 4.52% Guaranteed 29,940 - Petrosul Kreditanstalt fur Wiederaufbau US dollars Half-yearly 6.98% 6.98% Guaranteed 20,554 - Prodisa BNP - Paribas US dollars Half-yearly 6.04% 6.04% Guaranteed 34,459 - Prodisa BNP - Paribas US dollars Half-yearly 3.10% 3.10% Guaranteed 13,917 - Prodisa BNP - Paribas (Cesce) US dollars Half-yearly 4.38% 4.38% Guaranteed 53,215 - CHBB Société Générale US dollars Half-yearly 6.43% 6.43% Guaranteed 21,981 - Enap Sipetrol Argentina Banco Latinoamericano de Exportaciones S.A. (Bladex) (6) US dollars Upon maturity 4.60% 4.60% Guaranteed 65,000 - ENAP Export Dev Canada US dollars Upon maturity 1.62% 1.62% Not guaranteed 50,000 - ENAP Banco de Chile US dollars Upon maturity 0.97% 0.97% Not guaranteed 100,000 - ENAP Banco de Chile US dollars Upon maturity 1.65% 1.65% Not guaranteed 30,000 - ENAP Banco de Chile US dollars Upon maturity 0.97% 0.97% Not guaranteed 26,000 - ENAP Banco de Chile US dollars Upon maturity 0.97% 0.97% Not guaranteed 45,000 - ENAP Itau US dollars Upon maturity 1.20% 1.20% Not guaranteed 25,000 ENAP JP Morgan Chase Bank US dollars Upon maturity 1.25% 1.25% Not guaranteed 75,000 ENAP The Royal Bank US dollars Upon maturity 1.28% 1.28% Not guaranteed 79,000 - ENAP JP Morgan Chase Bank (1) US dollars Upon maturity 4.27% 2.46% Not guaranteed 220,000 - ENAP Calyon N.Y Branch (2) US dollars Half-yearly 5.84% 2.80% Not guaranteed 150,000 - ENAP Banco HSBC (8) US dollars Half-yearly 2.60% 0.75% Not guaranteed 50,000 - ENAP BNP Paribas (8) US dollars Half-yearly 2.10% 0.85% Not guaranteed 100,000 - ENAP Banco Santander London (8) US dollars Upon maturity 2.59% 0.71% Not guaranteed 150,000 - Total - F-196

321 December 31, 2008 Company Name Creditor Currency Payment of Interests Nominal rate Effective rate Guarantee Nominal value Undetermined ThUS$ ThUS$ Enercon BNP - Paribas US dollars Half-yearly 3.75% 3.75% Guaranteed 410,000 - Etalsa Kreditanstalt fur Wiederaufbau US dollars Half-yearly 4.52% 4.52% Guaranteed 29,940 - Petrosul Kreditanstalt fur Wiederaufbau US dollars Half-yearly 6.98% 6.98% Guaranteed 20,554 - Prodisa BNP - Paribas US dollars Half-yearly 6.04% 6.04% Guaranteed 34,459 - Prodisa BNP - Paribas US dollars Half-yearly 3.10% 3.10% Guaranteed 13,917 - Prodisa BNP - Paribas (Cesce) US dollars Half-yearly 4.38% 4.38% Guaranteed 53,215 - CHBB Société Générale US dollars Half-yearly 6.43% 6.43% Guaranteed 21,981 - Enap Sipetrol Argentina BBVA Banco Frances S.A. (5) US dollars Single time 6.35% 6.35% Not guaranteed 45,000 - Enap Sipetrol Argentina ABN AMRO Bank NY (7) US dollars Single time 5.80% 5.80% Not guaranteed 10,000 - ENAP ABN Amro Bank NY (4) US dollars Single time 6.86% 4.04% Not guaranteed 174,000 - ENAP Calyon (4) US dollars Single time 5.92% 2.47% Not guaranteed 100,000 - ENAP BNP Paribas (4) US dollars Single time 3.89% 2.15% Not guaranteed 100,000 - ENAP Scotiabank (4) US dollars Single time 3.83% 3.83% Not guaranteed 45,000 - ENAP JP Morgan Chase Bank (4) US dollars Half-yearly 4.50% 3.31% Not guaranteed 145,000 - ENAP JP Morgan Chase Bank (1) US dollars Half-yearly 4.04% 2.46% Not guaranteed 220,000 - ENAP Calyon N.Y Branch (2) US dollars Half-yearly 3.76% 2.80% Not guaranteed 150,000 - Total - F-197

322 January 1, 2008 Company Name Creditor Currency Payment of Interests Nominal rate Effective rate Guarantee Nominal value Undetermined ThUS$ ThUS$ BBVA US dollars Not guaranteed - Enercon BNP - Paribas US dollars Half-yearly 5.90% 5.90% Guaranteed 410,000 - Etalsa Kreditanstalt fur Wiederaufbau US dollars Half-yearly 4.52% 4.52% Guaranteed 29,940 - Petrosul Kreditanstalt fur Wiederaufbau US dollars Half-yearly 6.98% 6.98% Guaranteed 20,554 - Prodisa BNP - Paribas US dollars Half-yearly 6.04% 6.04% Guaranteed 34,459 - Prodisa BNP - Paribas US dollars Half-yearly 3.10% 3.10% Guaranteed 13,917 - Prodisa BNP - Paribas (Cesce) US dollars Half-yearly 4.38% 4.38% Guaranteed 53,215 - CHBB Société Générale US dollars Half-yearly 6.43% 6.43% Guaranteed 21,981 - Enap Sipetrol Argentina BBVA Banco Frances S.A. (5) US dollars Single time 6.35% 6.35% Not guaranteed 40,000 - Enap ENAPSipetrol Argentina JP Morgan Agenciado Chase Bank (3) (1) US dollars 5 years 6.05% 3.31% 6.05% 3.31% Guaranteed No Garantizada 21,000 - ENAP JP Morgan Chase Bank (1) US dollars Half-yearly 5.63% 2.46% Not guaranteed 220,000 - ENAP Calyon N.Y Branch ( 2 ) US dollars Half-yearly 5.34% 2.80% Not guaranteed 150,000 - Total - The nominal interest rates informed for credits with half-yearly maturities are annual and in the case of the other credits the rates are per month. F-198

323 (1) J.P. MORGAN CHASE BANK On June 15, 2006, ENAP refinanced ThUS$ of the existing syndicated loan, with a September 5, 2006, effective date. Through this operation, ENAP signed a contract with fifteen international banks under the laws of New York called Second Amended and Restated Term Loan Agreement, that modifies the August 31, 2004 credit contract, which modified a previous August 29, 2003, contract. The current modifications refers to: (i) the consolidation in a single credit of the principal due from 2007 to 2009 of the current credit s two existing tranches (Tranche 1 and Tranche 2), and (ii) the modification of principal maturity dates into a 7 year term single payment ("bullet"), with a September 2013 maturity date. The interest rate applied to the operation was LIBOR+0.20% for the first four years, LIBOR+0.225% for years five and six and LIBOR+0.25% for year seven. The change in the credit s term, which originally matured between 2006 and 2009, created additional funds to finance ENAP investments for the coming years. The interest rate spread remains practically unaltered regarding the original credit (LIBOR+0.20% between 2006 and 2008 and LIBOR+0.225% in 2009). Since it is a refinancing of liabilities, this transaction did not affect ENAP s liability level. (2) CALYON NEW YORK BRANCH In December 2006, the Company obtained a ThUS$150,000 syndicated loan from a group of banks, with Calyon Bank New York Branch as the agent. Through this operation, ENAP signed a syndicated loan contract (called Term Loan Agreement) with 12 international banks under the laws of New York. The loan has a 7 year term and will be amortized in 6 equal halfyear installments, the first due on June 14, The annual interest rate applied to the operation is LIBOR+0.175% for the first three years, LIBOR+0.20% for years four and five and LIBOR+0.225% for years six and seven. (3) J.P. Morgan Chase Bank: On December 18, 2003, Enap Sipetrol Argentina S.A. obtained a ThUS$ year term syndicated loan, with monthly principal and interest payments. It was guaranteed by petroleum and gas exports from the Cuenca Austral and with a contingent guarantee from ENAP. This loan was syndicated by JP Morgan Chase Bank, and 10 foreign banks participated. The agreed interest rate is LIBOR % annual spread. On December 18, 2008 this obligation with J.P: Morgan terminated. (4) J.P Morgan and Scotiabank In December 2008, ENAP had short-term debt totaling ThUS$579,840 between 120 and 180 days. The loans had been granted by Scotiabank, JP Morgan, ABN AMRO Bank N.V., Calyon and BNP Paribas at annual rates that fluctuated between 3.65% and 6.8%. F-199

324 (5) BBVA Banco Francés S.A.: On July 21, 2008, Enap Sipetrol Argentina S.A. obtained a new loan of ThUS$6,000, with payment of capital and interests upon maturity on January 19, 2009, with an annual interest rate of 6.35%. At the issuance date of these financial statements this obligation this obligation has been paid. On July 15, 2008, Enap Sipetrol Argentina S.A. obtained loans of ThUS$30,000 and ThUS$9,000, with payment of capital and interests upon maturity on January 20, 2009, with an annual interest rate of 6.35%. At the issuance date of these financial statements this obligation this obligation has been paid. (6) Banco Latinoamericano de Exportaciones S.A. (Bladex) On June 30, 2009, Enap Sipetrol Argentina S.A., obtained a loan of ThUS$65,000 which matures on June 28, 2010, with payment of capital upon maturity and half-yearly payments of interests. This loan is guaranteed by the ENAP Group. The interest rate is Libor plus 3.5%. (7) ABN AMRO BANK NV On July 15, 2008, Enap Sipetrol Argentina S.A. obtained a loan from ABN AMRO BANK N.V. of ThUS$10,000, with payment of principal and interests upon maturity. The agreed half-yearly interest rate is LIBOR + 2.2%. This loan was paid on January 12, (8) HSBC Bank On June 17, 2009, ENAP obtained 3 credits at a 3 years term with Banco Santander London, BNP Paribas and HSBC in the amounts of ThUS$150,000, ThUS$100,000 and ThUS$50,000 respectively, with amortizations as of the second year and an annual interest rate of LIBOR plus a spread with a range between 1.25% and 1.50%. F-200

325 b. Bonds Payable The detail and maturities of the bonds payable is indicated in the following table: Name Nominal Payment of Amortization Nominal Effective Period in Description Placement Creditor Country Currency Value interests of capital Rate Rate Guarantee years Tipo 144 A ( b ) Foreign JP Morgan USA US$ 290,000,000 Half-yearly Upon maturity 6.75% 3.80% No guarantee 10 Tipo 144 A ( b ) Foreign Deutsche Bank USA US$ 150,000,000 Half-yearly Upon maturity 4.88% 2.90% No guarantee 10 N 303 A1 y A2 ( a ) National Banco de Chile Chile UF 3,250,000 Half-yearly Upon maturity 4.25% 2.50% No guarantee 10 B-ENAP - B ( c ) National Banco de Chile Chile UF 9,750,000 Half-yearly Upon maturity 4.33% 2.20% No guarantee 10 Tipo 144 A ( d ) Foreign Santander USA US$ 300,000,000 Half-yearly Upon maturity 6.25% 3.30% No guarantee 10 Total Name Nominal Payment of Amortization of Nominal Effective Period in Description Placement Creditor Country Currency Value interests Capital Rate Rate Guarantee years Tipo 144 A ( b ) Foreign JP Morgan USA US$ 290,000,000 Half-yearly Upon maturity 6.75% 3.80% No guarantee 10 Tipo 144 A ( b ) Foreign Deutsche Bank USA US$ 150,000,000 Half-yearly Upon maturity 4.88% 2.90% No guarantee 10 N 303 A1 y A2 ( a ) National Banco de Chile Chile UF 3,250,000 Half-yearly Upon maturity 4.25% 2.50% No guarantee 10 B-ENAP - B ( c ) National Banco de Chile Chile UF 9,750,000 Half-yearly Upon maturity 4.33% 2.20% No guarantee 10 Tipo 144 A ( d ) Foreign Santander USA US$ 300,000,000 Half-yearly Upon maturity 6.25% 3.30% No guarantee 10 Total F-201

326 a) Bonds ENAP I-2002 Serie A Subseries A-1 and A-2: On October 4, 2002, the Company registered at the Securities Record of the Superintendency of Securities and Insurance under No. 303, the issuance of adjustable bonds in Unidad de Fomento (UF) in the local market, which was executed on October 22, This placement was performed in two subseries A-1 and A-2, with the following characteristics: The placement of bonds in the local market amounted to UF 3,250,000. The maturity period is of 10 years, the payments of interests are half-yearly, the annual interest rate is of 4,25% and the amortization of the principal is at the end of the period. b) International Bonds: On November 5, 2002, the Company issued and placed bonds Type 144 A in the US market, at an annual interest rate of 6.75%, in the amount of ThUS$ On March 16, 2004, the Company issued and placed bonds Type 144 A in the US market, at an annual interest rate of 4,875%, in the amount of ThUS$ The maturity period of both placement is 10 years. Interests are paid on a half-yearly basis and the amortization of capital will be performed upon maturity. c) Series B bond On January 15, 2009, the Company registered at the Securities Register of the Superintendency of Securities and Insurance under No. 303, the issuance of adjustable bonds in UF in the local market. The placement of bonds in the local market was performed in January and amounted to UF9,750,000. The maturity period is of 10 years, the payments of interests are half-yearly, the annual interest rate is of 4.33% and the amortization of the principal is at the end of the period. d) International bond On June 30, 2009, the Company issued and placed bonds Type 144 A in the US market, at an annual interest rate of 6.25%, in the amount of ThUS$ The maturity period is of 10 years. Interests are paid on a half-yearly basis and the amortization of capital will be performed upon maturity. F-202

327 19. PROVISIONS As at December 31, 2009, December 31, 2008 and January 1, 2008 this item is composed as follows: Current Non Current Concept ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Provision for contracts - 17, Decommissing, restoration and rehabilitation costs ( a ) 18,000 18, ,474 63,004 71,660 Severance payments ( b ) , , ,464 Share in revenues and personnel bonuses ( c ) 29,769 35,122 32, Income tax provision (DL) ,565 5, ,359 Equity in loss of investments ( d ) 9,129 7,138 4,365 89,697 82,378 Onerous contracts ( f ) ,115 62,155 67,330 Other provisions ( e ) 42,828 50,011 21,138 5,259 11,581 19,616 Total 99, ,971 58, , , ,807 a) Under this provision are grouped the estimated disbursements which the Group should perform in the future for the concepts of environmental remediations, platforms and wells, which are supported by a detailed activities plan which is currently being applied. b) This corresponds to the all events severance payments held by ENAP with its employees, which are detailed in the collective agreements active as of such date. c) Correspond to all benefits and bonds that ENAP has to pay to its employees and which is established in the current collective agreement contracts or employment contracts, as appropriate. d) Corresponds to the provisions for negative equity of the investments held in Innergy and GNL Chile S.A. e) Under this provisions are grouped the disbursements that the Group will perform in the future for received services, asserts acquired and estimation of expenses with a sufficient basis waiting for its formalization or execution. f) Correspond to the recognition of obligations for the concept of onerous contract with Innergy Holding S.A. and Gas Valpo S.A. F-203

328 Decommissing Profit sharing Provision for restructuring and and personal Onerous Negative Other contracts rehabilitation costs personnel bonuses contracts equity Provisions Total ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Movements in provisions Total provision, opening balance at ,160 32,657 67,330 86, , ,467 Additional provisions 17,700 29,905 27,127 10, , ,571 Used provision - - (20,457) (5,175) (251,954) (277,586) Reversal of provision - (21,061) - (9) (1,370) (22,440) Increase (decrease) in the Foreign Currency Exchange - (4,205) (24,966) (29,171) Other Increase (Decrease) (137,065) (137,065) Total provision, Final Balance at ,700 81,004 35,122 62,155 96, , ,776 Dismantling Share in Provision for restructuring and revenues and Onerous Negative Other contracts rehabilitation costs personnel bonuses contracts equity Provisions Total ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Movements in provisions Total provision, opening balance at ,700 81,004 35,122 62,155 96, , ,776 Additional provisions 39,335 1, , ,662 Used provision (50,443) (44,040) (181,932) (276,415) Reversal of provision (17,700) (708) - (89,697) (5,107) (113,212) Increase (decrease) in the Foreign Currency Exchange - 7,270 37,388 44,658 Other Increase (Decrease) - (10,822) (1,515) 2,563 (9,774) Total provision, Final Balance at ,474 29,769 18,115 9, , , ORDINARY REVENUE The detail of this item is as follows: Detail ThUS$ ThUS$ Sale of crude oil 163, ,155 Sale of gas 132, ,377 Sale of refined products 6,639,027 11,609,265 Sale of oil services 83, ,650 Other operating income 77,984 36,285 Total 7,097,503 12,182, OPERATING SEGMENTS Segment criteria The segment structure used by ENAP and defined by the Board of Directors of ENAP, is first in accordance with its business lines and second, according to its geographical distribution. The aforementioned lines of business are Exploration, Production and Refining, Logistics and Distribution. Main business segments of the consolidated group: F-204

329 Exploration and production, including the exploration operations of hydrocarbons (oil and natural gas) and of geothermia, as well as its development, production and marketing. Refining, logistics and distribution, including the activities destined to the acquisition of crude oil and other supplies for the production; development of the fuel production (fuel, diesel, fuel oil, kerosene, liquid gas, among other) and other products derived from oil (solvents, bases for the production of asphalt, ethylene and other petro-chemical products); the storage, transport and marketing of these products in the local and international market, including the wholesale distribution business in Peru. The Board of Directors and the General Manager of ENAP are in charge of the decision making process regarding the administration allocation of resources and regarding the performance assessment of each of the above described operating segments. Segment information of these businesses as at December 31, 2008 and 2009 is as follows. Exploration and Production December 31, 2009 ThUS$ Refining, Logistics and Marketing Oher (E&P) (RL&C) ( 1 ) Total Revenues 544,032 7,666,584 (1,113,113) 7,097,503 Cost of sales (378,714) (7,539,333) 1,098,548 (6,819,499) Gross margin 165, ,251 (14,565) 278,004 Other operating revenues 4,187 66,670 11,798 82,655 Other income interests - - Administrative expenses (40,627) (35,452) (21,254) (97,333) Other sundry operating expenses (78,792) (20,749) (670) (100,211) Financial costs (11,508) (111,617) (49,313) (172,438) Equity in Earnings (Loss) of Associates, recorded according to the equity method (156) 12,543 60,300 72,687 Foreign Currency Exchange Differences (3,247) 65,416 (10,594) 51,575 Other income (losses) 2, ,970 7,792 Income (loss) before taxes 37, ,407 (19,328) 122,731 (Expense) Revenues for Income taxes (17,197) 80,219 (31,121) 31,901 Income (Loss) after tax 20, ,626 (50,449) 154,632 Revenues from discontinued operations (2) 45, ,751 Income (Loss) 66, ,626 (50,449) 200,383 Income (Loss) Attributable to Minority Interest 109 (5,237) 668 (4,460) Income (Loss) Atfributable to Equity Holders 66, ,626 (50,449) 200,383 Income (Loss) 66, ,389 (49,781) 195,923 F-205

330 Exploration and Production December 31, 2008 ThUS$ Refining, Logistics and Marketing Oher (E&P) (RL&C) ( 1 ) Total Revenues 681,267 13,257,070 (1,755,605) 12,182,732 Cost of sales (487,585) (14,206,185) 1,766,870 (12,926,900) Gross margin 193,682 (949,115) 11,265 (744,168) Other operating revenues 23,124 17,828 61, ,338 Administrative expenses (51,321) (35,803) (20,224) (107,348) Other sundry operating expenses (30,390) (44,352) (42,685) (117,427) Financial costs (13,032) (169,936) (18,410) (201,378) Equity in Earnings (Loss) of Associates, recorded according to the equity method - - 2,730 2,730 Foreign Currency Exchange Differences 1,474 (109,573) (20,957) (129,056) Other income (losses) 2, ,149 8,072 Income (loss) before taxes 126,103 (1,290,594) (21,746) (1,186,237) (Expense) Revenues for Income taxes (34,694) 140, , ,085 Income (Loss) after tax 91,409 (1,149,794) 96,233 (962,152) Revenues from discontinued operations 6, ,647 Income (Loss) 98,056 (1,149,794) 96,233 (955,505) Income (Loss) Attributable to Minority Interest (7) 5,856 (994) 4,855 Income (Loss) Atfributable to Equity Holders 98,063 (1,155,650) 97,227 (960,360) Income (Loss) 98,056 (1,149,794) 96,233 (955,505) (1) This line presents the elimination adjustments in consolidation and the revenues generated by the ENAP Group, being the most relevant items: i) the transactions of revenues and costs for the purchase/sale of products and raw material between the companies of the ENAP Group in the amounts of ThUS$-1,113,113 and ThUS$1,098,548, respectively for the year 2009 and ThUS$-1,755,605 and ThUS$1,766,870 for 2008; and ii) the special taxes of ThUS$-31,121 for 2009 and ThUS$117,979 for 2008, which correspond to 40% of the additional tax that affects the ENAP Group, in conformity with the indicated in Law Decree (2) Corresponds to the revenues generated by the sale of the project North Bahariya, which was performed on March 31, 2009, in the amount of ThUS$45,751. F-206

331 Detail of revenues according to segment criteria: Exploration and Production Refining, Logistics and Marketing Exploration and Production Refining, Logistics and Marketing Geographical sales (E&P) (RL&M) Total (E&P) (RL&M) Total ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ National 165,116 6,196,362 6,361, ,409 10,945,883 11,103,292 Foreign 231, , , , ,497 1,079,440 Total 396,744 6,700,759 7,097, ,352 11,710,380 12,182,732 Exploration and Production Refining, Logistics and Marketing Exploration and Production Refining, Logistics and Marketing Sale of products (E&P) (RL&M) Total (E&P) (RL&M) Total ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Liquid Petroleum Gas - 385, , , ,465 Fuels - 1,773,206 1,773,206-2,761,067 2,761,067 Kerosene - 559, , , ,422 Diesel - 2,933,417 2,933,417-5,533,792 5,533,792 Fuel oil - 760, ,477-1,367,984 1,367,984 Other products - 225, , , ,543 Gas 83,832 49, , , ,377 Crude oil 163, , , ,155 Sale of services and other exploitation services 149,118 14, , , , ,927 Total 396,744 6,700,759 7,097, ,352 11,710,380 12,182,732 Assets and liabilities for Operating Segments At current the ENAP Group does not maintain a control and register of the assets for reportable segments in its internal reporting system, consequently such information is not used by the Board as part of de decision-making process and allocation of resources. The financial liabilities of ENAP are centralized and controlled at corporate level and are not presented by reportable segments. The main customers of ENAP at national level are Copec, Petrobras, Terpel, Esso and Methanex. F-207

332 22. FINANCIAL EXPENSES As at December 31, 2009 and 2008 the detail of this item is as follows: Concepts ThUS$ ThUS$ Interests from overdrafts and bank borrowings 61,796 61,564 Interests from bonds payable 59,585 35,311 Interests from lease obligations Expense for other 5,264 8,163 Expenses for interestts accounts payable 24,631 92,675 Total expenses for interests 151, ,260 Income / Loss for liquidations from derivatives (swap) 19,729 - Other effects for the valuation of derivatives (time value and ineffectiveness) Accrued interests for swap 1,120 3,118 Less: Capitalized interests (1,216) - Total financial costs 172, ,378 F-208

333 23. INCOME TAXES a) Tax situation All companies of the ENAP Group present individually their tax returns, in conformity with current tax standards in the operating country. The tax and deffered income (expense) for the year ended December 31, 2009 and 2008, is the following: Expense for Current Income Taxes ThUS$ ThUS$ (Expense) income for current taxes (10,360) 34,683 Tax benefit from unrecognized tax assets, previously ysed to reduce the expense for current taxes 94,530 Adjustments to current tax from prior period (55) Other (expense) income for current taxes (1,846) (1,069) (Expense) income for current taxes, net, total (12,206) 128,089 Deferred (expense) income for taxes related to the creation and reversal of temporary differences 44,107 95,996 (Expense) income for deferred taxes, net, total 44,107 95,996 (Expense) income for income taxes 31, , ThUS$ ThUS$ (Expense) income for current taxes, net, foreign (7,139) (22,177) (Expense) income for current taxes, net, national (5,067) 150,266 (Expense) income for current taxes, net, total (12,206) 128,089 Expense for deferred taxes to the income from foreign and national parties, net ThUS$ ThUS$ (Expense) income for deferred taxes, net, foreign 560 5,730 (Expense) income for deferred taxes, net, national 43,547 90,266 (Expense) income for deferred taxes, net, total 44,107 95,996 F-209

334 b) Conciliation of the accounting result with the tax result The reconciliation of the Statutory tax rate in Chile and the effective tax rate applicable to the ENAP Group, is as follows: ThUS$ ThUS$ (Expense) income for taxes using the legal rate (69,957) 677,746 Tax effects of rates in other jurisdictions (2,722) (8,105) Tax effect of ordinary income, not taxable 1,269 (1,247) Tax effect of expenses, not deductible from taxes (819) (775) Tax effect from the use of tax losses not previously recognized 74,964 94,530 Tax effect of change in tax rates 48,568 (453,661) Other increase (decrease) in charge for legal taxes (19,402) (84,403) Adjustment to tax expenses using the legal rate, total 101,858 (453,661) (Expense) income for taxes using the effective rate 31, ,085 Reconciliation of the legal tax rate with the effective tax rate % % Legal tax rate (%) 57.00% 57.00% Tax effects of rates in other jurisdictions (%) -2.22% 0.68% Tax effect of ordinary income, not taxable (%) 1.03% 0.10% Tax effect of expenses, not deductible from taxes (%) -0.67% -0.07% Tax effect of changes in tax rates of other jurisdictions (%) Tax effect from the use of tax losses not previously recognized 61.08% -7.95% Tax effect of changes in tax rates of other jurisdictions (%) 39.57% 38.15% Oher increase (decrease) in legal tax rate (%) % 7.10% Adjustments to legal tax rate, total (%) 82.99% 38.15% Effective tax rate (%) % 18.85% The tax rates applicable for the ENAP Group are of 17% for the local subsidiaries (ERSA, Sipetrol and SPE s) en in the case of the Parent Company, ENAP, the applicable rate amounts to 57%, which includes the rate of 17% plus 40% of Law Decree The other increases or decreases due to legal taxes, correspond to the taxes, the retained earnings of the subsidiaries. The taxes for the foreign companies are calculated according to the tax rates in the corresponding jurisdictions. F-210

335 c) Deferred tax assets and liabilities The origin of the deferred taxes recorded at December 31, 2009 and 2008, and at January 1, 2008, is as follows: Assets for Deferred Taxes, Recognized ThUS$ ThUS$ ThUS$ Assets for deferred taxes related to accumulations (or accruals) 13,432 58,947 4,767 Assets for deferred taxes related to Provisions 40,546 46,755 36,208 Assets for deferred taxes related to Foreign Currency Contracts 47,734 24,346 3,361 Assets for deferred taxes related to Post-Retirement benefit obligations 44,533 33,729 - Assets for deferred taxes related to property, plant and equipment 7,518 (17,457) 12,761 Assets for deferred taxes related to tax losses 136,456 82,072 5,721 Assets for deferred taxes related to other 182, ,244 62,822 Assets for deferred taxes 473, , , ThUS$ ThUS$ ThUS$ Assets for deferred taxes, tax credits, not recognized (9,674) 59,760 17,321 Assets for deferred taxes, Not recognized, Total (9,674) 59,760 17,321 Liabilities for Recognized Deferred Taxes ThUS$ ThUS$ ThUS$ Liabilities for deferred taxes related to depreciations 7,817 3,727 - Liabilities for deferred taxes related to amortizations 9,624 5,254 21,755 Liabilities Pasivos por for Impuestos deferred taxes Diferidos related Relativos to accumulations a Contratos (or en accruals) Moneda Extranjera 187, ,131-54,539 - Liabilities for deferred taxes related to obligations for post-retirement benefits 52,168 21,354 6,243 Liabilities for deferred taxes related to reassessments of property, plant and equipment 11,422 14,000 13,878 Liabilities for deferred taxes related to Other 17,480 62,495 15,910 Liabilities for deferred taxes 286, , , ThUS$ ThUS$ ThUS$ Movements in liabilities for deferred taxes (presentation) Liabilities for deferred taxes, initial balance 263,236 88,531 12,988 Increase (decrease) in liabilities for deferred taxes 22, ,430 99,337 Changes in liabilities for deferred taxes, total 22, ,430 99,337 Liabilities for deferred taxes, Final balance 286, , ,325 F-211

336 d) Income tax receivable The detail of the receivable taxes as at December 31, 2009, December 31, 2008 and January 1, 2008, is as follows: Detail ThUS$ ThUS$ ThUS$ VAT fiscal credit (Remnant) 104,779 89,326 74,838 Taxes FEP Law D.A 1,668 16,559 23,625 Credit FEPP Law ,082 89,940 Custom duties 3,105 4,290 16,492 Monthly Provisional Payments 11,160 34, ,533 Recovery of first category income tax 40,915 82,676 - Other foreign taxes 17,559 11,081 16,176 Other taxes 4,114 4,370 28,873 Total 183, , ,477 e) Income tax payable The detail of the receivable taxes as at December 31, 2009, December 31, 2008 and January 1, 2008, is as follows: Detail ThUS$ ThUS$ ThUS$ VAT fiscal debit 2,171 5,586 6,425 Specific tax on Diesel 6,856 12,631 - Specific tax on fuel 17,169 28,339 19,978 Taxes FEPP Law ,591 - Withholding taxes 3,359 1,502 7,446 Subsidy Eastern Island Other foreign taxes ,574 Income tax ,849 41,182 Other taxes 2,783 5,731 5,272 Total 32, ,510 85,182 F-212

337 f) Results and tax rates ThUS$ ThUS$ INCOME (LOSS) BEFORE TAXES 122,731 (1,186,237) TAX EXPENSES RATE 17% 73, ,925 Tax 17% 4,845 73,174 Deferred tax 75,481 56,928 Foreign tax (7,139) (22,177) INCOME (LOSS) AFTER TAXES RATE 17% 195,918 (1,078,312) TAX EXPENSES LAW DECREE % (41,286) 116,160 Income tax (9,912) 77,092 Deferred tax (31,374) 39,068 INCOME (LOSS) AFTER TAXES RATE 40% 154,632 (962,152) INCOME FROM DISCONTINUED OPERATIONS 45,751 6,647 INCOME (LOSS) 200,383 (955,505) MINORITY INTEREST (4,460) (4,855) NET INCOME (LOSS) FOR THE YEAR 195,923 (960,360) The net income of ENAP as at December 31, 2009 and 2008, after taxes of 17%, amounts to ThUS$195,918 and ThUS$1,078,312, respectively, which in addition to the revenues for discontinued operations in the same periods of ThUS$45,751 and ThUS$6,647, respectively, result in a final net income of US$241,669 for the year 2009, in comparison to the loss of ThUS$(1,071,665) in the year F-213

338 24. BALANCES AND TRANSACTIONS WITH RELATED COMPANIES The accounts receivable, accounts payable and transactions with related parties are the following: a) Accounts receivable Tax Number Company Description of the transaction Nature of the relationship Currency Current N ThUS$ ThUS$ ThUS$ ThUS$ 0-E Primax S.A. Sale of product Affiliated US$ 20,714 20,566 22, Petropower Energia Ltda. Sale of service Affiliated US$ 8,099 16, Norgas S.A. Sale of product Affiliated US$ 1,992 1,564 1, GNL Quintero S.A. Sale of land Affiliated US$ 6,646 73, K GNL Chile S.A. Trade checking account Affiliated US$ 20,845 1,138 3, Gas de Chile S.A. * Trade checking account Affiliated US$ Empresa Nacional de Geotermia S.A. Trade checking account Affiliated US$ Innergy Holding S.A. Trade checking account Affiliated US$ , Geotermica del Norte S.A: Trade checking account Affiliated US$ Oleoducto Trasandino Chile S.A. Trade checking account Affiliated US$ E Gaseoducto del Pacifico Argentina S.A. Trade checking account Affiliated US$ 3,831 0-E Golfo de Guayaquil Petroenap Compañía de Economia Mixta Trade checking account Affiliated US$ SK Inversiones Petroquimicas Trade checking account Relationship through SPE US$ K Foster Wheeler Ibera Trade checking account Relationship through SPE US$ Man Forrestal AG. Chile Trade checking account Relationship through SPE US$ - 1, Fundación Europea Trade checking account Relationship through SPE US$ Inversiones Concon S.A. Trade checking account Relationship through SPE US$ Total 57,009 48, ,992 12,964 b) Accounts payable Tax Number Company Description of the transaction Nature of the relationship Currency Current N ThUS$ ThUS$ ThUS$ ThUS$ 0-E Primax S.A. Trade checking account Affiliated US$ 13, Oleoducto Trasandino S.A. Purchase of product Affiliated US$ Petropower Energía Ltda. Purchase of service Affiliated US$ Compañía Latinoamerica Petrolera S.A. Trade checking account Affiliated US$ Geotermica del Norte S.A. Purchase / Sale of currencies Affiliated US$ GNL Quintero S.A. Trade checking account Affiliated US$ K GNL Chile S.A. Trade checking account Affiliated US$ 14, Sigdo Koppers S.A. Purchase of service Relationship through SPE US$ 3-22 Total 27, ,697 - The balances and transactions with related parties are adjusted to the established in Article 89 of Law No , which establishes that the operations between investees, between the parent company and its subsidiaries, and those performed by a publicly traded company have to consider arm s length conditions, which means, performed under conditions of mutual independence between the parties. F-214

339 c) Transactions with related parties Tax Number Company Nature of the Description of the relationship transaction ThUS$ ThUS$ Empresa Nacional del Geotermia S.A. Affiliated Sale of services Capital contribution 2,685 Reimbursement of expenses Geotermica del Norte S.A. Affiliated Reimbursement of expenses 431 Capital contribution 12,116 Interests 342 O-E Gasoducto del Pacifico Argentina S.A. Affiliated Dividend 4,151 O-E Primax S.A. Affiliated Sale of products 190, , Innergy Holding S.A. Affiliated Purchase of natural gas 15,948 11, Oleoducto Trasandino Chile S.A. Affiliated Purchase of services 3,572 3,048 Decrease of capital 5, Norgas S.A. Affiliated Sale of products 44,234 46,865 Dividend 1, Petropower Energia Ltda Affiliated Purchase of services 82,963 62,036 Dividend 1, GNL Quintero S.A. Affiliated Borrowing 6,637 Payment of borrowing 6, k GNL Chile S.A. Affiliated Purchase of natural gas 50,065 - Borrowing 562 Interests 46 d) Remunerations of the Board of Directors Board of Directors of the Parent Company Position ThUS$ ThUS$ Santiago González Larraín Chairman - - Carlos Alvarez Voullieme Vice-chairman - - Rodolfo Krause Lubascher Director 15 8 Miguel Moreno García Director Iván Pérez Pavez Director Eduardo González Yáñez Director 3 17 Jorge Matute Matute Director Radovan Razmilic Director - 7 Gustavo Cubillos Director - 3 Ramon Jara Ayara Director - - Axel Juan Christensen de la Cerda Director 5 - Total The accrued compensation for key management personnel amounts to ThUS$2,777 for the year-ended December 31, 2009 (ThUS$1,942 for the year-ended December 31, 2008). This compensation includes the salaries and an estimate of the short-term benefits (annual bonus) and severance payments paid to the key executives that provided services durin the informed years. The positions considered in the amounts informed correspond to the 10 senior executives of the ENAP Group, including the General Manager of ENAP and the executives that report directly to him during the reported years. F-215

340 Incentive plans for key personnel ENAP has a Variable Remunerations System (VRS) that is applicable to all its executives, with the sole exception of the General Manager. The purpose of this system is to encourage them to add value to the company, improvement the teamwork and the individual performances. The factors considered in this model for the determination of the incentive are the following: The financial results obtained by the company: The results per area, which shows the compliance level of goals achieved for each of the managements of the company, and The individual results, which shows the compliance percentage of the goals assigned to each executive. F-216

341 25. GUARANTEES COMMITTED WITH THIRD PARTIES a. Direct guarantees Empresa Nacional del Petróleo Creditor of the guarantee Name Debtor Relationship Description Type of Guarantee Release of guarantee and following ThUS$ ThUS$ Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Guarantees the adequate execution of works, crossing highway 255, km 56.5 with collector 12 3/4, San Gregorio with maturity in December 2010, for UF 100 Performance Bond 4 Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Guarantees the adequate execution of works, crossing highway 255, km 56.5 with collector 12 3/4, San Gregorio with maturity in December 2010, for UF 50 Performance Bond 2 Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Adequate execution of work "Temporary access to exploration well tropilla F, on highway 255-ch, with maturity in December 2009, for UF 170 Performance Bond 7 Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Guarantees adequate application of work "Temporary access to exploration well tropilla F, on highway 255-ch with maturity in December 2010, for UF 40 Performance Bond 2 Dirección General de Aeronáutica Civil Empresa Nacional del Petróleo Parent Company Guarantees concession at "Aeropuerto Mataveri" at Eastern Island", with maturity in January 2010 for UF 1,452. Performance Bond 60 Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Guarantees adequate application of the signals on the works of the temporary access to exploration well Dorado, with maturity in March 2010, for UF 120 Performance Bond 5 Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Guarantees adequate execution of work "Temporary access to exploration well Dorado, with maturity in March 2010, for UF 200 Performance Bond 8 Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Guarantees the faithful compliance of the orders of the fiscal inspector of the works for the temporary access to the exploration well Dorado, with maturity in March 2010, for UF 120. Performance Bond 5 Dirección Regional de Vialidad, Región de Magallanes y Antártica Chilena. Empresa Nacional del Petróleo Parent Company Civil liability in the execution of the works, temporary access exploration well Dorado, with maturity in March 2010, for UF 200. Performance Bond 8 Dirección General del Territorio Marítimo Empresa Nacional del Petróleo Parent Company Cost of withdrawal of works and construction, with maturity in March 2010, for ThUS$ 33. Performance Bond 33 BG LNG Trading LLC-GNL Empresa Nacional del Petróleo Parent Company Credit letter Credit letter 12,155 BG LNG Trading LLC-GNL Empresa Nacional del Petróleo Parent Company Guarantees the purchase of liquid natural gas, issued by Banco Santander, matures on September 30, Credit letter 1,403 F-217

342 b. Direct guarantees Subsidiaries Creditor of the guarantee Description Type of Guarantee Chilquinta Energía S.A. Con Guarantees fecha 2 the de correct junio de use 2005, of an la advance Sociedad ha Boleta de Garantía MUS$ INNOVA Chile payment granted in relation to project "Biocomsa S.A.", granted by Banco Chile, valid until April 26, Performance Bond ThUS$1.380 Release of guarantees 2011 and 2010 following INNOVA Chile Guarantees the faithful compliance of the agreement - Execution of project "Biocomsa S.A.", granted by Banco Chile, valid until April 26, Performance Bond ThUS$62 Dirección General del Territorio Marítimo y de Marina Mercante Guarantees the good preservation conditions of the fiscal improvements, issued by Banco Santander, valid until June 1, Performance Bond ThUS$0.8 Dirección de Viavilidad región del Maule Compliance of signals of maintenance works of oil pipeline on highways k-25 and k-215, district of Rio Claro Performance Bond ThU$1 Dirección de Viavilidad región del Maule Adequate execution of maintenance works of oil pipeline on highways k-25 and k-215, district of Rio Claro Performance Bond ThU$4 Dirección de Viavilidad región del Maule Compliance of signals of maintenance works of oil pipeline on highway L-255, district of Yerbas Buenas Performance Bond ThU$1 Dirección de Viavilidad región del Maule Adequate execution of maintenance works of oil pipeline on highway l-255, district of Yerbas Buenas Performance Bond ThU$4 F-218

343 c. Indirect guarantees Empresa Nacional del Petróleo Creditor of the guarantee Methanex Debtor Name Enap Sipetrol Argentina S.A. Relationship Subsidiary Description Type of Guarantee Committed assets Type Book Value Guarantees compliance with obligations of Sipetrol in the Sales Contract of Gas between Sipetrol/YPF- Methanex (equivalent to 30% of the contract). The remaining obligation amounts to SCM(9300 Kcal/m3), at a base price of 0.75 US$/MMBtu (scale with the methanol price) and with a maximum validity until Severally liable (*) Petropower Energía Ltda. Petropower Energía Ltda. YPF y Panamerican Bank KfW Enap Refinerías S.A. Enap Refinerías S.A. Innergy Holding S.A. Eteres y Alcoholes S.A. (Etalsa) Subsidiary Subsidiary Subsidiary Subsidiary Bank KfW Petrosul S.A. Subsidiary Guarantees the obligations of Enap Refinerías S.A. in the Processing Contract signed with Petropower, valid until The guaranteed obligation consists in the payment of processing services for an annual amount of approximately ThUS$18,000. Guarantees the obligations of Enap Refinerías S.A. in the different contracts signed regarding the project Petropower ( (i) Capital Contribution Contract in the company (15% of ownership), (ii) Usage Contract of land for the project and (iii) Indemnity Contract in case of negligent or fraudulent actions or ommissions by Enap Refinerías S.A.). The obligation to make a capital contribution has been complied already, the other obligations can not be assessed in money in an anticipated manner. The validity of the guarantes expires in Severally liable (*) Severally liable (*) Guarantees the compliance of the obligations of Innergy in the Gas Purchase Contract with YPF- Bridas - Pluspetrol. The total contractual obligation was originated in 2004 and is valid until The 25% to which the guarantee could increase is equivalent to ThUS$6,000 as at 2004, with an annual readjustment up to ThUS$12M in 2019; which is subject to the actual submittal of gas on behalf of the creditors of the guarantees. Severally liable (*) Pledge on shares of Etalsa S.A. owned by ENAP to guarantee the repayment of credit obtained to finance the project, which is Pledge of shares 2,087 shares de Etalsa (*) valid until Pledge on shares of Petrosul S.A. owned by ENAP to guarantee the repayment of credit obtained to finance the project, which is Pledge of shares 1,579 shares of Petrosul S.A. (*) valid until Bank BNP Paribas Productora de Diesel S.A. (Prodisa) Subsidiary Pledge on shares of Productora de Diesel S.A. owned by ENAP to guarantee the repayment of credit obtained to finance the project, which is valid until Pledge of shares 2.,219,987 shares of Productora de Diesel S.A. (*) Société Généralé Compañía de Hidrogeno del Bío Bío S.A. Subsidiary Pledge on shares of Compañía de Hidrogeno del Bío Bío S.A. owned by ENAP to guarantee the repayment of credit obtained to finance the project, which is valid until Pledge of shares 50,000 shares of Compañía de Hidrogeno del Bío Bío S.A. (*) Bank BNP Paribas Energía Concón S.A. (ENERCON) Subsidiary Pledge on shares of Energía Concón S.A. owned by ENAP to guarantee the repayment of credit obtained to finance the project, which is valid until Pledge of shares 176,749 shares of Energía Concón S.A. (*) F-219

344 d. Indirect Guarantees Enap Refinerías S.A. Creditor of the guarantee Debtor Description Committed assets Release of guarantees Relationship Guarantee Type of 2010 and Name Type Book Value Assets following Bank KfW Petrosul S.A. Subsidiary Pledge of shares in Petrosul S.A. owned by ENAP Refinerías S.A., to guarantee repayment of credit obtained for funding of project for ThUS$20,921, current up to year Pledge of shares 3,160 shares of Petrosul S.A. (*) 3,160 shares of Petrosul S.A. Bank KfW Pledge of shares in Etalsa S.A. owned by ENAP Refinerías S.A., to Eteres y guarantee repayment of credit Alcoholes S.A. Subsidiary obtained for funding of project for (Etalsa) ThUS$30,500, current up to year Pledge of shares 2,087 shares of Etalsa (*) 2,087 shares of Etalsa Bank BNP Paribas Productora de Diesel S.A. (Prodisa) Subsidiary Pledge of the Productora de Diesel S.A. shares owned by ENAP Refinerias S.A., guaranteeing the Pledge of shares payment of the loan obtained to finance the project for ThUS$110,451 current up to year ,769,953 shares of Prodisa (*) 7,769,953 shares of Prodisa Société Généralé Compañía de Hidrogeno del Bío Bío S.A. Subsidiary Pledge of the Compañía de Hidrógeno del Bío Bío S.A. shares owned by ENAP Refinerías S.A., guaranteeing the payment of the loan obtained to finance the project until Pledge of shares 50,000 shares of Compañía de Hidrogeno del Bío Bío S.A. (*) 50,000 shares of Compañía de Hidrogeno del Bío Bío S.A. Citigroup Energía Concón S.A. (ENERCON) Subsidiary Pledge of the Energía Concón S.A. shares owned by ENAP Refinerias S.A., guaranteeing the payment of the loan obtained to finance the project until Pledge of shares 318,148 shares of Energía Concón S.A. (*) 318,148 shares of Energía Concón S.A. (*) The release of these guarantees is associated to the compliance of the contracts that originated them. F-220

345 e. Indirect Guarantees Enap Sipetrol S.A. Creditor of the guarantee EGAS Description Guarantee for the minimum exploration obligation for Area 2- Rommana in Egypt. Maturity Committed assets Release of guarantees Type Book Value Type of date Assets Assets Guarantee ThUS$ ThUS$ ThUS$ ThUS$ MUS$ Stand by Indirect 10,000 10,000 - EGAS Servicio de Rentas Internas Ecuador Guarantee for the minimum exploration obligation for Area 8- Side ABD El Rahaman in E. Guarantee for 10% of complaint for incorrect payment in 2005 Stand by Indirect 11,700 11,700 - Guarantee for immediate collection Direct Servicio de Rentas Internas Ecuador Servicio de Rentas Internas Ecuador Guarantee for 10% of complaint for incorrect payment in 2004 Guarantee for 10% of complaint for incorrect payment in 2003 Consejo nacional Guarantee the obligations of Enap Sipetrol de electricidad SA Consejo nacional Guarantee the obligations of Enap Sipetrol de electricidad SA Consejo nacional Guarantee the obligations of Enap Sipetrol de electricidad SA 26. CASH AND CASH EQUIVALENTS Guarantee for immediate collection Direct Guarantee for Abierta Direct immediate collection Insurance Policy Direct Insurance Policy Direct Insurance Policy Direct As at December 31, 2009, December 31, 2008 and January 1, 2008 this item is composed as follows: ThUS$ ThUS$ ThUS$ Cash 42,006 40,515 73,327 Bank 32,923 45,448 29,375 Mutual funds ,156 Time and overnight deposits 1,560 7,913 18,556 Agreements ,583 - Total 76, , ,414 Currency ThUS$ ThUS$ ThUS$ Cash and cash equivalents US$ 12,855 81,320 34,503 Cash and cash equivalents AR$ 6,922 4, Cash and cash equivalents UK Cash and cash equivalents $ 56,979 64, ,880 Total 76, , ,414 F-221

346 27. LAWSUITS AND COMMERCIAL COMMITMENTS The Parent Company and its subsidiaries have not accrued provisions for contingent liabilities, because in the opinion of management, the various lawsuits described next do not represent, neither individually nor combined, any contingency of significant loss for the Company. Lawsuits: a. The Parent Company has the following lawsuits. ENAP with Solo de Zaldívar María Isabel. Case No of the Civil Court of Porvenir, claim regarding the constitution of mining right-of-ways over wells, pipelines, facilities, etc., existing at the Estate Bahía Lomas, indicated in compliance with the established in the case on the statement of acquisition prescription of right-of-ways mentioned in number 1 of this report; the case is in evidence stage, and suspended until November 18, The parties are negotiating a possible partial transaction of the lawsuits, amount: ThUS$5,111. ENAP with Ricardo Covacevich Cvitanich, Case No of the Civil Court of Porvenir. Claim regarding the constitution of transitory mining right-of-ways on the land of the defendant for the execution of the seismic exploration project in Tierra del Fuego. Status: The provisory use of the right-of-ways has been authorized. The notification of the lawsuit is still pending. Corpbanca with ENAP, Case No , 3 rd Civil Court of Punta Arenas, sued for executive lawsuit, collection of invoices allegedly not paid by ENAP, ceded by the contractor of ENAP to the plaintiff, the invoices do no appear as received or recorded at ENAP, lawsuit has been notified, amount ThUS$186. Solo de Zaldívia María Isabel with Empresa Nacional del Petróleo, Case No. 6486, 10º Civil Court of Santiago. (Case No. at the High Court No ). Lawsuit claiming a remediating action towards the environment together with a claim for a damage indemnity due to environmental damages, both in compliance with Law In addition, a claim for indemnity damages in compliance with the general condition of extracontractual civil liabilities. The final first instance sentence has been passed, rejecting all filed proceedings. The resources of annulment based on violation of procedure or violation of law as well as the appeal of the plaintiff were rejected by the Court of Appeals of Santiago. The plaintiff has filed an annulment petition at the Supreme Court. This proceeding is currently waiting for its resolution. The amount is of ThUS$24,847. Nicky Radonich Morrison with Empresa Nacional del Petróleo, Case No , 2nd Civil Court of Punta Arenas. Lawsuit for damages due to extracontractual responsibility caused by an accident in which a driver and a vehicle of ENAP participate. The responsibility was established based on the sentence of the local police judge, lawsuit was notified, amount ThUS$5. F-222

347 Juan Ernesto Subiabre Torres with Empresa Nacional del Petróleo, Case No , 2nd Civil Court of Punta Arenas, lawsuit demands extinctive prescription statement of mortgage loan from 1982, lawsuit was notified, amount is undetermined. Cardenas Alvarez Manuel Antonio with ENAP, Case No , 3º Civil Court of Punta Arenas. Matter: Indemnity for damages: Lawsuit for moral damages of a former employee who suffered a labor accident and to whom ENAP did not provide, during a period of 11 years, the benefits of Article 29 of Law Status: The evidence stage has expired. The plaintiff requested the summons of the parties to hear the sentence, to which ENAP requested a statement of abandonment of the proceeding. This case is currently filed and its resolution is pending, amount ThUS$69. Alderete with Haro and ENAP, Case No /2006, 1st Civil Court of Punta Arenas. Claim for damages indemnity due to infringement of Law The court decided to separate both proceedings: The claim against the Social Worker (in order to continue in conformity with the ordinary proceeding) and the claim filed against ENAP (in order to continue with the summary proceeding). ENAP appealed to the Court s resolution and the Court accepted our appeal establishing that both proceedings shall be resolved in a single trial under the ordinary proceeding. The Social Worker still has to be notified in order to answer the claim. Cause has been filed. F-223

348 Américo Almzarza Gallardo with ENAP, Case No , 1st Civil Court of Punta Arenas, due to the non-compliance of contract with damage indemnity and environmental damage with damages indemnity. The procedural defense is accepted, the effects of the lawsuits for the spill have been rectified. The case enters the evidencing period, amount ThUS$1,108. Empresa Nacional del Petróleo with Cerantes Vidal Mónica, RIT O , Labor Court of Punta Arenas, lawsuit for removing her maternity rights; after the communication of the pregnancy condition of the employee on fixed term, the Company started legal proceedings for removing her maternity Rights on December 3, 2009, at the corresponding court to obtain the corresponding authorization to terminate the contract upon its expiration, which is February 17, 2010; the sentence authorizes putting an end to the contract, but only after the post-birth legal period has expired. Espinoza Pacheco Luis with Protec Austral limitada and Other. Case No , Labor Court of Punta Arenas, regarding the adequate payments after the termination of the labor relationship (substitutive indemnity for previous notification, years of service, surcharge and vacations). Claim of former employee of the contractor company against the employer in bankruptcy and solidarily against ENAP and Geopark, both as main companies. The preparatory hearing has been established for March 8, 2010, amount: ThUS$4. Ramos Zamora Ines del Carmen with ENAP, Case No , 2nd Civil Court of Punta Arenas, for damages indemnity. Spouse, children, live-in partner of José Raúl Segundo Alvarez Domínguez, former employee of ENAP dies in a car accident, claim moral damages and loss of future earnings due to the death of the spouse, father, and live-in partner, respectively. First instance sentence rejects the complete claim. The plaintiffs present an appeal, whose resolution is still pending, amount: ThUS$375. PIPESA S.A. with ENAP, Case No , Arbitiration Court of the Arbitration Center of the Santiago Chamber of Comerse due to damage indemnity. A contractor to whom ENAP entrusted the construction of a gas pipeline, is sueing ENAP in an arbitration lawsuit regarding the equity effects and alleged damages caused by the delay of the execution of the entrusted work to the Contractor, allegedly due to reasons attributable to ENAP-. The first instance sentence accepts the claim, and it only orders the payment by ENAP for damages cuased in the amount of ThUS$208. An appeal has been presented against this 1 st instance sentence issued by the Arbitrator Judge at the corresponding arbitration court. The resolution of the appeals is still pending, amount: ThUS$2,772. Empresa Nacional del Petróleo with Violic Limitada Case No , Second Civil Court of Punta Arenas, executive Chaim, started by preparatory proceedings, Case No of the same Court. Claim has been notified. Embargo has been requested. Debtor deposited Ch$750,000 in the checking account of the Court, amount ThUS$5. Marcelo Antiñanco Oyarzún with VHF Ingenieros S.A., Case No. O Labor Court of Punta Arenas., claim for indirect firing, payment of remunerations, social security payments, substitutive indemnity for previous notification, severance payment, legal vacations and return of discounts. Claim of 109 former employees of the contractor company against the employer, other members of the holding and solidarily against ENAP as the main company; preparation hearing established for February 16, F-224

349 Pedro Muñoz Aros with Protec Austral Ltda., and others, Case No. O Labor Court of Punta Arenas., claim for indirect firing, and substitutive indemnity for previous notification and severance payment. Surcharge and remunerations pending. Claim of former employee of the contractor company against the employer, and solidarily against ENAP as the main company; final first instance sentence condemns ENAP to pay only as supporting company, for a limited period of time. An annulment petition was presented for the main claim, its acceptance and resolution is still pending. ENAP with Pedro Antonio Mihovilovic Kuzmanic and other, Case No. 86/2007 of the Third Civil Court of Punta Arenas. Claim regarding the constitution of transitory mining right-ofways in the estate of the defendants for the execution of a seismic exploration project in the continental area of Magallanes, the provisory use of the right-of-ways has been authorized. The notification of the Chaim to one of the owners is still pending. The works have been executed and the case has been filed. ENAP with Sociedad Ganadera Canal Tortuoso Ltda, Case No. 46/2007 of the Third Civil Court of Punta Arenas. Claim regarding the constitution of transitory mining right-of-ways in the estate of the defendants for the execution of a seismic exploration project in the continental area of Magallanes, the provisory use of the right-of-ways has been authorized. The notification of the lawsuit to one of the legal representatives of the Company is still pending. The works have been executed and the case has been filed. The Company is being sued solidarily in 25 lawsuits related to the bankruptcy of the companies VHF Ingeniería y Derechos S.A., VHF Renta Equipos Ltda., VHF Ingenieros S.A., the matter of this cause is the injustified firing, collection of service renderings, indemnity, the amount of all cases is of ThUS$124. Claims for the lack of payment of invoices for gas sales. Currently, ENAP has filed 13 lawsuits in its favor related to the lack of payment of invoices by clients in the amount of ThUS$57. Lawsuits Spill San Vicente: There are 11 claims in the total amount of ThUS$89,128 corresponding to the damages indemnities for the extracontractual obligation regaring the oil spill incident occurred on May 25, Sued in labor lawsuits: 5 claims, of which 2 correspond to subsidiary and/or solidarily liability in the amount of ThUS$2, the other 3 correspond to direct lawsuits of ENAP for an undetermined amount as of this dateas the lawsuits are still in their preliminary stages. Sued in civil lawsuits: 4 cases, of which 2 are in favor of ENAP in the amount of ThUS$5,520 and the other 2 claims are against ENAP in the amount of ThUS$138. Sued in right-of-ways lawsuits: 2 claims, for an undetermined amount as the lawsuits are still in their preliminary stages. F-225

350 Other Lawsuits: Criminal lawsuit against Julio Enrique Rojas Peñaloza, Case No , Fraud crime against the Chilean Treasury due to situations prior to July 16, This lawsuit is accumulated to the lawsuit presented by the District Attorney, for the same situations mentioned above, ocurred after June 16, First instance, summary stage. Amount: ThUS$3,832. Opposition to the registration of the brand Magallanes, ENAP as habitual user of the name ENAP Magallanes, presents an opposition on June 8, 2008, to the registration request of the brand Magallanes requested by Mr. Miguel Leigthton Puga, first instance, discussion stage. There exists 4 petitions at the Court of Appeals filed by ENAP against the Labor Board, Walter Emmont Ronfeld, Sociedad Ganadera Tehuel Aike Limitada and other and Superintendencia de Seguridad Social [Social Security Superintendence], the amounts have not been determined yet. b. Subsidiaries Enap Refinerías S.A. (ERSA) Sued in labor lawsuits: 35 lawsuits, from which 11 of them involve subsidiary liability for a total of ThUS$637 (6 of these are undetermined), 2 lawsuits deal with simulated contracts or legal acts and amount to ThUS$904; 8 cases were filed claiming an indemnity for work accidents in the amount of ThUS$1,110; 13 cases were filed claiming the rendering of labor services in the amount of ThUS$322 (8 of these claims are still undetermined). Sued in civil lawsuits: 4 lawsuits, one claiming a damages indemnity due to the death of an employee in the amount of ThUS$947; 1 claiming civil damages due to unjustified termination in the amount of ThUS$394; 1 for collection of fees in the amount of ThUS$38 and 1 for the appointment of an arbitrator, undetermined amount.. Plaintiff in criminal lawsuit: One lawsuits in the amount of ThUS$375. Plaintiff in a tax lawsuit: Tax liability for Empresa Almacenadora de Combustibles S.A. (EMALCO), a company merged with Enap Refinerías S.A., due to differences affected by a tax rate of 35% as disallowed expenses of ThUS$342. c. Enap Sipetrol S.A. and foreign subsidiaries c.1 Enap Sipetrol Argentina S.A. c.1.1 Process for determining taxes due (VAT) 1. Argentine Tax Court, Room C, Eight Speaker Office, Case N 21,248-I, Sipetrol Argentina S.A. vs. DGI, Appeal. The investigated period runs from October 1997 to December 1998; appeal filed February 20, F-226

351 The amount is of ThUS$45 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 2. Argentine Tax Court, Room A, Second Speaker Office, Case N 24,357-I, Sipetrol Argentina S.A. w/ DGI without Appeal VAT fine, period observed Apirl, July and August The amount is of ThUS$220 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a collection guarantee of the total amount, the AFIP established a preventive embargo of the Company under file /05 which is processed in the First Instance Court for contentious Administrative Proceedings No. 4, Secretary No. 8 of the Federal Capital. This measure has been appealed by the Company. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 3. Argentine Tax Court, Room D, Twelfth Speaker Office, Case N I, Sipetrol Argentina S.A. w/ DGI without Appeal, period observed June to December The amount is of ThUS$8 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. F-227

352 4. Argentine Tax Court, Room C, Eight Speaker Office, Case N , Sipetrol Argentina S.A. w/ DGI without Appeal, period observed January to December The amount is of ThUS$16 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 5. Argentine Tax Court, Room D, Twelfth Speaker Office, Case N I, Sipetrol Argentina S.A. without Appeal, period observed January to December The amount is of ThUS$44.7 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 6. Argentine Tax Court, Room A, Second Speaker Office, Case N I, Enap Sipetrol Argentina S.A. without Appeal, period observed January 2002 to December The amount is of ThUS$388 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. F-228

353 Enap Sipetrol Argentina S.A. - YPF S.A. UTE Magallanes 1. Argentine Tax Court, Room B, Fifth Speaker Office, Case N I, Sipetrol Argentina S.A.-PF S.A. UTE Magallanes with DGI without Appeal, period observed June to December The amount is of ThUS$158 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 84 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 2. Argentine Tax Court, Room C, Ninth Speaker Office, Case N , Sipetrol Argentina S.A.-YPF UTE Magallanes w/ DGI without Appeal, period observed January to December The amount is of ThUS$1,513 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 84 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 3. Argentine Tax Court, Room C, Seventh Speaker Office, Case N , Sipetrol Argentina S.A.-YPF UTE Magallanes w/ DGI without Appeal, period observed January to December The amount is of ThUS$628 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. F-229

354 Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 84 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. 4. Argentine Tax Court, Room a, Twelfth Speaker Office, Case N , Sipetrol Argentina S.A.-YPF UTE Magallanes w/ DGI without Appeal, period observed January 2002 to December The amount is of ThUS$1,098 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 84 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. Enap Sipetrol Argentina S.A. - YPF S.A. - UTE CAM 2/A Sur. 1. Argentine Tax Court, Room A, First Speaker Office, Case N , Sipetrol Argentina S.A.-YPF SA UTE CAM 2/A SUR, period observed January 2003 to December The amount is of ThUS$1,272 and corresponds to the total regularized as of the date of the Tax Moratorium, and included claimed capital, capitalized and compensating interests net of reduction benefits and interest for refinancing for the installments. Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. F-230

355 As a consequence of having accepted the Tax Moratorium established by Law we obtained a reduction of interests, the elimination of fines, and we need to repay only the claimed capital (debt) in 120 installments at a beneficial interest rate. With such presentation this proceeding will be considered as files, as long as all the installments are actually being paid. Pending is still the regulation of the fees (expenses) for the professionals involved, which the administration will appeal in due time. c.1.2 Custom Fees Enap Sipetrol Argentina S.A. 1. Dirección General de Aduanas de Río Gallegos Expdte , establishes a charge due to differnces of export rights in the amount of ThUS$3,95. On September 24, 2009 was presented an Challeng rsource. Since October 2, 2009 in evidencing stage. 2. Argentinean Tax Court, Case No A, trial to determine the supplementary liquidations of export taxes, date of appeal April 11, 2007, amount ThUS$1, On September 24, 2009, the Argentinean Tax Court pronounced its sentence, establishing unanimously: Revocation of Resolution No. 13/07 (AR RIGA) and, consequently, the charges 54 to 65 all belonging to 2004, at their own expenses. The Company appealed to the sentence of the Argentinean Tax Court in relation to the determination of the Expenses on their Behalf. 3. Argentinean Tax Court Dirección, Case No A (Claim Dirección General de Aduanas de Río Gallegos. Case No ), trial to determine the supplementary liquidations of export taxes, in the amount of ThUS$3, Against the resolution that decides to confirm the challenged charges, on June 4, 2009 was presented the appeal at the Argentinean Tax Court. On December 22, 2009, the DGA answered the appeal. 4. Argentinean Tax Court Dirección, Case No A (Claim Dirección General de Aduanas de Río Gallegos Case No ). In these cases the Official Bulletin published on September 21, 2006 and October 25, 2006 a list of pre-adjustments at the applicable value in conformity with Article 748 inc. b) of the Customs Code, claimed amount ThUS$3, Against the resolution that decides to confirm the challenges charges, was presented on June 4, 2009 an appeal at the Argentinean Tax Court. 5. Dirección General de Aduanas de Río Gallegos, Case No. SIGEA trial to adjust the export liquidations corresponding to the custom charges No. 02 to 07, in the amount of ThUS$ On May 15, 2009 was presented an appeal to challenge these charges. 6. Dirección General de Aduanas de Río Gallegos. Case No (Challenged 02/2007), trial to adjust the export liquidations corresponding to the custom charges No. 126 to 130 in the amount of ThUS$ On June 3, 2009 was presented an appeal to challenge these charges. F-231

356 7. Dirección General de Aduanas de Río Grande, Province of Tierra del Fuego. Case No. DGA /2009, trial to adjust the export liquidations corresponding to the custom charges No. 13 to 15 in the amount of ThUS$9.7. On June 3, 2009 was presented an appeal to challenge these charges. 8. Dirección General de Aduanas de Río Grande, Provincia de Tierra del Fuego. Case No. DGA , trial to adjust the export liquidations corresponding to the custom charges No339/07 to 397/07, in the amount of ThUS$5, On January 7, 2010 was presented an appeal to challenge these charges. 9. Dirección General de Aduanas de Río Gallegos, Provincia de Santa Cruz. Case No.. DGA Adjustment of export liquidations corresponding to the custom charges No. 31 / 2009, claimed amount ThUS$9. The period to present an appeal to challenge this as defense is still pending. Enap Sipetrol Argentina S.A. - YPF S.A. - UTE Magallanes 1. Dirección General de Aduanas de Río Gallegos. Case SIGEA N /06, ( , /06, SICOEX , Case /04). In relation to case No of the Ministry of Economy and Production (Res. MEyP N 101/207), process to determine the import taxes of merchandise to Territorial Sea in conformity with the established in the regulation of Decree 679/99. On July 20, 2005 was filed an Appeal at the Argentinean Ministry of Economy against the resolution of AFIP in the terms of Art. 94 of Law 19,359. The Ministry of Economy of Argentina on November 3, 2009 and through Resolution 246, rejected the appeal and put an end to the administrative proceeding, causing the Provisional Measures to cease their effect. Accordingly, the Customs Service is once again entitled, on one hand, to claim the VAT, and on the other, to apply the indicated verification procedure of merchandise. As of this date there are no tax liquidations. 2. Dirección Provincial de Recursos Hídricos, Consejo Agrario Provincial, Province of Santa Cruz. Note 16/DPRH/2010. Tariff and Fine for Water consumption. The amount is of ThUS$22,783 (Tariff) plus ThUS$864,179 (Fine). The Dirección de Recursos Hídricos de la Provincia de Santa Cruz established a fine due to the lack of presenting monthly spreadsheets of water consumption during the period from January 2006 to November 2009 and requested the payment of the tarif for the m3 of water consumed during such period. The period to present an Administrative Appeal as defense is pending. Enap Sipetrol Argentina S.A. needs to credit 50% of the amount mentioned above in relation to its participation in the UTE Magallanes. The remaining 50% is contributed by its partner YPF S.A. F-232

357 c.1.3 Other litigation - Enap Sipetrol Argentina S.A. 1. Lower Court N 2 for Civil, Business, Labor and Mining Issues of the city of Rio Gallegos. Case N 2.278/04 entitled Haberkorn, Luis Alberto vs. Ultramar Argentina S.A. and Other. Layoff. Labor lawsuit. Plaintiff demands payment of differences regarding the final liquidation. The amount involved is ThUS$10. Enap Sipetrol Argentina S.A. is being sued for subsidiary labor liability. Proceedings at stage where parties may submit evidence. 2. Lower Court N 2 for Civil, Business, Labor and Mining Issues of the city of Rio Gallegos. Case N /08 entitled Cisneros, Maria Cristina vs. Enap Sipetrol Argentina S.A.. Labor lawsuit. The amount involved is ThUS$ The hearing seeking a conciliation of the parties was held (as required by article 47 of law 1444 of Provincial Labor Proceedings). Enap Sipetrol Argentina S.A. answered the lawsuit and requested to submit evidence Lower Court N 2 for Civil, Business, Labor and Mining Issues of the city of Rio Gallegos. Case N 12,492/08 entitled Toledo, Fernando vs. Enap Sipetrol Argentina S.A.. Labor lawsuit. The amount involved is ThUS$37.7. Plaintiff sues Enap Sipetrol Argentina S.A. and YPF S.A. Plaintiff then decided not to sue YPF S.A. The hearing seeking a conciliation of the parties was held (as required by article 47 of law 1444 of Provincial Labor Proceedings). Enap Sipetrol Argentina S.A. answered the lawsuit. Evidence was submitted. 4. Comodoro Rivadavia Lower Labor Court. Single Secretariat. Case N 4540/07 entitled Gomez, Rodrigo Sebastian vs. NYC S.R.L. and Another. Labor lawsuit (Statutory severance indemnity). The amount involved is ThUS$22.4. Plaintiff sues NYC S.R.L. as employer and Enap Sipetrol Argentina S.A. for subsidiary liability. Still in starting and integration stage of the lawsuit. 5. Buenos Aires Lower Labor Court No. 60. Case N 16284/08, Ovando, Abel vs. Servicios Petroleros S.A. and Others. Law 22,250, the plaintiff claims the salary differences, amount is ThUS$5.7. The plaintiff filed an appeal at the Court of Appeals against the first instance sentence which rejected the claim against Enap Sipetrol Argentina S.A. 6. Lower Labor Court of the Southern Legal Area, Comodora Rivadavia. Case No. 5513/09 Cerda Florín del Carmen vs. Key Energy Services S.A. and others. The plaintif claims for salary differences and the final liquidation, in the amount of ThUS$115. Enap Sipetrol Argentina SA is sued for for subsidiary liability. Currently in integration stage of the lawsuit. 7. Lower Labor Court No. 49 of the City of Buenos Aires, Case No. 669/09 Villar, Carlos Alberto vs. Enap Sipetrol Argentina S.A. Matter: Termination amount involved ThUS$238. On July 22, 2009 was notified the labor lawsuit ordering the transfer of the lawsuit for the period of 10 working days. At current is in force the period to answer the claim. The claim was answered, and a reconcilation hearing was held without positive results. The evidence stage was started. F-233

358 8. Lower Court N 2 for Civil, Business, Labor and Mining Issues of the city of Rio Gallegos. Case No /09 entitled Parson Carlos c/ Ingeniería Seibo S.A. and others, amount envolved ThUS$91. The lawsuit is currently in the evidencing stage. 9. Civil and Business Federal Lower Court N 10, Secretariat N 9. Case N 12,500/07 entitled Granson, Pedro and Heirs vs. Enap Sipetrol Argentina S.A.. Easements Plaintiff seeks payment of damages amounting to ThUS$1,210. In the evidencing stage. There exists a preventive embargo in the amount of ThUS$476. This amount is not accumulative in relation to the previously established amount. 10. Dirección General de Rentas del Chubut. Lawsuit to determine officially in conformity to Provision SSC No. 1/2008 the amount of the royalty payment of ThUS$1, On July 2, 2009 was filed a Reconsideration Appeal against such determination. As per the preventive measure pursuing not to innovate sentenced by the Supreme Court of Justice of Argentina (SEE chapter 11 next), for the moment the Provice of Chubut is not allowed to try to collect this claim. 11. Supreme Court of Justice of Argentina, Originating Instance Secretary "Case Enap Sipetrol Argentina SA vs. Province of Chubut. Matter: Action Declaring the Inconstitutionality" Case No. E Enap Sipetrol Argentina S.A. Action to Declare Certainty Preventive measures in the amount of ThUS$1, Considering the intention of the Province of Chubut to collect retroactively the difference of the hydrocarbon royalties timely credited by the company over the actual sales prices obtained by the firm, supported by Provision 1/2008 dated 09/01/2008 (BO 21/01/2008) of the undersecretary s office of Fuel of Argentina, which is in conflict with constitutional guidelines. A legal proceeding was presented for a Certainty Statement at the originating competence of the Supreme Court of Justice of Argentina (Arts. 116 and 117 of the National Constitution), requesting Preventive Measures in order not to Innovate, which would allow continuing with the payment of royalties according to law, until the controversy is substantiated and there exists a final sentence. The Argentinean Supreme Court of Justice declared itself suitable and granted the Company the Preventive Measure not to Innovate. At current the Province of Chubut and the Federal Planning Ministry are being notified. d.2) Ecuadorian Branch Enap Sipetrol S.A. (SIPEC) a Tax Lawsuits c Tax Lawsuits for business year First Room of Tax District Court. Case N filed by PERENCO against the Ecuadorian IRS in connection with income tax in business year In February 2002, SIPEC sold its interest in Blocks 7 and 21. The Ecuadorian IRS launched an audit of blocks 7 and 21. In this case in particular, the Ecuadorian IRS considers that beginning in 2002 the companies should have filed a unified income tax return, but the partners F-234

359 continued to file individual tax returns. To date there is no Tax Court ruling. There is no amount at stake for SIPEC, because in business year 2002 SIPEC posted losses, and would not be affected by taxation. c Tax Lawsuits for business year Second Room of Tax District Court. Case N against Ecuadorian IRS in connection with income tax in business year 2003, filed due to IRS tax assessment No. RNO- ATRADPU Faced with this IRS administrative action, SIPEC filed a tax lawsuit with the District Tax Court on October 28, Through a resolution dated November 27, 2008, the Second Room of the Tax District Court acknowledged the lawsuit and gave the Ecuadorian IRS 20 days to answer it. The claim was answered. The judges of Second Room of Tax District Court performed an accounting inspection proceeding and appointed experts who have already presented their reports, which were observed by the SIPEC. The case was submitted to a new allocation of court and was consequently re-assigned to the Fourth Room of Tax District Court. This Room is currently reviewing the evidence presented,while SIPEC is in process of preparing the written submission. To date, the amount involved, plus interest, is ThUS$ c Tax Lawsuits for business year Administrative Complaint filed with Ecuadorian IRS for audit of business year Through assessment No , of November 27, 2008, the Ecuadorian IRS determined SIPEC s income tax and advances relating to business year 2004, calculating a total of ThUS$ On December 29, 2008, SIPEC filed with the Northern Regional Director of the Ecuadorian IRS. Through administrative resolution No RREC of June 15, 2009 (hereinafter Challenged resolution ), notified to SIPEC on the same date, the Ecuadorian IRS accepted partially the administrative Chaim proponed by SIPEC, accepting a portion of the detail related to Fuels, decreasingit from ThUS$52.4 to ThUS$20.7, ratifying the content of the rest of the detail that were object of challenge and ordering the payment of the allegedly owed tax in the amount of ThUS$2,357, plus interests as of April 17, 2005, up to the payment date, plus the amount of ThUS$471 corresponding to the sanction for surcharge of the determined tax obligation, establishing a total amount of ThUS$2,828. To date, the amount involved, plus interest, is ThUS$3,786. The interests do not cease with the presentation of the challenging claims. On July 13, 2009 SIPEC filed at the Tax Court a challenging claim of the previously mentioned lists, for which it presented a bank guarantee of 10% of the challenged amount. The case has already been assigned to the Second Room of the Tax District Court. On November 11, 2009 was presented the corresponding evidence and for January 27, 2010 has been established the accounting and financial inspection. It is difficult to established accurately the length of the lawsuit or the results of it. F-235

360 2. Third Room of Tax District Court No. 1, Exceptions lawsuits No A, against Metropolitan District Municipality of Quito for tax of 1.5 per thousand on total assets of The amount involved is ThUS$4.0. Through resolution No issued on October 22, 2008, the Tax Financial Metropolitan Director for Quito cancelled the tax assessment. At this date, the Third Room has not pronounced sentence on the request of SIPEC to file the case, according to the previously mentioned resolution. The case was submitted to a new allocation of court and was consequently re-assigned to the Fourth Room of Tax District Court. c Tax Lawsuits for business year Audit of the Hydrocarbons National Bureau (HNB) for business year In 2007 the Hydrocarbons National Bureau started a special audit of the investments, operating costs and expenses, and services rate of the Branch of Sociedad Internacional Petrolera S.A. for business year As a result of this audit, and in spite of the arguments of SIPEC which were only partially accepted, the Hydrocarbons National Bureau concluded that there are non-deductible financial expenses for payment of interest amounting to ThUS$1,744; for excessive posting of income tax amounting to ThUS$191; for excessive calculation of production amortization amounting to ThUS$959,116; for purchase of a PETREL software license amounting to ThUS$60. On a document filed with the secretariat of the Mining and Petroleum Ministry on December 20, 2007, SIPEC presented its objections to the Hydrocarbons National Bureau audit before the Mining and Petroleum Minister, who has not yet issued any reply. The Ministry of Energy and mines cannot impose tax corrections, therefore its reports and conclusions shall serve as reference for any action taken by the Internal Revenue Service, IRS. The IRS has not begun, up to the moment, any process to determine the concepts mentioned in this subheading. In case the IRS accepts the current report of the HNB it could generate a contingency at this date with interests of ThUS$3, Administrative Complaint filed with Ecuadorian IRS for audit of business year 2005 and Lawsuit at the Tax Court for Business Year Through assessment No RREC of September 2, 2009, through which the Regional Director North denied the administrative complaint proponed by ENAP SIPETROL on March 18, 2009, challenged the Act of Determination of Income Taxes for Business year On September 30, 2009, Enap Sipetrol S.A. presented a Chaim challenging the resolution that rejected the administrative complaint filed against the Act of Determination of Income Taxes for Business year The hearing of Lawsuit No will be performed at the Fourth Room of the Tax District Court No.1. On December 20, 2009 was presented the corresponding evidence and for March 23, 2010 has been established the accounting and financial inspection. F-236

361 3. Second Room of Tax District Court No. 1, against Metropolitan District Municipality of Quito for tax of 1.5 per thousand on total assets of The amount involved is ThUS$57. Through resolution No issued on October 22, 2008, the Tax Financial Metropolitan Director for Quito cancelled the tax assessment. As of this date, the Third Room has not pronounced itself on the petition of SIPEC to file the case, in conformity with the previously mentioned resolution. c Tax Lawsuits for business year Through Determination Act , of December 23, 2009, the Ecuadorian IRS determined SIPEC s income tax and advances relating to business year 2006, calculating a total of ThUS$3,475. An administrative complaint will be presented before January 22, 2010, date on which the presentation of this complaint expires. 2. First Room of Tax District Court No. 1, Exceptions lawsuits No , against Metropolitan District Municipality of Quito for tax of 1.5 per thousand on total assets of The amount involved is ThUS$124. Through resolution No issued on October 22, 2008, the Tax Financial Metropolitan Director for Quito cancelled the tax assessment. As of this date, the First Room has not pronounced itself on the petition of SIPEC to file the case, in conformity with the previously mentioned resolution. c Tax Lawsuits for business year First Room of Tax District Court No. 1, Exceptions lawsuits No A, against Metropolitan District Municipality of Quito for tax of 1.5 per thousand on total assets of The amount involved is ThUS$ 104. Through Resolution No issued on October 22, 2008, the Tax Financial Metropolitan Director for Quito cancelled the tax assessment. As of this date, the First Room has not pronounced itself on the petition of SIPEC to file the case, in conformity with the previously mentioned resolution. c.2.2 Labor Lawsuits 1. 4 th Labor Court of Pichincha. Case No. N Tapia Cuji, Marco Antonio vs. SIPEC. Plaintiff claims being owed severance payment of ThUS$33.6 relating to 15% of income of year On October 28, 2008 the judge denied the lawsuit alleging lack of legitimate plaintiff. On November 6, 2008, plaintiff filed appeal at a higher court. The Higher Court in May 2009 ratified the sentence of the lower court. In June 2009 Marco Tapia presented an appeal at the Supreme Court of Justice. Sentence is still pending. 2. 4th Labor Court of Pichincha. Case No. Case N filed by Ricardo Vinicio Garcia Linto against subcontractors URAZUL, ARB, SAE, and SIPEC as contractor. Plaintiff claims being owed severance payment and profits. Documentation was submitted on January 19, Final hearing set for February 12, Amount involved is ThUS$190. SIPEC considers that it is not bound by any contract with the plaintiff. Sentence is still pending. F-237

362 3. 2nd Labor Court of Pichincha. Case No , filed by Mr. Alfredo Moreno against SIPEC, claiming being owed benefits and profits. On October 24, 2008, the Hearing for answering the lawsuit was held, and evidence was submitted. On December 10, 2008, the documentation requested by the plaintiff was exhibited. The final hearing was held on January 9, Amount involved is ThUS$180. In April 2009 was signed an out-of-court agreement for ThUS$120 which were charged to net income of 2008 from the other employees, without this implying a cost for SIPEC. The out-of-court agreement was approved through a legal sentence and the judge filed the case. 4. 2nd Labor Court of Pichincha. Case No filed by Jaidy Jefferson González against subcontractors URAZUL, ARB, SAE, and SIPEC as contractor. Plaintiff claims being owed payment for unjustified layoff, severance payment, and 15% of profits of years 2003 to Conciliation hearing set for May 27, Amount involved is ThUS$120. SIPEC considers that it is not bound by any contract with the plaintiff. In May 2009 the plaintiff relinquished the lawsuit. 5. 2nd Labor Court of Pichincha. Case No filed by Tapia Cuji, Marco Antonio against SIPEC. Plaintiff claims being owed severance payment of ThUS$120.0 relating to 15% of income of year 2007, from January 1 to November 2, Preliminary hearing set for November 30, The Final Hearing was set for September 20, Complaint filed in December 2007, with the Regional Labor Office of Quito. A group of 51 employees of the contractor company SAE, from which SIPEC hired maintenance services, claims being owed 15% of profits of business years 2005, 2006 and The Director of the Regional Labor Office of Quito has started a review to establish whether or not the employees are entitled to the profits they demand. SIPEC has filed all the relevant legal arguments in order to demonstrate that the way the profits from 2005, 2006, and 2007 were distributed was correct, and that the employees in question are not entitled to the earnings they claim. SIPEC even tried to leave on consignment the profits from business year 2007 with the Regional Labor Office of Quito so that it would distribute them appropriately. However, this labor authority did not accept such consignment. On November 21, 2008 the conciliation hearing was held before the Director of the Regional Labor Office of Quito, and the relevant evidence was submitted for inclusion in the proceedings. The Labor Ministry rejected the demand determining that no payment should be made regarding the income for the years 2006 and SIPEC came to an agreement with the employees of SAE through which it paid them revenues from May 1 to 31, 2008, this is as of the validity of the labor mandate 8 and on March 31, 2009 was signed with almost al former employees of SAE a settlement which puts an end to the labor relationships without any further claim. This settlement was signed before the labor inspector of Quito, who guaranteed it. F-238

363 Some of the former employees of SAE presented in May 2009, a complaint at the Labor Inspector of Francisco de Orellana, they are not demanding a specific amount, but only the compliance of the labor obligations. On June 11, 2009, a hearing was held in which SIPEC presented the inadequacy of this claim as there exists already an administrative sentence on this same issue. 7. Civil Court of Orellana.. Special Protective Action Lawsuit Case N , filed by 21 employees of the contractor SAE against SIPEC. Plaintiffs wish to be hired directly by SIPEC. On December 2, 2008 a public hearing was held where the lawsuit was answered. On December 12, 2008, the judge ruled in favor of the plaintiffs and ordered SIPEC to immediately hire them. On December 17, 2008, SIPEC appealed with the Court of Appeals of Sucumbios, which has jurisdiction over Orellana. The Supreme Court of Sucumbios considers that it had no jurisdiction to know the case as there exist other ordinary ways to present the claim. 8. Work Inspector of Orellana. Claim presented by former employees of ECUAMBIENTE. Filed by former employees of the environmental services contractor ECUAMBIENTE. Hearing took place on June 11, 2009, SIPEC argued that these are specialized technical services. It is impossible to predict the progress of this issue or whether it will take political nuances at these are persons belonging to the community. 9. Extraordinary review, Case No DTAJ-09, filed by 86 former employees of SAE, PETROPOWER, among other at the Ministry of Labor Relationships (Technical Board of Legal Advisory). On September 16, 2009, we presented our response to the Extraordinary Review Process and attached several evidence to the process. On October 19, 2009, will be held the Hearing at the Legal Director of the Ministry of Labor Relationships, who has been appointed as a representative of the Minister. On January 15, 2010 the Labor Minister resolved to deny the Extraordinary Review Process and to ratify the Regional Labor Director of Pichincha to be the only labor authority empowered by Mandate 08 to process these causes. c.3 Egypt Appeal filed with the court of appeals of Cairo against sentence passed in lawsuit No. 379/2006 dealing with the voidance of a lease agreement, return of offices, and collection of rentals. The plaintiff is seeking the Company to pay 90 million Egyptian pounds (ThUS$15.0). The appeals filed were reviewed in November 2009 with favorable results for the plaintiff; another session will be held with the technical expert in February Although the Company is not able to make a forecast of the result of the trial, it is highly probable that the sentence will be unfavorable, and therefore the loss has been recognized in the statement of income. F-239

364 d. Commercial Commitments: The Company has the following commercial commitments related to its operations: 1- Petropower Energía Ltda. Upon celebration of the partners agreement between Enap Refinerías S.A. and Foster Wheeler related to the project Petro power in January 2006, Enap Refinerías S.A. granted a liability statement regarding the obligations arising from such agreement. In relation to the project Petropower, the Parent Company entered in 1994 into an agreement committing itself to the payment of an annual processing fee of approximately ThUS$14,700 million for the right to operate its delayed coking and hydrotreatment plant and an annual fee of approximately ThUS$9,900 for the supply of certain energy products. This agreement is subject to annual increases until the expiration of the agreement in Other conditions in the agreement require, in case of a reduction in the annual income defined in the processing contract and business agreements and after the Operator of the plant has contributed 10% of such shortfall that ENAP and its subsidiary Enap Refinerías S.A. participate in 50% and Foster Wheeler in 50% of the balance of such shortfall, which should not exceed ThUS$1,400 per year. In addition, Enap Refinerías S.A. is obligated to either purchase or arrange for the sale of assets of Petropower Energía Ltda. for not less than ThUS$43,000 at the expiration of the agreement (2018) or on any other date agreed by the parties. 2.- Innergy Holding S.A. On June 18, 2009, Innergy Soluciones Energéticas and Enap Refinerias S.A., signed an addendum to the purchase and sales contracts of Natural Gas current as of June 2009, in which are incorporated several modifications and through which are eliminated several obligations. The main changes established in such addendum are the following: a) Enap Refinerías will be forced to pay the transport tariffs of gas both in Chile as in Argentina only for the volumes actually supplied by Innergy. b) Pay export duties and the incremental amount only fo the gas actually supplied by Innergy. c) The take or pay obligation is eliminated of any natural gas volume established in the previous contracts. F-240

365 3.- GNL Quintero S.A. ENAP jointly guarantees the payment obligations contracted by GNL Quintero S.A. prorata of ENAP s ownership interest in that company (20%), under the Engineering Contract, Procurement Contract and Construction Contract signed with CB&I UK Limited, with Southern Tropic Material Supply Company Limited and with CBI Montajes de Chile Limitada, respectively, dated April 30, 2007 for the construction of the LNG project. The guarantee is for a maximum monthly amount of ThUS$26, GNL Chile S.A. On May 31, 2007, Enap Refinerías S.A. signed a natural gas sales contract with GNL Chile S.A. that guarantees the necessary supply for the operation of its Aconcagua Refinery in the district of Concón. This contract is for a 21-year period as of the ECOD, and it allows accessing a regassification capacity of 3.2 million cubic meter per day, and to the same amount of natural gas, as long as it has the corresponding contracts for the LGG supply. On the same date, GNL Chile S.A. signed a contract with BG allowing Enap Refinerías S.A. to access a maximum annual contractual amount of LNG, equivalent to 2.2 million cubic meters of natural gas per day. The start of the natural gas supply occurred in August The contract obligations for Enap Refinerías S.A. under the natural gas supply contract have been guaranteed by its parent company Empresa Nacional del Petróleo (ENAP). This sales contract is part of a series of commercial contracts of the LNG Project that were definitely signed on May 31, This project has the purpose of purchasing liquefied natural gas (LNG) abroad, storing it and regasifying it in the Regasifying Plant that will be located in the municipalities of Quinteros and Punchuncaví in the country s Region V, and the supply of natural gas to the central zone of the country. 5.- Petróleos Marinos de Chile Ltda. On May 1, 2006, Enap Refinerías S.A. entered into a contract with Petróleos Marinos de Chile Ltda. to transport through the latter, Fuel Oil, IFOS, and Cutter stock through a pipeline that connects the Quintero Terminal owned by Enap Refinerías S.A. to the fuels terminal located in Greda Alta and owned by Puerto Ventanas S.A. Under the contract, ENAP Refinerías S.A. is obligated, each year the contract is in force and regardless of the circumstances, to move a minimum of 550,000 tones. The contract will be in force for 36 months as from May 1, 2008, a date on which the pipeline starts operations. 6.- Empresas de Gas de la V Región On February 9, 2005, Empresa de Gas de la V Región S.A. (GasValpo) and Enap Refinerías S.A. (ERSA) signed a natural gas suplly contract, through which GasValpo would suplly natural gas to ERSA for the use in its production processes in the V Region and whoe expiration date is April 25, F-241

366 In April 2009, due to the starting of operations of the storage and regassification terminal owned by the company GNL Quintera S.A., which allows ERSA to purchase natural gas at better commercial conditions, GasValpo made its current terms and conditions in such contract more flexible, eliminating the take or pay obligation for the reception of gas, it included the payment of a marketing fee that would give to right to access the natural gas coming from Argentina at the same price paid by GasValpo from its supplier. Nevertheless, ERSA shall continue paying the corresponding transport tariff; however, GasValpo is currently negotiating a modification to the Transport Contract with GasAndes, in order to reduce such tariff, but maintaining the same transport capacity available for ERSA. During 2009 the company achieved a decrease in the transport tariff of 55.05%. 7.- New commercial contracts During the last quarter of 2009, the ENAP Group, within a new Commercial Policy, started a negotiation process with the Distributing companies amount which are included Copec, Terpel, Petrobras and Shell, among other. The main purpose of this new policy, together with the signing of new contracts, is to sell products with one-year contracts, in order to plan and guarantee the delivery of fuel, according to the volumes and dates programmed by our customers. This would allow the granting of discounts for programming according to the signed agreements. This negotiation process was completed during the first days of January 2010, achieving benefits for both parties that will allow operating under more optimal and secure conditions. c) Restrictions: c.1) The Parent Company In November 2007 the restrictions stipulated as covenants in the syndicated loans were lifted. At December 31, 2009, the Company has no restrictions or covenants to comply with its creditor banks and public bonds. c.2) Enap Sipetrol Argentina S.A. According to applicable Argentine legislation the company must allocate 5% of the year s income to building a statutory reserve, which is an account forming part of the net shareholders equity, until such reserve is equal to 20% of the adjusted paid-in capital. d Other contingencies: ENAP At this date the Company has been notified of 10 claims filed by entities such as INP, Mutual de Seguridad, Compin, related to the payment of indemnities, which is currently in the preliminary stage and the amounts involved are undetermined as of this date. F-242

367 Enap Refinerías S.A. (ERSA). On May 25, 2007, on oil spill occurred in the San Vicente Bay, Bío Bío Region, during the unloading of oil from the ship New Constellation to the Terminal B of the Bío Bío Refinery, owned by Enap Refinerías S.A. (ERSA). As a consequence of this spill 11 damage indemnity claims were filed as at December 31, 2007 against ERSA, in the total amount equivalent to ThUS$94,104. The lawsuits, except from the one of the Consejo de Defensa del Estado, are from fishermen and from individuals who collect seaweed and shellfish; the corresponding claims filed under numbers 4, 6, 7, 25, 26, 28, 33, 34, 37, 38, and 39, all from 2007, are being treated in conformity with the established in Law Decree at the Court of Appeals of Concepción. There are two lawsuits filed at the Civil Courts of Talcahuano, one started by the Municipality of Talcahuano under No. 3020, whose amount has not been determined yet and the other civil lawsuit has been filed by several owners of restaurants of Caleta Lenga, under No. 2099, in the amount of ThUS$740. The amount of ThUS$94,104 is composed, approximately, in 17% for the concept of moral damage, 14% for possible damages, 40% for loss of future earnings or loss of profits and 28% for environmental damages. During 2008, the Company was notified of 10 lawsuits, 9 of which at the Court of Appeals of Concepción, under No. 40, 42, 45, 46, 47, 1, 9, 10 and 13, in the amount of ThUS$166,003 and another at the Civil Court of Talcahuano, No. 108 in the amount of ThUS$77. During 2009, the Company was notified of 4 lawsuits, under No. s 5, 6, 10 and 17 in the amount of ThUS$66,388. The Company has qualified these lawsuits as insignificant events, as it has sufficient legal arguments and supporting evidence to estimate, reasonably, that it will enervate the filed legal proceedings, through the demonstration of the existence of the following facts: a) Lack of active legal standing of a significant portion of the plaintiffs; b) Attribution to the accident of inexisting environmental damages on behalf of the plaintiffs; c) Inaccuracy regarding the cause of the accident as indicated by the plaintiffs; d) Lack of causality relationship between the alleged damages and the Accident: as indicated by several studies, the pollution claimed by the plaintiffs is prior to the accident; e) Legal exclusion of a large portion of the alleged damaged by the plaintiffs: the applicable legal standards (Navigation Law) only contemplates as possible indemnity causes the loss of future earnings and the reasonable restoration measures of the environment and f) Lack of consistency between the magnitude of the claimed amounts and the economic significance or size of the supposedly affected activities, because the total damages are claimed to be approximately ThUS$ , in relation to an economic industry whose annual income does not exceed ThUS$500. In relation to the lawsuits, please note that the Court of Appeals of Concepción in its sentence of November 14, 2007, confirmed by the Supreme Court on December 18, 2007, rejected all petitions to the Court of Appeals filed against ERSA in relation to this accident, stating that the plaintiffs are not allowed to file a legal proceeding as an arbitral act or omission, e.g. only F-243

368 due to a personal desire o whim, because as explained previously, it has been proven that the underwater pipelines has been supervised and controlled prior to the activities of transferring the oil and that the alleged scenario of lack of real measures in case of an environmental emergency that has been alleged by the plaintiffs, is not accurate, as the broken line or pipeline was replaced and therefore the operation had been authorized, considering that it should be related to the eleventh, in which the Court considers as complied by the Company the Contingency Plan for the Control of Spills of Hydrocarbons, LPG and Chemical Products. ERSA has civil liability insurances that have been activated and which will cover this possible contingency. Management believes that the possible contingency could correspond to a possible monetary fine or sanction established by the competent authority, which due to its sanctioning nature is not covered by any insurance, but in such case the amount will not modify significantly the equity situation shown by the Company in its financial statements. d.1) Enap Sipetrol Argentina S.A. d.1).1 Exchange Summons Argentine Central Bank The Argentine Central Bank (BCRA). Exchange Summons BCRA No Case No /02. Sipetrol Argentina S.A. and Another. Law No. 19,359. Alleged omissions of paragraphs e) and f) of Article No. 1 of the Exchange Regulations occurred in Enap Sipetrol Argentina S.A. did not incorporate/liquidate 100% of the currencies from its sales of hydrocarbons in the local market, as it believed that the Regime on Free Disposal of Currencies was still in force, with the underlying obligation to incorporate/liquidate only 30% of these currencies in the internal market. Current status: The BCRA concluded the instructive state (charge, discharge, evidence stage, allegations) and the Case is currently ready to be send to the corresponding court. Enap Sipetrol Argentina S.A. - YPF S.A. UTE Magallanes 1. The Argentine Central Bank (BCRA). Exchange Summons BCRA No Case No /02. Sipetrol Argentina S.A. and Another. Law No. 19,359. Alleged omissions of paragraphs e) and f) of Article No. 1 of the Exchange Regulations occurred in Enap Sipetrol Argentina S.A. did not incorporate/liquidate 100% of the currencies from its sales of hydrocarbons in the local market, as it believed that the Regime on Free Disposal of Currencies was still in force, with the underlying obligation to incorporate/liquidate only 30% of these currencies in the internal market. As of this date, the BCRA concluded the instructive state (charge, discharge, evidence stage, allegations) and the case is currently ready to be send to the corresponding court) F-244

369 The Argentine Energy Secretariat notified Enap Sipetrol Argentina S.A. of the application of a fine to the company that has the Concession of the Exploitation of the Magallanes Hydrocarbons Area (Concesión de Explotación Hidrocarburífera del Área Magallanes), YPF S.A., for incompliance with obligations under Articles 31 and 69 subheadings a) and d) of law and Resolutions Nº 105/92, 189/80, 24/04 and 342/93. The fine amounted to $209,750 and was credited timely by YPF S.A. 3.a Federal Lower Court No. 4 of Rio Gallegos. Criminal Secretariat No. 2. Case No. 1413/05 entitled District Attorney Office of Santa Cruz. Denunciation. The denunciation arises from a report addressed by the Energy Secretariat of the Santa Cruz Province to the State District Attorney Office, informing a hydrocarbons spill out at sea, specifically in the Magallanes area. Several actions were undertaken, culminating, at the request of the District Attorney, on statements being taken on February 23, 2007 of two professionals, in accordance with article 294 of the Penal Proceedings Code. After the statements, the court ordered some other evidence and then indicted these professionals. This sentence was appealed at the Appeals Chamber of Comodoro Rivadavia, filing their respective defenses on October 8, Currently, proceedings are under way in the trial at the Appeals Chamber. On September 18, 2009 the defendants received the notifications from the Appeals Chamber of Comodoro Rivadavia, through which the legal prosecutions are CONFIRMED. On September 29, 2009, was presented at the Federal Court of Rio Gallegos an Exception Proceeding and a Special Pronouncement. Extinction of the legal action due to prescription of the legal action, requesting to reissue such exception at the Appeals Chamber of Comodoro Rivadavia. The Appeals Chamber of Comodoro Rivadavia ordered to transfer the Case to the Federal Court of Rio Gallegos to process the filed Exception proceeding. Regardless of the Chamber s ruling, it will not undermine the equity of Enap Sipetrol Argentina S.A., because the amounts of the embargoes is personal, and amount to ThUS$5.7 each. Royalty Board, PublicUndersecretary office of Energy, Ministry of Production, Province of Santa Cruz. Case No /07 Enap Sipetrol Argentina SA - YPF SA UTE (MAGALLANES). Royalties over fuels. Amount involved ThUS$1, A request was presented to the View of the proceeding. AFIP with Enap Sipetrol Argentina S.A. Case No I. View and Determination of Debt due to the non Filing of Income Taxes for the fiscal years 2004 and 2005, Consideration of the Accounting Provisions for Closing and Abandoning of Wells Adjustments of Sworn Statements. Due to compensation action between the fiscal periods 2004/2005, the involved amount is ThUS$495.2, plus a fine of ThUS$76.9. On December 22, 2009, the Company filed an appeal to the determination of the AFIP at the Argentinean Tax Court. F-245

370 e) Pledges from third parties At December 31, 2009, ENAP has received certificates of deposit from suppliers or contractors to guarantee compliance of service and construction contracts, for ThUS$85,295. Enap Refinerías S.A. In relation to the projects: Petropower, Petrosul, Etalsa, Hidrógeno con AGA, Prodisa and Enercon, the Company counts on the guarantee from Empresa Nacional del Petróleo in order to comply with the obligations of Enap Refinerías S.A. established in the corresponding commercial contracts. Enap Refinerías S.A. As at December 31, 2009, Enap Sipetrol S.A. has received from different suppliers and contractors, the following guarantees: Supplier Guarantee Contract ARS US$ Baker Hughes Argentina SIPET/PP PC/ /PAMPA 70, , Baker Hughes Argentina Helix E2 Project/ BA/ 036/ 08 (Prov de trepanos) 16, , Bekon S.A. UTEAM/RG/ , , BJ Services S.R.L Helix E2 PROJECT/ BA/ 032/08 67, , Bolland y Cia. S.A. SIPET/ PP PC/ PAMPA 177, , COPGO Wood Group S.A. SIPET/ PP PC / PAMPA 256, , COPGO Wood Group S.A. SIPET/ PP PC / PAMPA 476, , DAP Helicópteros Argentina UTEAM/RG/RG/146 Y UTECAM2/A-SUR/RG/ , Electrificadora del Valle S.A. UTEAM RG 048/2008 1,687, , Envirogroup S.A. UTEAM/RG/090 16, , Escarabajal Ingenieria S.R.L. UTEAM/RG/298 98, , Establecimientos La Asunción S.A. Garantia de anticipo y/o acopio 58, , Establecimientos Oeste S.A. SIPET/PP PC/ /PAMPA 20, , Fiori Alejandro CTTO UTECAM2/ASUR/RG/ , , Geopatagonia SIPET/PP PC/ /PAMPA 173, , Huinoil SA UTECAM2/ASUR/RG/002/ , , JOMAR UTEAM/RG/ , , JR Turismo Alternativo CTTO UTEAM/RG/210 30, , Kidde Argentina S.A. UTEAM/RG/110 88, , Kindruk Teodoro SIPET/ PP CRV / PAMPA 25, , Minvest S.A. Supply service - 1,153, Oliva Luis Nelson SIPET/PP PC/ / PAMPA 49, , Petrotank s.a UTECAM2/A SUR/RG/007-24, Petrotank s.a UTEAM/BA/ , Qualicontrol UTEAM/BA/ , , Risk Control UTEAM/RG/011// , , Rosen Europe R.V. UTEAM/BA/ , , Schneider Electric Argentina S.A. Anticipo fc OC , Seibo Ingenieria S.R.L. UTEAM/RG/292 1,200, , Skanska S.A. PP/PC/ 038/ ,533, ,193, Skanska S.A. UTECAM2/ASUR/RG/ , , Skanska S.A. UTEAM/RG/077 2,930, , Skanska S.A. UTECAM2/ASUR/RG/ , , Skanska S.A. UTEAM/RG/077 2,930, , Skanska S.A. UTECAM2/ASUR/RG/ , , Skanska S.A. UTEAM/RG/077 2,930, , Skanska S.A. UTEAM/RG/ , , Smith International Inc. Pc CRV /PAMPA 172, , Sodexho Argentina S.A. UTECAM2/A SUR/RG/ , , Sodexho Argentina S.A. UTEAM/RG/ , , Sodexho Argentina S.A. UTEAM/RG/308 8, , Solar Turbines International Company UTEAM/BA/ , Tecnotrol S.R.L. SIPET/PC/CRV/ /PAMPA 36, , Teledrif SIPET/PP PC/ /PAMPA 74, , TIPCI Tecnologia Integral en Proteccion contra Incendios S.A , , Trans Patagonia Servicios S.A UTEAM/RG/092/2008 y UTECAM2/A-SUR-RG , , TRANSPLANS CTTO UTEAM/RG/148 73, , Weiz Instrumentos S.A. UTEAM/RG/099 4, , Weiz Instrumentos S.A. UTEAM/RG/039/ , , Wood Group SIPET/PP PC/ /PAMPA 1,500, , F-246

371 28. ENVIRONMENT The detail of the expenses incurred for the item of Environment as at December 31, 2009 and 2008, is as follows: a. ENAP Project Classification Description ThUS$ ThUS$ Liquid Industrial Residues Expense Transport of reinjection water Isla Tierra del Fuego Normalization of facilities Expense Handling of sewage water Bahía Laredo Procurement of environmental permitsexpense Obtaining of environmental permits for projects Environmental liabilities project Expense Remediation of pits 9,572 7,676 Environmental restorations Expense Environmental works executred by the Island and Continent Administration 1,003 1,580 Handling of residues Expense Contract for the withdrawal disposal of Solid Industrial Residues and Dangerous Residues Total 11,727 10,889 The detail of disbursements after December 31, 2009 is as follows: Date on which the disbursement Description Amount are expected to ThUS$ be made Transport of reinjection water Isla Tierra del Fuego 955 Net with project Handling of sewage water Bahía Laredo. 134 Net with project Obtaining of environmental permits for projects 141 Net with project Remediation of pits 78 Net with project Environmental works executred by the Island and Continent Administration 183 Net with project Contract for the withdrawal disposal of Solid Industrial Residues and Dangerous Residues 70 Net with project 1,561 F-247

372 b. Enap Refinerías S.A Project Classification Concept ThUS$ ThUS$ New lease unit Asset Construction, advisories, material and equipment contracts Extension of production capacity of diesel low sulphur Asset Construction, advisories, material and equipment contracts Mejoramiento manejo drenaje estanques Gasolina y Asset Construction, advisories, material and equipment contracts Installation of double seals process pumps Asset Construction, advisories, material and equipment contracts 233 Installation sistem to handle drainage and rainwater Qtro Asset Construction, advisories, material and equipment contracts 341 Improvement treatment system of oil water Asset Construction, advisories, material and equipment contracts Installation of double seals process pumps Asset Construction, advisories, material and equipment contracts Mitigation of environmental impact for operation Asset Construction, advisories, material and equipment contracts Decrease particulated material Asset Construction, advisories, material and equipment contracts 93 Decrease of issuance of liquid industrial residues Asset Construction, advisories, material and equipment contracts 956 Subtotal Projects Operating Expenses Environmental Unit Classification Concept ThUS$ ThUS$ Environmental services Expense Advisories Maintenance services Expense Advisories 6 18 Depreciation Expense Depreciation Disposal of residues Expense Advisories Subtotal Expenses of Environmental Unit Environmental Expenses of Operating Units Classification Concept ThUS$ ThUS$ Acid plant Expense Operating costs of the plant Sulphur plant Expense Operating costs of the plant Desulphuration plant of gasoline Expense Operating costs of the plant Desulphuration plant of diesel Expense Operating costs of the plant Striper acid waters Expense Operating costs of the plant Treatment of effluents Expense Operating costs of the plant Subtotal Environmental expenses of Operating Units Total The detail of disbursements after December 31, 2009 is as follows: Amount of Estimated date Project Classification Concept Disbursement of disbursement ThUS$ New lease unit Cost of asset Construction, advisories, material and equipment contracts* Extension of production capacity of diesel low sulphur Cost of asset Construction, advisories, material and equipment contracts* Installation of double seals process pumps Cost of asset Construction, advisories, material and equipment contracts* Installation sistem to handle drainage and rainwater Qtro Cost of asset Construction, advisories, material and equipment contracts* Improvement treatment system of oil water Cost of asset Construction, advisories, material and equipment contracts* Installation of double seals process pumps Cost of asset Construction, advisories, material and equipment contracts* Total (*) All future commitments represent works in progress of construction and infrastructure. F-248

373 c. Enap Sipetrol S.A. Classification (Expense or Country asset) Description ThUS$ ThUS$ Ecuador Asset Environmental investment related to projects Ecuador Expense Operating expense environmental unit Ecuador Expense Operating expense environmental unit Argentina Asset Environmental investment related to projects Argentina Expense Environmental expense operating units 1,879 1,713 Egypt Expense Environmental expense operating units Total 3,617 3,453 Note 1: It includes: Environmental Monitoring, Minor Equipment, Remediation, Contingencies, SGA Implementation, Handling and Disposal of Waste Material. Note 2: No other companies of the consolidated group have incurred environmental expenses during the reported periods. F-249

374 The detail of disbursements after December 31, 2009 is as follows: Country Project Description Classification Amount ThUS$ Estimated dates of disbursements Argentina Pampa del Castillo Preparation of site for disposal of oil residues Investment 250 Net with project Argentina Pampa del Castillo Inspection of tanks Investment 200 Net with project Argentina Pampa del Castillo Integral administration of residues Expense 156 Net with project Argentina Pampa del Castillo Soil treatments Expense 100 Net with project Argentina Area Magallanes Treatment of oil residues Expense 255 Net with project Argentina Area Magallanes Inspection of tanks Expense 155 Net with project Argentina Area Magallanes Tratamiento de suelos Expense 355 Net with project Ecuador MDC Industrial noise screens Investment 100 Net with project Ecuador PBH - MDC Follow up of the environmental handling plan Expense 288 Net with project Ecuador PBH - MDC Contingencies Expense 100 Net with project Ecuador PBH - MDC Remediation of environmental liabilities Expense 228 Net with project 29. TRADE PAYABLES AND OTHER ACCOUNTS PAYABLE a) The detail is as follows: Total Current Total Non Current ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Trade accounts payable 1,314,686 1,535,414 2,483,441 3,403 3,229 3,770 Other creditors 1,166 1,660 1, Other payables 56,724 63,842 65, Total 1,372,576 1,600,916 2,549,856 3,744 3,557 3,958 b) Detail of future maturities ThUS$ ThUS$ ThUS$ Up to 30 days 361, , ,036 Between 31 and 60 days Between 61 and 90 days 606, ,554 1,355,807 Between 91 and 180 days 354, , ,687 Over 180 days 49, Total 1,372,576 1,600,916 2,549,856 F-250

375 30. PERSONNEL COSTS The detail of this item at December 31, 2009 and 2008 is as follows: ThUS$ ThUS$ Salaries and wages Short term benefits for employees Other personnel expenses Other long term benefits Total DISCONTINUED OPERATIONS North Bahariya The Board of Directors Meeting Nº 214, held on August 28, 2007, authorized the beginning of the North Bahariya project sales process. On April 14, 2008, the subsidiary Sipetrol International S.A., and the Egyptian company Sahara North Bahariya Limited, signed a Sale and Purchase Agreement through which Sipetrol International S.A. agreed to sell its total participation in the North Bahariya Block, located in the Western Desert of Egypt. This operation was completed on March 9, 2009, moment on which the Ministry of Oil granted its approval and the control of North Bahariya was transferred to the buyer. The sales price was of ThUS$65,000, plus interests, generating revenues of ThUS$45,751. The results of the exploitations in final interruption that have been included in the consolidated statement of income, are detailed next: Statement of Income ThUS$ ThUS$ Revenues Cost of Sales (1.531) (10.601) Income before taxes (265) Gastos de impuesto a la renta atribuibles Subtotal (265) Income (loss) of sale of operation Subtotal Total income from discontinued operations F-251

376 32. CONSOLIDATION SCOPE Functional Ownership percentage Percentage with voting rights Company Country currency Relationship Activity Enap Refinerias S.A. Chile US dollar 99,98% 99,98% 99,98% 99,98% Direct Subsidiary Purchase and refining of crude oil and by-products Enap Sipetrol Chile US dollar Exploration, production and marketing of hydrocarbons and render advisory services in Chile 100% 100% 100% 100% Direct Subsidiary and abroad Petro Servicios Corp. S.A. (Argentina) Argentina US dollar 100% 100% 100% 100% Direct Subsidiary Oil services Gas de Chile S.A. Chile Pesos Import, export and operation in general of all kinds of fuels and by-products, specially natural 100% 100% Direct Subsidiary gas in any of its phases: Manu Perú Holding S.A. Perú US dollar 100% 100% 100% 100% Import and marketing of fuels and lubricants through wholesalers Direct Subsidiary Éteres y Alcoholes S.A. (Etalsa) Chile US dollar 41,74% 41,74% 41,74% 41,74% Special purpose entity Manufacturing of other chemical products N.C.P. Petrosul S.A. Chile US dollar 47,39% 47,39% 47,39% 47,39% Special purpose entity Data processing services and Refinería Concón S.A., of its accounts Energía Concón S.A. (Enercon) Chile US dollar 49,00% 49,00% 49,00% 49,00% Special purpose entity Estudio de factibilidad Productora de Diesel S.A. (Prodisa) Chile US dollar 45,00% 45,00% 45,00% 45,00% Special purpose entity Processing and construction services of refineries, by-products Cía. de Hidrógeno del Bío - Bío S.A. (CHBB) Chile US dollar 10,00% 10,00% 10,00% 10,00% Special purpose entity Construction and operation of an industrial plant, located in the facilities of Enap Refinerías S.A., in the district of Talcahuano and destined to the production of high quality hydrogen Enap Sipetrol Argentina S.A. (Filial de Enap Sipetrol S.A) Enap Sipetrol (UK) Limited (Filial de Enap Sipetrol S.A) Sipetrol International S.A. (Uruguay) (Filial de Enap Sipetrol S.A.) Sociedad Internacional Petrolera Enap Ecuador (filial deenap Sipetrol S.A.) Argentina US dollar 100% 100% 100% 100% Reino Unido US dollar 100% 100% 100% 100% Uruguay US dollar 100% 100% 100% 100% Ecuador US dollar 100% 100% 100% 100% Indirect Subsidiary Indirect Subsidiary Indirect Subsidiary Indirect Subsidiary Generation of Uniones Transitorias de Empresas (UTE) [similar to Joint Ventures], collaboration groups, joint venture, consortiums or other kinds of associations to explore, exploit and transport hydrocarbons Prospections, explore, develop, maintain and work with land, wells, mines and mining exploitation rights, drilling rights and concessions in areas containing oil, gas or other minerals. Make and administrate investments. One or more of the activities related to the exploration, exploitation or benefits from fields containing hydrocarbons. Exploration, exploitation, processing, distribution, marketing, transport and oil services F-252

377 Assets Liabilities Equity Company Current Non Current Current Non Current ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Enap Refinerias S.A. 1,951,227 2,133,848 2,787, , ,438 Enap Sipetrol 39, ,583 4, , ,421 Petro Servicios Corp. S.A. (Argentina) 1, ,520 Gas de Chile S.A. 3, , Manu Perú Holding S.A. 64,639 48,784 37,747-75,676 Éteres y Alcoholes S.A. (Etalsa) 3,820 22,122 4,742 8,618 12,582 Petrosul S.A. 2,756 25,567 2,864 11,727 13,732 Energía Concón S.A. (Enercon) 47, ,690 34, ,633 10,285 Productora de Diesel S.A. (Prodisa) 13,444 86,810 9,887 77,557 12,810 Cía. de Hidrógeno del Bío - Bío S.A. (CHBB) 2,070 27,827 3,166 14,892 11,839 Enap Sipetrol Argentina S.A. (Filial de Enap Sipetrol S.A) 61, , ,935 19, ,362 Enap Sipetrol (UK) Limited (Filial de Enap Sipetrol S.A) 1, ,047 Sipetrol International S.A. (Uruguay) (Filial de Enap Sipetrol S.A.) (14) Sociedad Internacional Petrolera Enap Ecuador (filial deenap Sipetrol S.A.) 25,548 24,764 5,893 22,926 21, Assets Liabilities Company Current Non Current Current Non Current Equity ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Enap Refinerias S.A. 1,763,311 1,951,632 2,381, , ,028 Enap Sipetrol 76, ,673 3, , ,396 Petro Servicios Corp. S.A. (Argentina) 1, ,599 Manu Perú Holding S.A. 95,170 39,778 70,676-64,272 Éteres y Alcoholes S.A. (Etalsa) 6,678 25,347 4,523 13,364 14,137 Petrosul S.A. 2,647 27,982 2,759 14,625 13,246 Energía Concón S.A. (Enercon) 37, ,526 7, ,751 (21,666) Productora de Diesel S.A. (Prodisa) 11,290 96,181 9,428 88,785 9,257 Cía. de Hidrógeno del Bío - Bío S.A. (CHBB) 2,050 29,445 3,316 17,388 10,792 Enap Sipetrol Argentina S.A. (Filial de Enap Sipetrol S.A) 58, , ,497 22, ,159 Enap Sipetrol (UK) Limited (Filial de Enap Sipetrol S.A) 1, Sipetrol International S.A. (Uruguay) (Filial de Enap Sipetrol S.A.) 57,992 13,831 83,294 (11,471) Sociedad Internacional Petrolera Enap Ecuador (filial deenap Sipetrol S.A.) 62,647 98,840 30, ,814 F-253

378 33. NON CURRENT ASSETS AND GROUP IN UNLAWFUL APPROPRIATION HELD FOR SALE The detail of the non-current assets and the groups in unlawful appropriation held for sale is as follows: ThUS$ ThUS$ ThUS$ Balance at the beginning of the year 17,507 20,400 20,400 Transfer from non current assets available for sale 6,202 (2,893) - Disposal of assets available for sale (23,709) - - Total - 17,507 20, EXCHANGE DIFFERENCES At December 31, 2009 and 2008, the detail of the items assets and liabilities generating exchange differences are as follows: Concepts ThUS$ ThUS$ Trade debtors 115,921 (215,225) Other debtors 14,020 (14,491) Current assets - Others 49,637 (127,874) Hedge assets Ctes. 92,022 - Accounts payable (18,301) 62,106 Current liabilities - Other (8,056) - Long term provisions (31,462) 36,440 Liabilities long term - Other (94,160) (15,841) Forward income (loss) (67,547) 135,881 Other (499) 9,948 Total 51,575 (129,056) 35. SUBSEQUENT EVENTS Between January 1, 2010 and the issuance date of these consolidated financial statements no subsequent events have occurred that could materially affect them. * * * * * * F-254

379 INDEPENDENT AUDITORS' REPORT Deloitte Auditores y Consultores Limitada RUT: Av. Providencia 1760 Pisos 6, 7, 8, 9, 13 y 18 Providencia, Santiago Chile Fono: (56-2) Fax: (56-2) deloittechile@deloitte.com To the President and Directors of Empresa Nacional del Petróleo 1. We have audited the accompanying consolidated balance sheets of Empresa Nacional del Petróleo and subsidiaries as of December 31, 2008 and 2007 and the related consolidated statements of income and its cash flows for the three years ended December 31, 2008, 2007 and These financial statements (including the related notes) are the responsibility of Empresa Nacional del Petróleo and subsidiaries management. Our responsibility is to express an opinion on these financial statements based on our audits. 2. We conducted our audits in accordance with auditing standards generally accepted in Chile. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 3. In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the financial position of Empresa Nacional del Petróleo and subsidiaries as of December 31, 2008 and 2007 and the results of their operations and their cash flows for the three years ended December 31, 2008, 2007 and 2006, in conformity with accounting principles generally accepted in Chile. 4. As explained in Note 3 to the financial statements, starting on January 1, 2008 Empresa Nacional del Petróleo and subsidiaries changed the methodology for calculating severance indemnities, switching from the current value to the actual value. Also starting on January 1, 2008, Empresa Nacional del Petróleo and subsidiaries modified the estimation of the useful lives for some of their fixed assets, as a consequence of technical reappraisals. 5. As indicated in Note 33 to the financial statements, starting on January 1, 2009 Empresa Nacional del Petróleo and subsidiaries will adopt the International Financial Reporting Standards (IFRS) as generally accepted accounting principles. 6. The accompanying financial statements have been translated into English for the convenience of the readers. February 6, 2009 F-255