YPF S.A. — Audit Report / Information 2010

Nov 30, 2010

7/25/08 1:24pm CT emills – (The following information was already on cover page) CLIENT PREFERS DASHES IN LIEU OF BLANKS

	YPF Holdings, Inc. and Subsidiaries (A Wholly Owned Subsidiary of YPF S.A.) Consolidated Financial Statements as of and for the nine-month Period Ended September 30, 2010, and Independent Auditors’ Limited Review Report

Independent Auditors' Report

(Limited Review)

To the Board of Directors of

YPF Holdings Inc.

1330 Lake Robbins Drive – Suite 300

The Woodlands, Texas, U.S.A.

1. Identification of the financial statements subject to limited review

We have reviewed the consolidated financial statements of YPF HOLDINGS INC. and its controlled companies (the “Company”), which comprise the consolidated balance sheet as of September 30, 2010 and the related consolidated statements of income, changes in stockholders’ deficit and cash flows for the nine-month period then ended and the supplemental information included in their Notes 1 to 6.

The Company's Board of Directors and Management are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Argentina applicable to consolidated financial statements. This responsibility includes (i) designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to errors or omissions or to irregularities, (ii) selecting and applying appropriate accounting policies, and (iii) making accounting estimates that are reasonable in the circumstances. Our responsibility is to issue a limited review report on these financial statements based on our review carried out pursuant to the scope of work outlined in section 2 of this report.

1. Scope of our work

Our review was limited to the application of the procedures established by the auditing standards generally accepted in Argentina for limited review of financial statements corresponding to interim periods. These standards determine a scope which is substantially less than the application of all the auditing procedures necessary to be able to issue an audit opinion on the financial statements taken as a whole. Those standards consist basically of applying analytical procedures on amounts included in the financial statements, of carrying out global tests, and of making inquires of persons responsible for preparing the information included in the financial statements. Consequently, we do no express an opinion on the Companys financial position as of September 30, 2010, the result of its operations, the changes in stockholders deficit or the cash flows for the nine-month period then ended.

1. Additional paragraph

As mentioned in Note 1 to the consolidated financial statements of the Company, the consolidated financial statements as of September 30, 2010 have been prepared for consolidation purposes within YPF’s consolidated financial statements and for its presentation before the National Securities Commission (“CNV”) in Argentina. Considering this purpose, the Company has omitted certain disclosures requirements for reporting in Argentina, mainly related to evolution of fixed assets and environmental liabilities, deferred income tax breakdown, aging of accounts receivable and payables, comparative information, the presentation of individual financial statements and certain formal legal requirements.

1. Limited review report

Based on our review, according to section 2 of this report and except for the omissions referred to in the previous paragraph, we are not aware of any material modification that should be made to the consolidated financial statements referred to in section 1 of this report for them to be in conformity with generally accepted accounting principles applicable to consolidated financial statements in Argentina.

Buenos Aires City, Argentina

November 5, 2010

Deloitte & Co. S.R.L.

C.P.C.E.C.A.B.A. T° 1 – F° 3

Guillermo D. Cohen

Partner

Public Accountant – University of Buenos Aires

C.P.C.E.C.A.B.A. T° 233 – F° 73

YPF HOLDINGS, INC. AND SUBSIDIARIES

(A Wholly Owned Subsidiary of YPF S.A.)

TABLE OF CONTENTS

Page

INDEPENDENT AUDITORS’ LIMITED REVIEW REPORT

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2010:

Balance Sheet 1–2

Statement of Income 3

Statement of Changes in Stockholder’s Deficit 4

Statement of Cash Flows 5

Notes to Consolidated Financial Statements 6–19

YPF HOLDINGS, INC. AND SUBSIDIARIES

(A Wholly Owned Subsidiary of YPF S.A.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2010

(Financial statements as of September 30, 2010 are unaudited)

1. ORGANIZATION

YPF Holdings, Inc. (“Holdings” or the “Company”) was incorporated in Delaware, U.S.A., on July 31, 1996, and holds investments in certain subsidiaries. The Company is engaged in oil and gas exploration activities in the Gulf of Mexico.

YPF S.A. (“YPF” or the “Parent”) owns 100% of the Company’s shares. YPF is a subsidiary of Repsol YPF S.A.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles applicable to consolidated financial statements in Argentina (“Argentine GAAP”), and are expressed in thousands of dollars (“$”), except where otherwise indicated.

The consolidated financial statements of the Company as of September 30, 2010, have been prepared for consolidation purposes within YPF’s consolidated financial statements and for its presentation before the National Securities Commission (“CNV”) in Argentina. Considering the purpose previously mentioned, certain disclosures related to evolution of fixed assets and environmental liabilities, comparative information, aging of accounts receivable and payables and certain formal legal requirements for reporting in Argentina have been omitted, since Management considered them irrelevant for the mentioned purpose.

Additionally, in accordance with Argentine GAAP and current Argentine legislation, the presentation of individual financial statements is mandatory. Consolidated financial statements are to be included as supplementary information to the individual financial statements. For the purpose of this filing, individual financial statements have been omitted since Management considered them irrelevant for the mentioned purpose.

The financial statements for the nine-month period ended September 30, 2010, are unaudited, but reflect all adjustments which, in the opinion of Management, are necessary to present the financial statements for such period on a consistent basis with the audited annual financial statements.

Principles of Consolidation — The consolidated financial statements of the Company include the financial statements of the Company and its wholly owned subsidiaries (collectively referred to hereafter as “subsidiaries”) Tierra Solutions Inc. (“Tierra”); Maxus Energy Corporation (“Maxus”); Maxus International Energy Company (MIEC); Maxus (U.S.) Exploration Company (“Maxus US”); CLH Holdings, Inc. (CLH); and Gateway Coal Company (“Gateway”). All significant intercompany transactions have been eliminated.

Use of Estimates — The preparation of financial statements in conformity with Argentine GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s consolidated financial statements include amounts that are based on Management’s best estimates and judgments. Actual results could differ from these estimates.

Cash and Cash Equivalents — Short-term, highly liquid investments that have an original maturity of three months or less and deposits in money market mutual funds that are readily convertible into cash are considered cash equivalents.

Fair Value of Financial Instruments — Financial instruments are composed of accounts receivable, cash equivalents, investments and accounts payable. The carrying value of such financial instruments approximates to their fair value.

Oil and Gas Producing Activities — The Company follows the “successful efforts” method of accounting for its oil and gas exploration and production operations. Accordingly, exploratory costs, excluding the costs of exploratory wells, are charged to expense as incurred. No costs of drilling exploratory wells, including stratigraphic test wells, as of September 30, 2010, have been capitalized, pending determination as to whether the wells have found proved reserves, which justify commercial development. The Company recognized dry hole costs of approximately $0,4 million for the nine-month period ended September 30, 2010.

Capitalized costs relating to producing properties are depleted on the unit-of-production method. Proved developed reserves are used in computing unit rates for drilling and development costs and total proved reserves for depletion rates of leasehold, platform, and pipeline costs.

The Company reviews its proved oil and gas properties for impairment when changes in circumstances indicate that the carrying amount of such properties may not be recoverable.

The capitalized costs related to acquisitions of properties with unproved reserves are reviewed periodically and at least annually by management to ensure the carrying value is recoverable. If necessary, a valuation allowance is provided, by a charge against earnings, to reflect the impairment of unproved acreage.

The Company's Neptune Field Development achieved first production on July 6, 2008.  Production continues with 7 subsea producing wells tied back to a central floating production facility located in Green Canyon 613. The production reached the platform capacity of 50.000 barrells of oil per day (“bopd”) on July 24, 2008.  As of September 30, 2010, the platform was producing over 13.000 bopd.  Approximately $241,3 million has been capitalized by the Company on the appraisal program and development project as of September 30, 2010.  In the second quarter of 2009, the Neptune joint venture approved the drilling of one additional well (SB-02) to produce the M9 and M10 reservoirs. During the fourth quarter of 2009, the SB-02 well was deepened by 530’ to reach the M12 reservoir where additional reserves were discovered. The joint venture agreed to postpone the M9 and M10 completion, and put the M12 reservoir on production.  Total net expenditures by the Company for the SB-02 well as of September 30, 2010 were approximately $ 18,1 million for drilling and completion costs.  The joint venture is currently reevaluating the technical and economic merits of the SB-02 recompletion to the M9 and M10 targets. In addition, the Company expects to spend approximately $8,7 million in 3D seismic WAZ licensing costs covering 60 offshore continental shelf (“OCS”) exploration blocks in 2010.

On March 16, 2008 the Company was notified that a structural anomaly was identified in one of the pontoons of the Neptune Platform and start-up activities were suspended.  The facility was fully inspected and the anomalies were found to be isolated to the three pontoons.  Investments to remediate the structural anomalies were substantially completed by June 30, 2008, at a net cost of $4,1 million to Maxus.  The joint venture was in process of recoupment through certain construction warranties, and on February 28, 2010, an arbitration award was granted which reduced the net amount for the Company to $1 million. The Company recovered its share of the arbitration award during the second quarter of 2010.

Maxus signed appropriate lease and well authorization documents in early June 2009 to participate with a 3,5% working interest in the drilling of the Northwood Prospect in Green Canyon Block 945. The net acquisition cost to Maxus was $6,1 million for lease acquisition and rentals. This exploration well is located in 5.336 feet of water in the vicinity of several other Maxus properties. The well commenced drilling on June 6, 2009 and the joint venture decided to abandon the well on November 1, 2009, resulting in an accumulated $5,4 million in dry hole costs. The Northwood Prospect geological results are being evaluated by the partners and further decisions on future development are still pending. The current year net expenditures as of September 30, 2010, for the Northwood Prospect are $0,4 million.

In October 2010, the Company decided to relinquish 9 OCS blocks from the Alaminos protraction area after a technical evaluation of the blocks using the most updated drilling results, resulting in a charge of $2,8 million.

Asset Retirement Obligations

The Company recognizes depletion expense on the additional capitalized costs; accretion expense as the present value of the future asset retirement obligation increases with the passage of time, and the impact on fixed assets, if any, of changes in estimates of the liability. The following table sets forth a reconciliation of the beginning and ending asset retirement obligation liability:

Other Property, Plant, and Equipment — The Company’s other property, plant, and equipment consisting of software, furniture, fixtures, and installations has been depreciated using the straight-line method, with depreciation rates based on the estimated useful life of each class of property. Normal maintenance and repairs to all other fixed assets have been charged to expense as incurred.

Restricted Cash — The restricted cash balance primarily represents security deposits for letters of credit. The letters of credit are used as security with various governmental agencies and as support for bonds posted with governmental agencies or insurance companies.

Income Taxes — Income taxes are recognized for (a) the amount of taxes payable or refundable for the current year and (b) deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. Deferred tax assets and liabilities are measured based upon enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date.

Revenue Recognition — Oil and gas revenues from the Company’s interests in producing wells is recognized as title and physical possession of the oil and gas passes to the purchaser.

1. New Accounting Pronouncements

On March 20, 2009, the Argentine Federation of Professional Councils in Economic Sciences (“FACPCE”) approved the Technical Resolution No. 26 “Adoption of the International Financial Reporting Standards (“IFRS”) of the International Accounting Standards Board (“IASB”)”. Such resolution was approved by the CNV through General Resolution No. 562/09 dated December 29, 2009 (modified by General Resolution No. 576/10 dated July 1, 2010). The application of such rules will be mandatory for certain publicly-traded entities under Law No. 17,811 for the fiscal year beginning on January 1, 2012 and optional for non-public and other scoped-out companies. Anticipated application of IFRS is optional for fiscal years beginning on January 1, 2011. Consequently, the Company may apply IFRS optionally as from January 1, 2011. Management of the Company is analyzing effects that an eventual adoption of IFRS might have on the Company’s financial statements.

1. RELATED-PARTY TRANSACTIONS

Affiliated companies perform geological and geophysical exploration services for the Company. As of September 30, 2010, the Company had no accounts payable to those affiliated companies.

1. other EXPENSES, NET

1. EMPLOYEE BENEFIT PLANS

The Company has a Supplemental Executive Retirement Plan (“SERP”) and an Excess Benefits Plan (Excess) due to 1 active and 19 former executives. As of September 30, 2010, current liabilities of $0,5 million and noncurrent liabilities of $3,8 million are accrued for the Excess/SERP plans.

The Company provides certain health care and life insurance benefits for eligible retired employees and certain insurance and other postemployment benefits for eligible individuals whose employment was terminated by the Company prior to their normal retirement (collectively the “OPEB”). The Company accrues the estimated cost of the OPEB, during employees’ active service periods. Employees become eligible for these benefits if they met minimum age and service requirements. The Company accounts for the OPEB by accruing the estimated cost of postemployment benefits when the minimum service period is met, payment of the benefit is probable, and the amount of the benefit can be reasonably estimated. The Company’s policy is to fund the OPEB as claims are incurred.

Key information of these plans as of December 31, 2009 is as follows:

Actuarial assumptions

Discount rate	5,54%
Expected return on assets	N/A
Expected increase on salaries	N/A

The Company updates actuarial assumptions at the end of each year.

The SERP, Excess and OPEB programs mentioned above are valued at net present value and are disclosed as current and non-current liabilities in the “Accrued employees benefit plans” account. The actuarial losses and gains and interest costs are recognized in the “Other expenses, net” account of the statement of income.

Retiree medical coverage was offered to a group of non-contributory retirees who had experienced a loss of coverage in 2009 and whose eligibility was confirmed in 2010.  This retiree medical coverage began effective August 1, 2010, is secondary to Medicare, and varies based on the date of retirement and the company from whom retirement occurred.

1. COMMITMENTS and LIABILITIES

Amounts have been provided for various contingencies involving the Company. The estimated probable amounts recorded take into consideration the probability of occurrence, based on management’s expectations and on the opinion of legal counsel. Long term liabilities with fixed or determinable outflows are recorded on a discounted basis.

The major components of reserves as of September 30, 2010, are as follows:

	2010
Current — environmental liabilities	$45.073
Noncurrent:
Environmental liabilities	85.781
Black lung benefits act liabilities	3.041
Legal liability	11.737
Miscellaneous liabilities (1)	926
Total reserves — noncurrent	101.485
Total	$146.558
1. Miscellaneous liabilities are not significant individually.

Environmental Liabilities—Environmental liabilities are recorded when environmental assessments and/or remediation are probable and material and such costs to the Company can be reasonably estimated. The Company’s estimate of environmental assessment and/or remediation costs to be incurred is based on either (1) detailed feasibility studies of remediation approach and cost for individual sites or (2) the Company’s estimate of costs to be incurred based on historical experience and publicly available information based on the stage of assessment and/or remediation of each site. Long-term liabilities with fixed or objectively determinable outflows are recorded at their discounted value. Legal fees and expenses are accrued as incurred. As additional information becomes available regarding each site or as environmental remediation standards change, the Company revises its estimate of costs to be incurred in environmental assessment and/or remediation.

Laws and regulations relating to health and environmental quality in the United States affect the operations of the Company as a consequence of the remediation undertaken by Tierra pursuant to commitments made to environmental authorities mainly in connection with Diamond Shamrock Chemicals Company (“Chemicals”), which was sold to Occidental Petroleum Corporation and is presently an Occidental Petroleum Corporation subsidiary. These laws and regulations set various standards regulating certain aspects of health and environmental quality; provide for penalties and other liabilities for the violation of such standards; and establish, in certain circumstances, remedial obligations.

The Company believes that its policies and procedures in the areas of pollution control, product safety, and occupational health are adequate to prevent unreasonable risk of environmental and other damage, and of resulting financial liability, in connection with its business. Some risk of environmental and other damage is, however, inherent in particular operations of the Company, and as discussed below, Maxus and Tierra could have certain potential liabilities associated with operations of Maxus’s former chemical subsidiary. The Company cannot predict which environmental legislation or regulations will be enacted in the future or how existing or future laws or regulations will be administered or enforced. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies, could, in the future, require material expenditures by the Company for the installation and operation of systems and equipment for remedial measures, possible dredging requirements, and in certain other respects. Also, certain laws allow for recovery of natural resource damages from responsible parties and ordering the implementation of interim remedies to abate an imminent and substantial endangerment to the environment. Potential expenditures for any such actions cannot be reasonably estimated.

In connection with the sale of Maxus’s former chemical subsidiary, Chemicals, to Occidental Petroleum Corporation (together with its subsidiary Occidental Chemical Corporation, “Occidental”), Maxus agreed in 1986 to indemnify Chemicals and Occidental from and against certain liabilities relating to the business or activities of Chemicals prior to the September 4, 1986, closing date (the “Closing Date”), including certain environmental liabilities relating to certain chemical plants and waste disposal sites used by Chemicals prior to the Closing Date.

As of September 30, 2010, reserves for the environmental contingencies discussed herein totaled approximately $130,9 million. Management believes it has adequately reserved for all environmental contingencies that are probable and can be reasonably estimated as of such time; however, changes in circumstances could result in changes, including additions, to such reserves in the future.

Environmental Reserve (in Millions of dollars)
Project	September 30, 2010
Newark	$ 15,1
Passaic River	66,5
Hudson County (Kearny)	25,4
Painesville RIFS	13,5
Greens Bayou	4,7
Tuscaloosa	4,0
Other Sites	1,7
	$ 130,9

In the following discussion concerning plant sites and third-party sites, references to the Company include, as appropriate and solely for ease of reference, references to Maxus and Tierra. Maxus and Tierra are both wholly owned subsidiaries of the Company.

Newark, New Jersey — A consent decree, previously agreed upon by the U.S. Environmental Protection Agency (EPA), the New Jersey Department of Environmental Protection and Energy (DEP), and Occidental, as successor to Chemicals, was entered in 1990 by the U.S. District Court of New Jersey for Chemicals’ former Newark, New Jersey agricultural chemicals plant. The approved remedy has been completed and paid for by Tierra pursuant to the above-described indemnification obligation to Occidental. This project is in the operation and maintenance phase. Operating and maintaining such remedy is expected to cost approximately $1,0 million per year, and as of September 30, 2010, the Company has reserved approximately $15,1 million in connection with such activities.

Passaic River/Newark Bay, New Jersey — Studies have indicated that sediments of the Newark Bay watershed, including the Passaic River adjacent to the former Newark plant, are contaminated with hazardous chemicals from many sources. These studies suggest that the older and more contaminated sediments located adjacent to the former Newark plant generally are buried under more recent sediment deposits. Maxus, on behalf of Occidental, negotiated an agreement with the EPA under which Tierra has conducted further testing and studies to characterize contaminated sediment and biota in a six-mile portion of the Passaic River near the plant site. The stability of the sediments in the entire six-mile portion of the Passaic River study area was also examined as a part of Tierra’s studies. While some work remains, these studies were substantially completed in 2005. In addition:

• Maxus and Tierra have been conducting similar studies under their own auspices for several years.

• The EPA and other agencies are addressing the lower Passaic River in a joint federal, state, local, and private sector cooperative effort designated as the Lower Passaic River Restoration Project (“PRRP”). Tierra, along with 69 other entities (as of September 30, 2010), has agreed to participate in a remedial investigation and feasibility study (“RIFS”) in connection with the PRRP. The parties are discussing the possibility of further work with the EPA. The entities that have agreed to fund the RIFS have negotiated allocations of responsibility among themselves based on a number of considerations.

• In 2003, the DEP issued a directive (“Directive No. 1”) to Occidental and Maxus and certain of their respective related entities as well as other third parties. Directive No. 1 seeks to address natural resource damages allegedly resulting from almost 200 years of historical industrial and commercial development of the lower 17 miles of the Passaic River and a part of its watershed. Directive No. 1 asserts that the named entities are jointly and severally liable for the alleged natural resource damages without regard to fault. The DEP has asserted jurisdiction in this matter even though all or part of the lower Passaic River has been designated as a Superfund site and is a subject of the PRRP. Directive No. 1 calls for the following actions: interim compensatory restoration, injury identification, injury quantification, and value determination. Maxus and Tierra responded to Directive No. 1 setting forth good-faith defenses. Settlement discussions between the DEP and the named entities have been held; however, no agreement has been reached or is assured.

• In 2004, the EPA and Occidental entered into an administrative order on consent (“AOC”) pursuant to which Tierra (on behalf of Occidental) has agreed to conduct testing and studies to characterize contaminated sediment and biota in Newark Bay. The initial fieldwork on this study, which includes testing in Newark Bay, has been substantially completed. Discussions with the EPA regarding additional work that might be required are under way. In addition, in 2007 and 2008, EPA issued General Notice Letters to a series of additional parties concerning the contamination of Newark Bay. Five of these parties have entered into an agreement with Tierra to provide $250.000 each annually for the Newark Bay Remedial Investigation/Feasibility Study under Phase II of the AOC. In August 2010, Tierra proposed to the other parties that for Phase III of the Newark Bay RI/FS the cost sharing be on a per capita basis; the parties are considering the proposal.

• In December 2005, the DEP issued a directive to Tierra, Maxus and Occidental directing said parties to pay the state of New Jersey’s costs of developing a Source Control Dredge Plan focused on allegedly dioxin-contaminated sediment in the lower six-mile portion of the Passaic River. The development of this plan is estimated by the DEP to cost approximately $2,3 million. This directive was issued even though this portion of the lower Passaic River has been designated as a Superfund site and is a subject of the PRRP. The DEP has advised the recipients that (1) it is engaged in discussions with the EPA regarding the subject matter of the directive, and (2) the recipients are not required to respond to the directive until otherwise notified.

• Also in December 2005, the DEP sued Tierra, Maxus and several affiliated entities, in addition to Occidental, in connection with dioxin, DDT and other unspecified “hazardous substances” contamination allegedly emanating from Chemicals’ former Newark plant and contaminating the lower 17-mile portion of the Passaic River, Newark Bay, other nearby waterways, and surrounding areas. The DEP seeks unspecified damages for investigation, cleanup, and removal of alleged contamination; for loss of use of property; and for other matters. The DEP also seeks punitive damages. The defendants have made responsive pleadings and filings. The Court denied motions to dismiss by Occidental Chemical Corporation, Tierra and Maxus. The DEP filed its Second Amended Complaint in April 2008. Notwithstanding, the Court denied to plaintiffs´ motion to bar third party practice and allowed defendants to file third-party complaints. Third-party claims against approximately 300 companies and governmental entities (including certain municipalities) which could have responsibility in connection with the claim were filed in February, 2009. DEP has not placed dollar figures on all aspects of its claims, but it has (a) contended that $50 million cap on damages under one of the New Jersey statutes should not be applicable, (b) alleged that it has incurred approximately $113 million in past “cleanup and removal costs”, and is seeking an additional award of $10-$20 million to fund a study to assess natural resource damages, and (c) notified Maxus and Tierra´s legal defense team that DEP is preparing financial models of the cost of other economic impacts. DEP filed its Third Amended Complaint in August 2010, adding Maxus International Energy Company and YPF International S.A. (formerly known as YPF International Ltd.) as additional named defendants. In September 2010, agencies of the State of New Jersey and a number of third-party defendants filed motions to dismiss; Maxus and Tierra filed their responses. The judge has not yet ruled on these motions. On a paraller track to the Passaic River Litigation, Eric Green, a well-known legal scholar and mediator, began work in late August 2010 to prepare a work plan for an alternative dispute resolution process to be presented to the parties by November 2010.

• In June 2007, the EPA released a draft Focused Feasibility Study (“FFS”). The FFS outlines several proposals for early remedial action in the Passaic River, which range from no action (which would result in comparatively little cost) to extensive dredging and capping in the lower eight miles of the river (which, according to the draft FFS, the EPA estimated could cost from $0,9 billion to $2,3 billion), and are all described by the EPA as involving proven technologies that could be carried out in the near term without extensive research. At this time, no remedy has been selected, nor has action been demanded of any party. Tierra, in conjunction with the other parties of the PRRP group, submitted comments on the draft FFS to the EPA, as did a number of other interested parties. EPA held a meeting of the Contaminated Sediment Technical Advisory Group (“CSTAG”) in April 2008, and as a result of CSTAG comments has engaged in further study and modeling; EPA is presently awaiting results which will be further considered by CSTAG, and expects to issue a report in thethird quarter of 2011 and reach a decision in the fourth quarter of 2011. Tierra will respond to any further EPA proposal as may be appropriate at that time.

• In August 2007, the National Oceanic and Atmospheric Administration (“NOAA”), as one of the Federal Natural Resources (“Trustees”), sent a letter to the parties of the PRRP group, including Tierra and Occidental, requesting that the group enter into an agreement to conduct a cooperative assessment of natural resources damages in the Passaic River and Newark Bay. The PRRP group responded through its common counsel to request that discussions relating to such an agreement be postponed until 2008, due in part to the pending FFS proposal by the EPA. In January 2008, NOAA sent a letter to the Company, its subsidiary CLH Holdings Inc., and other entities designating each as a potentially responsible party (PRP) with respect to this matter. In November 2008, Tierra, along with a subset of PRRP group members, entered into an agreement with the Trustees to engage in an assessment for one year; in November 2009, Tierra declined to extend this agreement, citing concerns arising from the litigation with DEP.

• In June 2008, the EPA, Occidental, and Tierra entered into an AOC pursuant to which Tierra (on behalf of Occidental) will undertake a removal action of sediment from the Passaic River in the vicinity of the former Diamond Alkali facility. This action will result in the removal of approximately 200.000 cubic yards (153.000 cubic meters) of sediment, which will be carried out in two different phases. The first phase, which is scheduled to begin in 2011, encompasses the removal of 40.000 cubic yards (30.600 cubic meters) of sediments and is expected to be completed by the beginning of 2012. The first phase estimated cost is approximately $ 45 million. The second phase involves the removal of approximately 160.000 cubic yards (122.400 cubic meters) of sediment. This second phase will start when an appropriate disposal facility is agreed upon. Pursuant to the AOC, the EPA has required the constitution of a trust fund of $ 80 million for the performance of the removal work. The Company originally accrued $ 80 million with respect to this matter. As of September 30, 2010, $ 22 million has been funded (thereby reducing the reserve in a similar amount). An additional $ 10 million must be contributed every six months, until the completion of the $ 80 million. Notwithstanding, during 2010, letters of credit to provide financial assurance were issued, in order to avoid the restriction of additional funds pursuant to the AOC. During the removal action, contaminants not produced by the former Diamond Alkali plant, such as PCBs and mercury, will necessarily be removed along with dioxin. Although having recognized the estimated costs related to all works mentioned above, the Company may seek cost recovery from the parties responsible for such contamination, provided contaminants’ origins were not from the Diamond Alkali plant. However, as of September 30, 2010, it is not possible to make any predictions regarding the likelihood of success or the funds potentially recoverable in a cost-recovery action.

As of September 30, 2010, there is a total of approximately $66,5 million reserved comprising the estimated costs for studies, the Company’s best estimate of the cash flows it could incur in connection with remediation activities considering the studies performed by Tierra, the estimated costs related to the agreement, and in addition certain other matters related to Passaic River and the Newark Bay. However, it is possible that other works, including interim remedial measures, may be ordered. In addition, the development of new information on the imposition of natural resource damages, or remedial actions differing from the scenarios that the Company has evaluated could result in additional costs to the amount currently accrued.

Hudson County, New Jersey — Until 1972, Chemicals operated a chromite ore processing plant in Kearny, New Jersey (the “Kearny Plant”). According to the DEP, wastes from these ore processing operations were used as fill material at a number of sites in and near Hudson County. Occidental, as successor to Chemicals, signed an AOC with the DEP in 1990 for investigation and remediation work at certain chromite ore residue sites in Kearny and Secaucus, New Jersey. Tierra, on behalf of Occidental, is presently performing the work, and Tierra is funding Occidental’s share of the cost of investigation and remediation of these sites. Tierra, on behalf of Occidental, is providing financial assurance in the amount of $20 million for performance of the work. While Tierra has participated in the cost of studies and is implementing interim remedial actions and conducting remedial investigations, the ultimate cost of remediation is uncertain. Tierra submitted its remedial investigation reports to the DEP in 2001, and the DEP continues to review these reports. In addition:

• In May 2005, the DEP took two actions in connection with the chrome sites in Hudson and Essex Counties. First, the DEP issued a directive to Maxus, Occidental, and two other chromium manufacturers (the “Respondents”), directing them to pay the DEP a total of $19,5 million to conduct a study and arrange for the cleanup of chromite ore residue at three sites in Jersey City. While the Company believes that Maxus is improperly named and there is little or no evidence that Chemicals’ chromite ore residue was sent to any of these sites, the DEP claims the Respondents are jointly and severally liable without regard to fault. Second, the DEP filed a lawsuit against Occidental and two other entities in state court in Hudson County, seeking, among other things, cleanup of various sites where chromite ore residue is allegedly located; recovery of past costs incurred by the state at such sites (including in excess of $2,3 million allegedly spent for investigations and studies); and, with respect to certain costs at 18 sites, treble damages. The DEP claims that the defendants are jointly and severally liable, without regard to fault, for much of the damages alleged. In February 2008, the parties reached a tentative agreement for which Tierra will pay $ 5 million and will perform remediation works in three sites, with a total cost of approximately $ 2 million.

• Pursuant to a request of the DEP, in the second half of 2006, Tierra and other parties tested the sediments in a portion of the Hackensack River near the former Kearny Plant. Tierra has submitted work plans for additional sampling requested by the DEP and is presently awaiting DEP comments.

• In November 2005, several environmental groups sent a notice of intent to sue the owner of the property adjacent (the “Adjacent Property”) to the former Kearny Plant and five other parties, including Tierra, under the Resource Conservation and Recovery Act. The stated purpose of the lawsuit, if filed, would be to require the noticed parties to carry out measures to abate alleged endangerments to health and the environment emanating from the Adjacent Property. The parties have entered into an agreement that addresses the concerns of the environmental groups, and these groups have agreed, at least for now, not to file suit.

• In March 2008, the DEP approved an Interim Response Action Work plan for work to be performed at the Kearny Plant site by Tierra and at the Adjacent Property by Tierra in conjunction with other parties. This Adjacent Property was listed by EPA on the National Priority List in 2007. In July 2010, EPA notified Tierra (on behalf of OCC) along with three other parties they are potentially responsible for this adjacent site, the Standard Chlorine Chemical Company property. The EPA requested a good faith offer to conduct a Remedial Investigation/ Feasibility Study for this site. The parties have responded and are awaiting discussions with EPA as to the scope of these activities.

As of September 30, 2010, there is a total of approximately $25,4 million reserved in connection with the foregoing chrome-related matters. Soil action levels for chromium in New Jersey have not been finalized, and the DEP continues to review the proposed action levels. The cost of addressing these chrome-related matters could increase depending upon the final soil action levels, the DEP’s response to Tierra’s reports, and other developments.

Painesville, Ohio — From approximately 1912 through 1976, Chemicals operated manufacturing facilities in Painesville, Ohio (the “Painesville Works”). The operations over the years involved several discrete, but contiguous plant sites over an area of approximately 1.300 acres (525 hectares). The primary area of concern historically has been Chemicals’ former chromite ore processing plant (the “Chrome Plant”). For many years, the site of the Chrome Plant has been under the administrative control of the EPA, pursuant to an AOC under which Chemicals is required to maintain a clay cap over the Chrome Plant site and to conduct certain ground water and surface water monitoring. Certain other areas have previously been clay-capped, and one specific site, which was a waste disposal site from the mid-1960s until the 1970s, has been encapsulated and is being controlled and monitored.

In 1995, the Ohio Environmental Protection Agency (OEPA) issued its Director’s Final Findings and Order (the “Director’s Order”) by consent, ordering that RIFS be conducted at the former Painesville Works area. Tierra has agreed to participate in the RIFS as required by the Director’s Order. Tierra submitted the remedial investigation report to the OEPA, which report was finalized in 2003. Tierra is submitting required feasibility reports separately. In addition, the OEPA has approved certain work, including the remediation of specific sites within the former Painesville Works area and work associated with the development plans discussed below (the “Remediation Work”). The Remediation Work has begun. As the OEPA approves additional projects for the site of the former Painesville Works, additional amounts may need to be reserved. More than 10 years ago, the former Painesville Works site was proposed for listing on the National Priority List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA); however, the EPA has stated that the site will not be listed as long as it is satisfactorily addressed pursuant to the Director’s Order and OEPA’s programs. The site has not been listed. The Company has reserved a total of approximately $13,5 million as of September 30, 2010, for its estimated share of the cost to perform the RIFS, the Remediation Work, and other operation and maintenance activities at this site. The scope and nature of any further investigation or remediation that may be required cannot be determined at this time; however, as the RIFS progresses, the Company will continuously assess the condition of the Painesville Works site and make any changes, including additions, to its reserve as may be required.

Tierra has entered into an agreement with a developer for the possible development and use of all or portions of this site. While the developer is proceeding with its development plans, there can be no assurance that this site will be successfully developed or that any productive use can be made of all or a portion of this site.

Greens Bayou — Pursuant to settlement agreements with the Port of Houston Authority (the “Port”) and other parties, Tierra and Maxus are participating (on behalf of Chemicals) in the remediation of property adjoining Chemicals’ former Greens Bayou facility where DDT and certain other chemicals were manufactured. Additionally, the parties have entered into negotiations with the federal and state Natural Resources Trustees concerning natural resources damages resulting from the contamination and the remediation, and have entered into a letter agreement setting forth a plan to purchase credits in specified restoration projects, pending reduction to a binding agreement. At September 30, 2010, the Company has reserved approximately $4,7 million for its estimated share of future activities associated with the Greens Bayou facility.

Other Sites — In June 2005, the EPA designated Maxus as a PRP at the Milwaukee Solvay Coke & Gas Site in Milwaukee, Wisconsin. The basis for this designation is Maxus’s alleged status as the successor to Pickands Mather & Co. and Milwaukee Solvay Coke Co., companies that the EPA has asserted are former owners or operators of such site. Preliminary work in connection with the RIFS with respect to this site commenced in the second half of 2006. Maxus has reserved approximately $1,2 million as of September 30, 2010, for its estimated share of the costs of the RIFS. Maxus lacks sufficient information to determine additional exposure or costs, if any, it might have with respect to this site.

The Company has completed remediation activities at its former Tuscaloosa, Alabama facility. The Company has reserved $4,0 million to address operation and maintenance activities for the future, estimated at approximately $0,2 million annually.

Maxus has agreed to defend Occidental, as successor to Chemicals, with respect to the Malone Services Company Superfund Site in Galveston County, Texas. This site is a former waste disposal site where Chemicals is alleged to have sent waste products prior to September 1986. It is the subject of enforcement activities by the EPA. Although Occidental is one of many PRPs that have been identified and have agreed to an AOC, Tierra (which is handling this matter on behalf of Maxus) presently believes the degree of Occidental’s alleged involvement as successor to Chemicals is relatively small.

Chemicals has also been designated as a PRP by the EPA under CERCLA with respect to a number of third-party sites where hazardous substances from Chemicals’ plant operations allegedly were disposed or have come to be located. Numerous PRPs have been named at substantially all of these sites. At several of these, Chemicals has no known exposure. Although PRPs are typically jointly and severally liable for the cost of investigations, cleanups, and other response costs, each has the right of contribution from other PRPs, and as a practical matter, cost sharing by PRPs is usually effected by agreement among them. At a number of these sites, the ultimate response cost and Chemicals’ share of such costs cannot be estimated at this time. At September 30, 2010, the Company has reserved approximately $0,5 million in connection with its estimated share of costs related to these sites.

Black Lung Benefits Act Liabilities—The Black Lung Benefits Act provides monetary and medical benefits to miners disabled with black lung disease, and also provides benefits to the dependents of deceased miners if black lung disease caused or contributed to the miner’s death. As a result of the former operations of its coal-mining subsidiaries, the Company is required to provide insurance of this benefit to former employees and their dependents. The Company maintains a reserve to cover its estimate of these obligations.

Legal Liabilities and Proceedings — In 2001, the Texas State Comptroller assessed a Maxus subsidiary approximately $1,4 million in Texas state sales taxes for the period from September 1, 1995 through December 31, 1998, plus penalty and interest. In August 2004, the administrative law judge issued a decision affirming approximately $1,0 million of such assessment, plus penalty and interest. The Company believes the decision is erroneous, but has paid the revised tax assessment, penalty, and interest (a total of approximately $1,8 million) under protest. Maxus filed suit in Texas state court in December 2004, challenging the administrative decision. The matter will be reviewed by a trial de novo in the court action.

In 2002, Occidental sued Maxus and Tierra in state court in Dallas, Texas, seeking a declaration that Maxus and Tierra have the obligation under the agreement, pursuant to which Maxus sold Chemicals to Occidental, to defend and indemnify Occidental from and against certain historical obligations of Chemicals, including claims related to Agent Orange and vinyl chloride monomer, notwithstanding the fact that said agreement contains a 12-year cutoff for defense and indemnity obligations with respect to most litigation. Tierra was dismissed as a party, and the matter was tried in May 2006. Following trial, judgment was entered against Maxus. Maxus appealed to the Dallas Court of Appeals, and the judgment at trial was affirmed in February 2008. Maxus petitioned the Supreme Court of Texas for review, but was notified in July 2008 that the petition was denied. No further appeal is anticipated and payment is pending upon final determination of costs. The judgment awarded Occidental declaratory relief, approximately $2,5 million, and attorney’s fees and costs. In December 2006, the trial court set the amount of Maxus’s supersedeas bond, and Maxus posted such bond, in the amount of approximately $14,9 million, including post judgment interest at the rate of 8% per annum. In March 2009, Maxus paid over $ 14,9 million to Occidental. Maxus paid Occidental $ 1,9 for expenses incurred for consultants and outside counsel, plus interest on those expenses, in September 2009, and remains in discussions with Occidental regarding other amounts due. As of September 30, 2010, Maxus had established a reserve of approximately $ 0,3 million with respect to this matter. In developments related to the Agent Orange litigation, which may be affected by this lawsuit, the U.S. district court granted the defendants’ motions for summary judgment in a number of these cases. The plaintiffs appealed the judgments to the Second Circuit Court of Appeals, which affirmed the summary judgment; in March 2009, the U.S. Supreme Court declined to hear a further petition. All pending Agent Orange litigation was dismissed in December 2009, and although it is possible that further claims may be filed by unknown parties in the future, no further significant liability is anticipated.

In March 2005, Maxus agreed to defend Occidental, as successor to Chemicals, with respect to an action seeking the contribution of costs incurred in connection with the remediation of the Turtle Bayou waste disposal site in Liberty County, Texas. The plaintiffs alleged that certain wastes attributable to Chemicals found their way to the Turtle Bayou site. Trial for this matter was bifurcated, and in the liability phase, Occidental and other parties were found severally, and not jointly, liable for waste products disposed of at this site. Trial in the allocation phase of this matter was completed in the second quarter of 2007, and following post judgment motions, the court has entered a decision setting Occidental’s liability at 15,96% of those costs incurred by one of the plaintiffs. Maxus appealed this matter and posted a supersedeas bond in the amount of approximately $3,1 million. In June 2010, the Court of Appeals ruled that the District Court had committed errors in the admission of certain documents, and remanded the case to the District Court for further proceedings. As of September 30, 2010, Maxus has reserved $3,8 million with respect to this matter.

In 2005, Skidmore Energy Company and others (“Skidmore”) sued Maxus (U.S.) Exploration Company (“Maxus US”), a subsidiary of the Company, in state court in Texas. Skidmore claims it was entitled to an assignment of approximately five oil and gas leases in the U.S. Gulf of Mexico. Maxus US denies Skidmore’s claims. Maxus US and Skidmore agreed to submit this matter to binding arbitration; the arbitration hearing was held from October 29 to November 1, 2007, with briefs submitted to the arbitration panel on November 6, 2007. The decision of the arbitration panel, holding that Skidmore should take nothing, was rendered on November 29, 2007; final judgment based upon the arbitration award was entered on March 24, 2009, by the trial court. Skidmore has appealed this entry of judgment; Maxus has made appropriate responsive filings.

In May 2008, Ruby Mhire and others (“Mhire”) brought suit against Maxus and others, alleging that various parties including a predecessor of Maxus had contaminated certain property in Cameron Parish, Louisiana, during oil and gas activities on the property; Maxus’ predecessor operated on the property from 1969 to 1989. The Mhire plaintiffs have demanded remediation and other compensation, but have not quantified the demand at this time. Management presently believes that relatively little remediation activity is merited, but cannot guarantee that significant damages will not be awarded by the Louisiana court. Maxus has made appropriate responsive pleadings in the matter.

In February 2009, Enbridge Offshore Facilities LLC, the owner and operator of pipelines serving the platform for the Company’s Neptune Prospect, brought a claim for arbitration against the participants in the Neptune Prospect, alleging damages in the amount of $52 million for delays during the commissioning of the pipelines. The participants deny that damages were due under the applicable contracts. This matter was heard by an arbitrator in May 2010; the arbitrator issued the final award in August 2010, awarding the plaintiff Enbridge $32,9 million in damages, of which the Company’s share is 15% or $5,0 million. Enbridge has agreed to allow the Company to pay its portion of the final award over time by amending the oil transportation agreement in place to establish a surcharge of $2 per barrel on all Maxus oil transported by Enbridge.

In July 2010, Sfile Technology Corporation (“Sfile”) brought suit against Maxus, Tierra and Maxus US, alleging a breach of contract with regard to a vendor relationship between Sfile, Tierra and Maxus relating to electronic data management services provided in connection with the Passaic River litigation. Sfile has sought damages in the amount of approximately $560.000 plus costs and attorney fees. Defendants believe the claim to be without merit and have made appropriate responsive pleadings in the matter.

Reference should be made to the sections above captioned “Passaic River/Newark Bay, New Jersey” and “Hudson County, New Jersey” for a discussion of certain other litigation.

The Company, including its subsidiaries, is a party to various other lawsuits, the outcomes of which are not expected to have a material adverse effect on the Company’s financial condition. The Company has established reserves for legal contingencies in situations where a loss is probable and can be reasonably estimated.

The Company has entered into various operating agreements and capital commitments associated with the exploration and development of its oil and gas properties, which are not material, except those of the Neptune Prospect. Total commitments for the Neptune field, located in the Atwater Valley area, are capital expenditures of $3,8 million for the remainder of 2010 and a minimum pipeline transportation payment obligation of $1,0 million for the remainder of 2010; $3,1 million for 2011; $2,4 million for 2012; $1,8 million for 2013; $1,5 million for 2014; and, $3,3 million thereafter.