BUSINESS STRATEGY

We plan to increase our oil and gas production and reserves through the development and additional exploration of our existing areas, focusing on relatively low-risk projects. We also plan to expand our oil and gas production and reserves by undertaking new farm-outs, joint-ventures or similar arrangements in long-cycle strategic investments that should allow us to seize growth opportunities, reducing capital expenditure requirements and thus avoiding significant increases in our leverage. Our intention is to continue to expand our upstream activities and to maintain our strategic investment in our midstream business, the low-risk and predictable nature of which we believe provides us with greater balance in light of the greater volatility intrinsic to our upstream business. The key components of our business strategy are:

We are committed to the sustainable growth of our business through the continuous development and exploration of the areas in which we operate, many of them significantly underdeveloped. We focus our activities primarily in our core areas of the Austral basin, focusing on the production of unconventional gas. We will continue prioritizing short-cycle production and exploration projects. We also intend to evaluate longer-term projects that can provide us significant upside potential in increased production and development of reserves. We believe that farm-outs and joint-ventures are a lower-cost means of increasing our exploration and production in the areas where we have concessions. We believe that our long-term success will be based on our capacity to increase our productivity and assets through profitable investment projects, with a resulting product-balanced reserve base.

We are in the process of optimizing underexploited oil and gas fields considered marginal by the previous operator, by undertaking improvements, implementing cost reductions and enhancing margins by diluting fixed operating costs over a larger production output. Given our flexible operational structure and resources, which allow us to focus on oil or gas production, we intend to vary the ratio of our oil and gas production in light of changing conditions in the local markets to prioritize and increase the production of the most profitable product at the time. Focusing on efficiency, we have established management processes for target setting and monitoring, thereby seeking to ensure that targets are met in a cost-effective and safe manner. We will also continue to apply advanced technological and operational cost solutions to increase our production and reserves, minimizing environmental impact. 

Our intention is to prioritize exploration through joint-arrangements and similar arrangements, and to only allocate funds for company-led exploration projects to the extent we have sufficient surplus and that we believe such exploration projects do not adversely affect our financial condition. We intend to replenish our reserves by focusing on existing investments and incurring exploration investments when financially prudent. In relation to the investments allocated to exploration activities, we will continue to use conservative criteria and analyze specific opportunities. While we have underexplored acres with exploratory resources potential, we intend to undertake future investments in line with our balanced risk approach and by reducing our risk through joint arrangements and farm-out or similar arrangements.

We actively look to increase production and vary our oil and gas ratio in response to increases in available prices. In 2018, we were awarded the right to participate in the Unconventional Gas Incentive Program and are actively increasing our production of unconventional gas. We regularly monitor and quickly respond to changes in the market, including those provided by deregulation under the Macri administration, in order to achieve increases in the average price of our products. In 2018 we were the first company to restart gas exports to Chile: in September to Methanex and in October to Colbun, in the Santiago area.

We also seek to increase our profitability by improving our mix of clients.  For example, we have shifted natural gas sales to industrial and other higher margin customers, which are not subject to regulated prices. We plan to continue to identify opportunities to shift our sales to higher-margin client segments. 

We continue to employ an analytical and disciplined approach, using the best available technology that is optimally suited for our operations in the Austral basin. We were the first operator to drill horizontal wells utilizing multiple hydraulic fracturing in the Austral Basin. In order to do this, we contracted a new semi-authomatic drilling rig that began operating in the beginning of 2016. Addittionally, we are performing 3D seismic studies for the first time in the Basin.

We are committed to the protection of the environment and the safety and health of our employees and contractors and communities in the areas in which we operate. We are convinced that the best way to fulfil our commitment is by having trained and committed staff and by adhering to international practices that ensure the development of responsible operations. We follow industry-specific standards, such as the American Society for Testing Materials standards, the American Petroleum Institute standards, the National Fire Protection Association Standards and the Argentine Institute of Standardization and Certification standards. We apply advanced technological solutions to protect the environment and we have developed and implemented management processes to continue to improve our health, safety and environmental performance. We have also developed a strong positive relationship with the local communities in our areas of operation. 

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