ROCH

Environmental & Social Review Summary

This Environmental and Social Review Summary is prepared and distributed in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board of Director’s decision. Board dates are estimates only.
Any documentation which is attached to this Environmental and Social Review Summary has been prepared by the project sponsor and authorization has been given for public release. IFC has reviewed this documentation and considers that it is of adequate quality to be released to the public but does not endorse the content.

Project number	26472
Country	Argentina
Sector	Oil, Gas and Mining
Department	Oil, Gas, Mining And Chemicals
Company name	Roch S.A.
Environmental category	B
Status	Active

Date ESRS disclosed	December 20, 2007

Previous Events	Invested: March 19, 2008 Signed: March 3, 2008 Approved: February 28, 2008

View Summary of Proposed Investment (SPI), click here

Overview

Category & Applicable Standards

Key Issues & Mitigation

Community Engagements

Client's Documentation

Overview of IFC's scope of review

The review of this project consisted of a document review, including the project’s technical, environmental and social reports and records; a field visit to assess on-site the operation of the EHS and Social management systems at the facilities in Tierra del Fuego and Neuquén provinces; and some interviews with key personnel of the company.

The following management elements were assessed:

- Adequacy of the existing Environmental, Health, Safety and Social Management System to satisfy IFC’s Performance Standards requirements;
- The client’s assessment of potential EHS & Social impacts related to the project;
- Labor issues and Human Resources policy;
- Health and Safety performance;
- Contractors’ EHS performance;
- Air emissions;
- Produced water disposal;
- Liquid and solid waste management;
- Drilling and Workover procedures including solid waste disposal;
- Emergency Response Plans;
- Community engagement;
- Potential land use and compensation issues;
- Operations in biologically sensitive areas;
- Social issues;
- Cultural and Archaeological chance-find procedure.

Project description

ROCH S.A. (ROCH S.A. or the company) is a small Argentinean oil and gas exploration and production company. Its six hydrocarbon assets are located in the Austral, Golfo San Jorge, and Neuquén basins, in central and southern Argentina. The company’s main asset is its Rio Cullen – Las Violetas – Angostura fields, which produces natural gas and crude oil from Tierra del Fuego island. Current oil and gas net production to ROCH is 440 barrels per day (b/d) and 4,6 MM cubic feet per day (mmcf/d), respectively. IFC has been requested to provide a financing package to the company to partially fund its 2007-2010 capital expenditure program, which includes:

- Drilling programs aimed to increase production from existing hydrocarbon fields;
- New production and storage facilities;
- Exploration activities within company’s hydrocarbon concessions;
- Potential acquisition of new hydrocarbon assets.

The company has operations in the Tierra del Fuego province (Las Violetas, Angostura and Rio Cullen fields), in the Santa Cruz province (Sur del Rio Deseado field), in the Rio Negro province (Medianera field) and in the Mendoza province (Cajon de los Caballos field). The company also has an interest in the Llancanelo field (Mendoza province) and in Cañadon Ramirez field (Chubut province). The main development and production activities are concentrated in Tierra del Fuego fields and Sur del Rio Deseado. The most sensitive areas from the environmental point of view are in Tierra del Fuego, in particular in Las Violetas and Angostura fields because the coastal portions of these two fields lie within a natural reserve (see Performance Standard 6 section for a more detailed description of IFC requirements).

Key environmental and social issues and mitigation

Key environmental and social issues relating to the project are summarized below along with specific information about how potential impacts will be addressed by the company.

Upon implementation of the featured mitigation measures described below and in the attached Action Plan, the project will comply with environmental and social requirements, namely the law and regulations of Argentina, IFC’s Policy and Performance Standards on Social and Environmental Sustainability and Policy on Disclosure of Information, and applicable World Bank/IFC environment, health and safety guidelines.

- PS1: Social and Environmental Assessment and Management System:

Social and Environmental Management System:

The company has started to expand and organize its current ESHS management system following the ISO 14001 and ILO-OSH-2001 (International Labor Organization “Guidelines on Occupational Safety and Health Management Systems” 2001) standards. An integrated policy on Environment, Health and Safety has been issued recently. This policy has explicit commitments to minimize pollution, optimize the use of natural resources and energy, control the worker’s health and safety risks, and take into account social concerns and to help to improve the welfare of affected and nearby communities. As part of its environmental management the company has developed a basic manual that describes the procedures applicable for production activities, emissions and effluents management and monitoring, waste management, chemicals storage and handling. This manual needs to be revised and upgraded to meet the requirements of Environmental, Social, Health and Safety Management System (ESHS-MS) standards and the IFC EHS Guidelines. The Action Plan includes a group of actions required as part of the implementation of the company’s ESHS-MS.

Contractors will be required to develop management plans following the company’s ESHS-MS. However, the main drilling contractor has currently implemented its own EHS-MS, and will revise this as necessary to follow the Company’s ESHS-MS.

Social and Environmental Assessment:

Every producing oil and gas project in Argentina must comply with regulatory requirements that impose the need for environmental and social baseline and EIA studies to be carried out before starting the field development phase. Subsequently a yearly environmental monitoring report (so-called “Informe de Monitoreo Ambiental Anual” or “IMAA”) that includes an updated EHS Action Plan must be carried out by consultants authorized by the Secretary of Energy. For new specific projects the operators are required to conduct new EIA studies to be approved by national and provincial authorities.

The EIA must contain a section called “Management Plan” that includes a series of recommended actions to avoid or minimize any potentially significant impact identified in the EIA. The company is responsible for the implementation of these actions by instructing its own staff or its contractors.

As part of its EHS-MS implementation plan the client has to prepare a procedure to identify and assess the potential EHS impacts related to the operation and maintenance activities. For every activity the procedure requires the assessment of potential impacts on air, water, soil, flora, fauna, natural resources, energy and affected communities. All those impacts considered significant must be addressed through EHS operational procedures, facility design, and/or specific management programs.

The company has plans for new acquisitions and therefore, as part of the due diligence, it will implement a careful assessment of the potential environmental and social liabilities. The company will also develop a new acquisition/new projects’ E&S impacts assessment procedure. Preparation of this new procedure is included as part of the Action Plan.

Management Program:

The company will prepare a new procedure to formalize the implementation of the recommendations from ESIAs and from ESHS audits and to include them in a Management Program. A copy of this procedure will be provided to IFC as part of the Action Plan.

Action Plan:

The company has proposed and agreed with IFC an Action Plan to fill the gaps in its current E&S management system to meet the requirements of the Performance Standards and of the applicable IFC EHS guidelines.

Organizational Capacity:

The company recently appointed an environmental manager and a health and safety manager. They are currently in the early stages of upgrading the company’s ESHS management tools in a management system following the ISO 14001 and OHSAS 18001 standards. The company demonstrated compliance with all local regulations on environmental, health and safety matters.

Training:

A consultant regularly visits the operational facilities to assess the company’s health and safety performance and to provide safety training at the field. The company has developed a training matrix for occupational health and safety. The company will include environmental training as part of its ESHS management plans. An ESHS training procedure and a training matrix is committed as part of the Action Plan.

Community Engagement:

The company keeps farmers around its operations informed throughout the projects’ cycle and consultations are carried out regularly with local communities as required by Argentine law.

Monitoring:

The above mentioned IMAA annual report, required by the national environmental authorities, is a very thorough monitoring and inspection report performed by a third party (expert consultant company). The company performs a few monitoring programs but is currently preparing plans to implement a more comprehensive environmental, health and safety monitoring program. The company currently has a corrosion control monitoring program that covers flowlines, pipelines and tanks. The gas associated with the oil in Cajon de los Caballos field contains H2S, and the company has implemented a monitoring program to prevent exposure of workers to any dangerous levels of H2S.

The company has committed in the Action Plan to present to IFC its new environmental monitoring program.

Reporting:

As part of the elements comprised in the ESHS-MS, the company will include an ESHS Management Review procedure to assess performance and to define new objectives and targets. A procedure describing this Management Review is a requirement of the Action Plan.

- PS2: Labor and Working Conditions:

Roch currently has 105 national employees. Contractors and subcontractors have approximately 40 employees. Compliance with national labor laws is contractually required. Roch’s own personnel receive a benefit package, including a pension plan, private health coverage and life insurance.

The workers are represented by a union called “Federacion Argentina Sindical de Petroleo y Gas Privados” which has negotiated a collective bargaining agreement that the company respects.
The client complies with national laws including requirements for non-discrimination and equal opportunity.

Every new employee has to take a pre-occupational medical test and after that there is an annual medical test for all personnel working in operations. For those employees that could be exposed to specific occupational health risks, the medical examination includes tests to identify early on any potential health impact that may be as a result of these risks.

Safety has been identified as the top priority and management has communicated this to all employees. The company is completing the planning stage for the Health and Safety management plans. Key operational procedures such as Permits to Work System, Safety Inspections, and Safety Task Analysis will be implemented before the end of March 2008 Requirements for Health and Safety management will be included in every new contract by the same date.

- PS3: Pollution Prevention and Abatement:

Pollution prevention:

The company does not use oil-based muds for drilling, but uses water-based muds and prioritizes the use of biodegradable additives. The company has adopted the “dry wellpad” technology for well drilling. This technology avoids the use of open pits to dispose of spent drilling muds and cuttings. The cuttings are dried out at a designated location and then they are used to fill up and restore old quarries within the oilfield. The drilling muds are treated and then recycled as much as possible before disposal in pits constructed to be impermeable.

Any oil contaminated soils and tank bottoms are recovered and temporarily placed in an approved storage site where they are treated later. The Medianera oilfield in Rio Negro province has been in operation for several decades by the former national company. As is the case for many old oilfields in the area, and because of poor oil production practices of the former operators (mostly the former national oil company), there are many field sites impacted with spills. The company took over the operation in Medianera in February 2006 and is fully aware of this environmental legacy and is committed to implement a remediation program. In the Medianera field the company is currently applying a special technique (a combination of landfarming and inertization methods) with a local contractor specialized in soil remediations projects. Once the oil content is below 1% the provincial authority allows the disposition of these soils inside the oilfield on the basis of some restrictions (e.g. proximity to water bodies, areas subjected to soil erosion, etc). However, the company is currently assessing the remediation results to define the scope of a final remediation program.

In the rest of the fields the company is applying a so-called “inertization” technique that by the addition of calcium oxide and bentonite controls the potential lixiviation of oil pollutants. Once the soils are treated they are disposed of as a sub-base for road construction. All these methodologies for remediation are approved by local environmental authorities.

The company has procedures that rule the use of different containment systems to control leaks and spills. Chemical products are stored in areas protected from weather conditions and with an impermeable floor to avoid soil contamination from any spills. The chemical containers are returned to the supplier for its recycling.

In Tierra del Fuego the company is not allowed to abstract water from natural sources for drilling purposes. The company purchases water from Rio Grande’s public water supplier to avoid direct impacts on local natural water sources.

Produced water is injected back to the reservoir in Cajon de Los Caballos, Sur del Rio Deseado, Medianera, Angostura and Las Violetas fields. In Rio Cullen the produced water is currently disposed of to the sea by a pipeline. The company is monitoring the effluent quality (hydrocarbon content, DBO, Phenols, suspended solids, heavy metals (such as Chromium, Cadmium, Mercury and Lead), and temperature to ensure minimum environmental impacts. The volume disposed of is approximately 300 cubic meters per day. Even though this practice is currently allowed by local authorities, the company will (as part of the Action Plan) analyze alternatives and if technically and economically feasible will implement a different method for the disposal of produced water at Rio Cullen.

Wastes:

Wastes are classified in 3 different streams (domestic, scrap and restricted disposal). The oilfields have a transitory repository for wastes and depending on the waste stream they are disposed of in approved sites. Those wastes considered potentially hazardous (restricted disposal stream) are transported and disposed of by an authorized hazardous wastes management contractor. In the case of Tierra del Fuego these wastes are processed by incineration in a pyrolitic oven by one of these contractors.

Greenhouse Gas Emissions:

With the exception of the Cajon de los Caballos oilfield, none of the other fields vent gas for operational purposes. Some maintenance activities require gas pipelines to be depressurized, and in these cases the gas is burned in an appropriate facility under controlled conditions.

Cajon de los Caballos has special permission from the national authority to vent at well site, because the associated gas is relatively low and because the field is in a remote location and there are no economic alternatives to sell it. The volume of GHG equivalent vented annually is approximately 40,000 Tones.

Footprint:

In Tierra del Fuego the soil has an organic layer that in some places is over 50 centimeters thick. When soil is removed (for example when digging trenches), this organic layer is carefully piled-up and stored for later restoration. Revegetation of disturbed areas is relatively easy because of the presence of this organic layer.

The operational procedure concerning access roads prioritizes the use of existing roads in order to minimize the construction of temporary access roads and resultant soil disturbance.

The company ran a 3D Seismic program in its three fields in Tierra del Fuego in 2007. The company adopted best practices and used vibroseis trucks, thereby avoiding the use of seismic roads. The company also avoided the establishment of permanent or temporary camps in the field and ensured coordination with local farmers to minimize impacts on cattle. The seismic program therefore resulted in a very small footprint.

Noise:

The operators are required to use hearing protection in areas of high noise level such as gas compression stations. There are no communities or households that might be affected by noise, located in the areas surrounding project activities.

Emergency Preparedness and Response:

The company has emergency response plans for Sur del Rio Deseado, Rio Cullen, Angostura and Las Violetas operations that consider different emergency scenarios. However an update of these plans was identified as a current need, along with the implementation of periodic drills. The Contingency Plans for Cajon de los Caballos and Medianera fields are currently under preparation. These two actions (updated plans and new plans) are addressed in the Action Plan.

San Luis Gas Treatment plant in Las Violetas, currently the biggest facility of the company, has a shutdown system that can be shut from different locations. It immediately stops the plant and flares the gas.

- PS4: Community Health, Safety and Security:

Infrastructure and Equipment Safety:

There are no communities located close to any of the company’s operated facilities. However as public access is allowed on some roads, a safety signage system and a fencing program is aimed to help prevent the public being exposed to risk (e.g., well heads and pumping units are fenced) .

Security:

No issues related to security were identified as part of the due diligence. Unarmed security arrangements are used at the operations.

- PS5: Land Acquisition and Involuntary Resettlement:

In Medianera oilfield there are a few small farmers and the company has signed with them compensation agreements following the country legal requirements. In the rest of the areas where the company operates there are no small farmers or vulnerable households and land generally belongs to the state or to large scale landowners.

The company seeks mutually agreed compensations with landowners based on fair market value for land use or acquisition. The agreements are based on fair negotiations and are properly documented. No cases of involuntary resettlement have been recorded to date. Impact on land users (on fencing, or pasture land) is compensated, based on replacement value. The company will formalize its current land use compensation procedure and will provide a copy of it as requested in the Action Plan.

- PS6: Biodiversity Conservation and Natural Resources Management:

The coastal strip and the inter-tidal area along Angostura and Las Violetas fields is situated in the “Reserva Costa Atlantica”, one of 14 Ramsar sites in Argentina, and it is the southernmost Ramsar site in the world. The reserve contains the coastal areas from Cabo Nombre to the coast south of Rio Grande city. In 1991 this wetland reserve joined the Western Hemisphere Shorebird Reserve Network (WHSRN), a voluntary, non-regulatory coalition that identifies and promotes conservation of crucial sites for shorebirds, no matter whether they are used in a breeding, migratory, or "winter" season. This wetland reserve has been qualified as a “hemispheric importance site”, which is a classification given to reserves in which more than 30% of the biogeographic population of a shorebird is congregated. The Reserva Costa Atlantica hosts up to 42% of the continental population of the Hudsonian Godwits (representing 93% of the Atlantic coast population of this bird). Bahia San Sebastian (mostly covered by the Angostura field concession) is considered one of the most important areas for shorebirds in Argentina, and the most important wintering area currently known for the Hudsonian Godwit in South America.

The area of Tierra del Fuego where the company has operations is also identified as important for the nesting of the South American population of Chloephaga rubidiceps, a threatened species; however IUCN considers this species as a “least concern” category. The population of this species is threatened by hunting, especially during the migratory season when these gooses fly off Tierra del Fuego province. In Tierra del Fuego the hunting of Chloephaga rubidiceps has been forbidden. The gas field activity does not pose any significant risk for the Chloephaga rubidiceps population in Tierra del Fuego.

The reserve does not have a management plan yet but a final draft is under revision by provincial authorities. The provincial authority (Direccion Tecnica de Gestion de Areas Naturales Protegidas) organized some workshops to develop in a participatory approach the reserve’s management plan. The development of the reserve’s management plan is part of a project funded by GEF (Global Environmental Facility) to implement a integral management plan for the whole coastal area in Patagonia. The workshops for the reserve’s management plan identified the hydrocarbon production activities as compatible with the conservation goals, on condition of implementation of best environmental management practices.

The client’s activities in the area of the reserve are minimal and do not risk the seasonal migration and subsistence of the shorebirds that annually visit this Atlantic coast. In conclusion the current client activities and the development project for its assets pose no risk to the reserve and would not have measurable impact on any of the populations.

However the client needs to develop specific management plans to avoid or minimize any potential impact on the reserve, and to align its operational practices with the requirements of the upcoming reserve’s management plan. As part of the agreed Action Plan the client will prepare an Ecological Field Survey and will develop an Ecological Management Plan and a Biorestoration Management Plan, tailored to those requirements.

The client has 10% participation in the Llancanelo field in Mendoza province, currently being operated by Repsol-YPF (the operator). Llancanelo, is a wetland ecosystem in southern Mendoza province, and was declared a provincial fauna reserve in 1980. In 1995, it was included as a Ramsar site under the 1971 Ramsar wetland-protection treaty. Though oil companies have worked in the area since 1930, their operations typically have been small-scale. Therefore the reserve was created after the oil activities were started in 1993, Mendoza’s provincial authorities awarded a 25-year concession for the Llancanelo field. In 2000, the current operator proposed a further development plan, and in 2003 the Mendoza authorities approved the environmental impact assessment for this project. Local NGOs then initiated a campaign to stop oil activities in the reserve. In March 2005, the Supreme Court for Mendoza province ratified previous findings that ruled favorably on a complaint lodged by one of Mendoza’s environmental groups, and the operator had to stop any activities in Llancanelo. Several rounds of negotiations between the operator, the Mendoza authorities, scientific institutions and NGOs ended in July 2007, in an agreement to redefine the limits of Llancanelo reserves that were nearly doubled (from 45000 up to 86000 hectares), and to reduce the oil block concession by 65-70%. This agreement is currently awaiting ratification by the provincial legislature, and Repsol will present a new ESIA to address the new conditions.

The new concession area, together with the operator environmental management plans (the operator has a certified EHS-MS) gives confidence that there will be no significant threat to the new Llancanelo Reserve.

- PS8: Cultural Heritage:

In the area covered by the company’s operations in Tierra del Fuego there have previously been archaeological findings that are considered to be representative of the most ancient human settlement in Tierra del Fuego (between 4000 to 5000 years old). However, no major archaeological sites have been unearthed and they are mainly isolated and localized. The client will prepare a “chance find” procedure to be applied in the event of any accidental unearthing of archaeological or paleontological relics.

IFC PROJECTS