The Venezuelan Oil Industry

Prepared: 2011

Author: CEPRODE.ES

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Section

I. EXPLORATION AND PRODUCTION

Commercial oil production in this country is concentrated in the Maracaibo-Falcón basin, which extends across the states of Zulia and Falcón; the Barinas-Apure basin, which extends across the states of Barinas and Apure; the Oriental basin, which extends across the states of Guárico, Anzoátegui, Monagas, and Sucre (the FPO belongs to the Oriental basin); and the Carúpano basin, incorporated in 2006 and encompassing northern Sucre state, Nueva Esparta state, and the territorial waters off Venezuela's eastern coast.

Venezuela's oil infrastructure, a network of pipelines and facilities, stretches across the country.

Venezuela currently has one of the largest oil reserves in the world. International oil certification companies attest that this country has nearly 297 billion barrels of proven reserves.

Venezuela: Oil reserves 2010 (10.9 barrels)

Commercial oil production in this country is concentrated in the following basins:

Maracaibo-Falcón (formerly known as Occidental-Zulia), which extends across the states of Zulia and Falcón;

Barinas-Apure (formerly known as Meridional Central Barinas and Apure) which extends across the states of Barinas and Apure;

Eastern, which extends along the states of Guárico, Anzoátegui, Monagas and Sucre (the FPO belongs to the Eastern basin);

Carúpano, incorporated in 2006 and covering the north of Sucre state, Nueva Esparta state and the territorial waters located off the eastern coast

EAST DIVISION

This region covers an area of 6,493 km² and is divided into four areas for the management of 10 operational fields. Crude oil reserves in this region total 89.5 billion barrels. For production of 940,000 barrels per day, there are 618 active wells with a capacity of 2 million barrels per day.

In 2010, PDVSA primarily advanced secondary recovery projects through gas and water injection, drilling activities, and new infrastructure. This production was leveraged by improvements to the production profile implemented in 84 wells (47 in the Furrial District and 37 in the Punta de Mata District), and the opening of 16 wells closed in February 2010 due to reservoir energy control in the Punta de Mata District.

WESTERN DIVISION

This region covers an area of ​​18,970 km² and is divided into four areas for the management of 84 operational fields. Crude oil reserves in this region total 19.956 billion barrels. The production facilities have the capacity to handle 1.5 million barrels per day and currently produce 872,000 barrels per day.

In terms of drilling, PDVSA optimized the required space by evaluating the original design used for 3,000 HP workover rigs in the Tierra Este Liviano area, achieving a 25% cost reduction compared to the original design. Regarding production facilities, production was restored to 24.4 MB/d by installing 1,040 electric motors for rocker arms in the Tierra unit.

ORINOCO BELT DIVISION

PDVSA recognizes the geopolitical importance of the FPO by establishing it as an Executive Directorate for the development of this large extra-heavy hydrocarbon reservoir, located south of the states of Guárico, Anzoátegui, and Monagas, in order to achieve synergy between the Districts of the EyP Faja Division and the Mixed Companies of the Faja.

This strategy—according to the PDVSA report—arose with the purpose of leveraging resources in terms of operational infrastructure and the expertise of its personnel in core business processes.

Ultimately, the FPO was divided into four large areas, named from west to east: Boyacá, Junín, the areas were in turn divided into 30 blocks (excluding the area assigned to Petrocedeño, S.A., Petropiar, S.A., Petromonagas, S.A., Petrozuata, C.A., and Petrolera Sinovensa, S.A.), of which 19 blocks will be quantified through a joint effort between CVP and professionals from 22 companies from 19 countries that signed Memorandums of Understanding with the National Executive. The remaining blocks will be quantified through PDVSA's own efforts.

OFFSHORE DIVISION

During 2010, significant progress was made in the successful drilling of Phase I of the Dragón Field wells with the completion of a total of five wells (DR5A, DR6, DR7, DR8 and DR9) which together with well DR4A (completed in 2009) make up a total of six of the eight wells in the Dragón Field, as part of the development of the design and technology of the Offshore infrastructure to meet the total goal of 600 MMPCGD contemplated in the 2008-2012 Oil Seeding Plan. In the execution of the Mariscal Sucre project, a reduction in drilling, evaluation and completion times of the wells was achieved, resulting in a decrease in costs and in the operational and environmental risks of the project.

The Deltana Platform Project is immersed within the Eastern Caribbean Delta Project and includes the development of exploration and exploitation of non-associated gas offshore in an area of ​​9,441 km², in which there are hydrocarbon reserves that extend across the delimitation line between the Bolivarian Republic of Venezuela and the Republic of Trinidad and Tobago.

Block 2 • In August 2010, the Unitization Agreements were signed with the Republic of Trinidad and Tobago, which will allow the development of the Loran-Manatee fields on the Deltana Platform, with the goal of producing 750 MMP/CD of non-associated gas within a joint venture to be established by PDVSA with 61% of the equity and Chevron with the remaining 39%. The start of commercial production is estimated for 2015, with options for supplying the domestic market and exporting gas as Liquefied Natural Gas (LNG).

Block 4 • Time-depth conversion of seismic horizons associated with the reservoirs eligible for unitization. • Petrophysical evaluation (analysis of rock physical properties) of the Cocuina-1X, Cocuina-2X, and Manakin-1 wells.

The Rafael Urdaneta project is located in the Gulf of Venezuela, northeast of Falcón state. It is expected to increase reserves by 23 TCF of non-associated natural gas and 7 billion barrels of liquid hydrocarbons. It covers an area of ​​approximately 30,000 km2, including areas at risk for exploration with geological characteristics that make them potentially prolific for hydrocarbon production.

The Rafael Urdaneta Project is part of the project portfolio of what Venezuela calls the Gas Revolution, and also serves the political purpose of generating geopolitical influence in the region, over an area of ​​"important" territorial waters. The fundamental objective of the project is to discover, quantify, and exploit unrestricted gas deposits to meet the energy demand of the country's northwestern region, primarily in the Paraguaná Refining Center (CRP), in the initial production phase. Additionally, it will consolidate the transfer of gas to South and Central America. In the Gulf region, the government awarded six blocks; Gazprom has two, and the rest were assigned to Chevron, Petrobrás, Teikoku Oil, Eni, and Repsol.

PERLA 1X WELL IN THE RAFAEL URDANETA PROJECT

This is the largest gas discovery in history and the largest ever made in the country. The field could contain recoverable gas reserves of between 1,000 and 1,400 million barrels of oil equivalent. The Perla 1X well reached a total depth of 3,147 meters in a 60-meter water depth. Production tests resulted in a flow rate of 570,000 cubic meters of gas/day and 620 barrels of oil/day, restricted by facility specifications. Repsol, operating with Italy's Eni, was the consortium that discovered the Cardón IV block. For the block's development phase, Venezuelan state oil company PDVSA would acquire a 35% stake in the consortium, with Repsol and Eni each holding a 32.5% stake.

Section

II. REFINING

PDVSA carries out refining activities in the Republic of Venezuela, the Caribbean, the United States, and Europe. Its worldwide refining capacity has increased from 2,362 MB/d in 1991 to 3,035 MB/d as of December 31, 2010.

PDVSA's National Refining business has six refineries, located in different regions of the country. They have a refining capacity of 1,303 MB/d.

Paraguaná Refining Center (CRP)

The CRP has a nominal capacity of 955 MBD, comprised of the Amuay (645 MBD) and Cardón (310 MBD) refineries, located on the Paraguaná Peninsula, Falcón state.

Additionally, the Bajo Grande Refinery is integrated, with a capacity of 16 MBD, intended for asphalt production in Zulia state.

Puerto La Cruz Refinery (PLC)

The PLC Refinery has a nominal capacity of 187 MBD and is located in Anzoátegui state.

The San Roque Refinery, with a capacity of 5 MBD, operates in an integrated manner in this same state. It processes light and heavy crude oil.

El Palito Refinery (ELP) The ELP Refinery has a processing capacity of 140 MBD. It is located in the central region of the country, specifically in Carabobo state.

Section

III. MARKETING

Section

IV. TRANSPORT, SHIPS, TANKS AND PORTS

PDV MARINA, a PDVSA subsidiary responsible for the distribution and maritime transport of hydrocarbons and their derivatives, currently has 18 tankers; 10 of them directly operated and registered in the Bolivarian Republic of Venezuela, for the supply of hydrocarbons via coastal shipping, as well as for deliveries in South America and the Caribbean; eight Aframax tankers, belonging to its subsidiary Venfleet, LTD, registered in Panama and operated by Bernhard Schulte Shipmanagement of the Republic of Cyprus, supplying PDVSA's refineries abroad.

PDV Marina increased its total transported volume by 24 MMBl, with the increase particularly reflected in cabotage, from 6 MMBl to 37 MMBl.

It also transported 43 MMBl of white goods (28%), and the remaining volume of 109 MMBl (72%) was moved by the fleet controlled by third parties.

OIL TERMINALS

Section

V. MAIN PARTNERS

PARTNER: RUSSIA

Responsible entities: for the Russian side, the Ministry of Energy of the Russian Federation, and for the Venezuelan side, the Ministry of People's Power for Energy and Petroleum.

• OIL The joint venture PetroMiranda S.A., between the Russian National Petroleum Consortium and PDVSA, to exploit the Junín 6 Block in the Orinoco Oil Belt, is advancing in the basic engineering and contracting stages for all infrastructure development associated with oil production and upgrading. We have a goal of starting production by 2012. The total production capacity of this field will be 450 MB/d in 2017.

• The transfer of production field assets from British Petroleum in Venezuela to the Russian company TNK-BP was authorized. This field currently produces 120 MB/d.

• A joint venture between PDVSA and Gazprom Bank is in the process of being established to exploit oil in Lake Maracaibo.

• A visit by Deputy Prime Minister Igor Sechin is pending to present the proposal for Rosneft's participation in the development of the Carabobo 2 block in the Orinoco Oil Belt, as previously agreed.

2- GAS:

• The terms for issuing the gas exploration and production licenses in the Urumaco I and II blocks in the Gulf of Venezuela for Gazprom's participation have been agreed upon.

• A response from Gazprom to the offer made for its participation in the Offshore, Blanquilla, and Tortuga blocks is awaited.

3- REFINING SECTOR:

• The sale of PDVSA's stake in the Ruhl Oel Refining System in Germany to Rosneft was finalized.

• A visit by Deputy Prime Minister Igor Sechin is pending to discuss the possible participation of Russian companies in Citgo's refining circuit in the United States.

4- SERVICES AND INFRASTRUCTURE SECTOR:

• The VENRUS Oil Services Joint Venture between PDVSA and Gazprom is making successful progress.

• PDVSA and Transneft are making progress in forming a joint venture for the development of transportation and hydrocarbon infrastructure for the Orinoco Oil Belt.

PARTNER: CHINA

Venezuela-China Trade Balance Thousands of dollars

Source: BANCOEX

e: Figures for public iron, petroleum, and its derivatives from the public sector are estimated. p: Figures for this period are estimated.

PARTNERS IN COOPERATION AGREEMENTS

San José Agreement (SJA)

Signed on August 3, 1980, to guarantee the supply of hydrocarbons to countries in Central America and the Caribbean. This program is valid for one year, renewable each year. Under this agreement, Mexico and Venezuela jointly supply 160 MBD of crude oil and/or refined products (80 MBD each) to participating countries, under special financing conditions.

Caracas Energy Cooperation Agreement (ACEC)

Signed on October 19, 2000, between Venezuela and countries in Central America and the Caribbean. It has been established in several stages, pursuant to the Venezuelan government's decision to expand the agreement's coverage to all eligible beneficiary countries that request it. In the first stage, the agreement was signed by the Dominican Republic, Guatemala, Costa Rica, Panama, El Salvador, Jamaica, Haiti, Honduras, Nicaragua, Barbados, and Belize. In later stages, it was signed by Bolivia, Paraguay, and Uruguay. The agreements vary in supply volumes, depending on the energy mix, characteristics, and domestic consumption of each country.

Comprehensive Cooperation Agreement (CIC)

This corresponds to the following agreements signed by Venezuela:

◦ Agreement signed with the Republic of Cuba, which establishes the sale of crude oil by the Bolivarian Republic of Venezuela, up to 92 MBD, under a mixed short- and long-term financing scheme.

Agreement signed with the Argentine Republic on April 6, 2004, originally establishing an annual fuel supply of up to 21.9 MBD of fuel oil and 2.7 MBD of diesel; in 2008, the quota was increased to 27 MBD of fuel oil and 8 MBD of diesel, and has remained unchanged to date.

PARTNERS IN ENERGY COOPERATION

Petroamérica brings together three subregional energy integration initiatives: Petrosur, which brings together Argentina, Brazil, Venezuela, and Uruguay; Petrocaribe, which was founded by 14 countries in the Caribbean region; and Petroandina, proposed to the countries that make up the Andean Community of Nations (Bolivia, Ecuador, Colombia, Peru, and Venezuela).

PARTNERS IN INTERNATIONAL EXPLORATION PROJECTS

During 2010, PDVSA carried out 6 International Exploratory Study Projects, which had the objective of investigating a total volume of estimated expectations of 2,953 MMBls of crude oil and 25,159 MMMCF of gas in Bolivia, Argentina, Cuba, Ecuador and Uruguay.

PARTNERS IN RETAIL PRODUCTS

In terms of international retail marketing of products, fulfilling a geopolitical vision of Latin American integration, Commercit placed 3 million gallons of finished lubricants (equivalent to 2 MBD), jointly with the international subsidiaries PDV Ecuador, S.A., PDV Brasil Combustiveis e Lubrificantes, Ltda. and PDV Guatemala Ltd. Specifically, PDV Ecuador placed 2 million gallons of lubricants in Ecuador, achieving a 10% share of this South American market. Additionally, it sold 375 thousand gallons of base lubricants to meet the requirements of the South American market, as well as 28 million gallons of fuels through the service station networks of PDV Brasil Combustiveis e Lubrificantes, PDV Guatemala and PDV Ecuador.

PARTNERS IN SHIP CONSTRUCTION AND MAINTENANCE

The maintenance of the transport fleet assumes an international diversification of major vessel maintenance, continuing with the dry docking of one of the Aframaxes vessels in Vietnam and a Production vessel in Curacao.

The strategic alliance between PDV Marina, PDVSA Naval, and the Brazilian shipyard EISA, responsible for the oil tanker construction project, carried out

the launch of the Tanker Abreu e Lima. This tanker is the first of 10 vessels being built in Rio de Janeiro.

With China, the partnership agreement signed between PDV Marina and Petrochina International Company Limited for the acquisition, operation, management, and operation of a new fleet of vessels for the transport of hydrocarbons is noteworthy.

PARTNERS IN SHIPYARD CONSTRUCTION

PDVSA Naval has a program for the adaptation and construction of three shipyards in Venezuela: the North Eastern Shipyard, located on the Araya Peninsula in Sucre state; the Astinave Shipyard, located on the Paraguaná Peninsula; and the Río Orinoco Shipyard, located in Ciudad Guayana. These projects are being carried out with the assistance of specialized companies from countries such as Brazil and South Korea. They will serve to consolidate and develop the shipbuilding industry in Venezuela, in the context of technology transfer and professional training, as well as to boost the operations of the National Petroleum Industry.

PARTNERS FOR FUTURE REFINERIES

In the Caribbean

Adjustment and expansion of the Kingston Refinery in Jamaica.

In Cuba, the Camilo Cienfuegos Refinery expansion is projected to begin in 2014. Similarly, the Hermanos Díaz Refinery is planned to expand from 22 MBD to 50 MBD, in which PDVSA currently has no stake; however, after the expansion project is launched, PDVSA will have a 49% stake.

Nicaragua: Construction of a refinery called the El Supremo Sueño de Bolívar Industrial Complex (150 MBD).

In South America

Brazil: Abreu e Lima Refinery in Brazil, with a capacity of 230 MBD, with a 40% PDVSA stake.

In Ecuador: Eloy Alfaro Delgado Pacific Refining Complex, 300 MBD. The project, scheduled to start in 2015, is in the Conceptual Engineering phase, and its investment, resulting from a 49% stake, is $5.779 billion.

In Asia

China: The construction of three new refineries is planned, with PDVSA holding a 40% stake in each.

Syria

A 140 MBD refinery, a project envisioned through the Venezuela-Syria-Iran Partnership, with PDVSA holding a 33% stake.

Vietnam: The expansion of the Dzung Quat Refinery; the project will increase the refinery's capacity from 140 to 210 MBD. It is estimated to be operational in 2016 and represents an investment of $400 million, equivalent to PVDSA's 40% stake in the project.

Section

VI. PDVSA BOARD OF DIRECTORS