April, 2011

Market Survey

The oil and gas sector in Venezuela

Perspectives for Dutch companies

Embassy of the Kingdom of the Netherlands, Caracas, Venezuela.

Disclaimer
No rights can be attached to the content of this publication. The content doesnt necessarily reflect the opinion of the Netherlands government, the Netherlands Ministry of Foreign Affairs and/or the Embassy of the Kingdom of the Netherlands in Caracas. This market survey was written with the utmost care. Nevertheless nor the Embassy of the Kingdom of the Netherlands in Caracas, nor the Netherlands Ministry of Foreign Affairs can be held responsible for the use, lack of accuracy or completeness of the text, pictures, information, links or other parts of this publication. The Embassy of the Kingdom of the Netherlands in Caracas does not guarantee that this document is free of interception or manipulation by a third party nor that it is free of computer viruses.

Copyright
Copyright 2011 the Embassy of the Kingdom of the Netherlands in Caracas. It is not permitted to distribute this publication without prior approval of the Embassy of the Kingdom of the Netherlands in Caracas.

Foreword Political Context Economic context Oil and Gas Sector in Venezuela Investment Plans Legal framework Mixed Enterprises PDVSA Investment Opportunities Appendix - Contacts

3 4 7 12 18 28 32 38 47 55

Foreword
The first Venezuelan oilfield of importance, Mene Grande, was discovered in 1914 and the history of the exploration and exploitation of oil in the country thus covers a period of almost a century. Currently Venezuela is the fifth largest oil exporting country in the world and is acknowledged to have some of the largest oil and natural gas reserves on the planet. The Dutch involvement is also nearly 100 years old. Indeed Shell Venezuela will celebrate its 100th anniversary of its presence in Venezuela in 2012. Especially in the booming years of the sixties, many Dutch oil service and offshore companies came to Venezuela, encouraged by Shells success. However, after the nationalization of the oil industry in 1976 and the economic crisis in the nineties, most of these companies left Venezuela again. Since then the situation has changed and new opportunities have been created. In 2002, the new Hydrocarbon Law came into effect creating possibilities for foreign investors to own up to 49% of joint venture companies involved in upstream activities. Given the huge potential which seems to exist in the oil and gas sector in Venezuela, it was something of a surprise to discover that only a few Dutch oil companies are engaged in this country. This study was written at my request in order to give an honest and objective assessment of the market opportunities in the oil and natural gas sector in Venezuela. It highlights some of the big projects, such as the Orinoco Oil Belt and the Mariscal Sucre development, but at the same time does not conceal a number of challenges that foreign companies will have to face while investing or operating in Venezuela. The study was written by economists Jose La Rosa and Isabella Grisanti, on the basis of a previous draft written by Wiek Kleijne, who served as an intern at this embassy in the fall of 2009. I should like to commend both Jose la Rosa and Isabella Grisanti, as well as Wiek Kleijne, for the excellent work they have done. It is my sincere hope that this study will help to motivate Dutch oil and gas companies to seriously take into consideration the possibilities and prospects for them to (re)engage in the Venezuelan oil and natural gas sector.

Hans van Vloten Dissevelt Ambassador

POLITICAL CONTEXT
INTRODUCTION
Since politics and the energy sector are very much linked to each other in Venezuela, it is important to understand the current political situation of the country and its background.

HISTORY OF CHVEZ ADMINISTRATION

President Chvez was elected president of Venezuela in December 1998. After having taken office in 1999 he was re-elected in July 2000 under a new constitution for a six year-term. In April 2002 opposition groups tried to forcefully oust president Chvez but after two days of conflict the president returned to office. In August 2004, President Chvez won a referendum on whether he should serve out the rest of his term. At the elections in 2006 president Chvez won with a majority of 63% of the votes. Directly after his victory he st announced his intentions to intensify his Bolivarian Revolution aimed at establishing socialism of the 21 century in Venezuela. As part of this strategy the government has nationalized or expropriated a large number of companies in what is seen as strategic sectors of the economy. According to the Observatory of Property Rights, 1.119 properties were nationalized or expropriated between 2005 and 2009, the majority of which in the agricultural sector. The government has expressed its commitment to a fair compensation, although there have been long delays in negotiations and final payments.

DOMESTIC POLICY
The policies of the Chvez government have led to a marked polarization of Venezuelan society. The president finds his main support amongst the lower classes, which are drawn by the presidents professed objective to integrate the people (el pueblo) into the political, economic and social processes of the country from which they were formerly excluded. These policies have however alienated many of the members of the higher and middle classes, who blame the government for wanting to turn Venezuela into a communist state, for destroying the business environment in the country and neglecting important issues such as the security situation. The political situation in Venezuela is greatly influenced by the oil prices. If oil prices are high, the increase in cash flow gives the government more opportunity to raise social and political contributions, which creates more support for the government. When the oil prices are lower, as they were in 2008 and 2009, there is much less room for social spending. The opposition parties have blamed the Chvez government of forcing the state oil company PDVSA to spend a substantial part of its income on government programmes, thereby neglecting the companys own investment needs and compromising oil production levels. Official figures put 1 the level of output at 2.89 million barrels per day for 2010

The Ministry of Energy and Petroleum Annual Report to the National Assembly, February 2011.

In September of 2010 parliamentary elections were held, where the opposition parties, working together for the first time, together with a number of smaller independent parties won a majority of the popular vote with 52%. By virtue of a new election law, which amongst other things redivided the electoral departments, the governments party (PSUV) however managed to hold on to a majority in the national assembly, although it lost its qualified majority. In December of 2010, before the new members took power, the outgoing parliament decided to grant president Chvez exceptional powers to rule by decree for 18 month (including part of the presidential electoral year 2012), to address the problems that rose as a consequence of a period of heavy rainfall which caused much devastation and left tens of thousands homeless.

FOREIGN POLICY
The foreign policy of the Chvez government is oriented towards building a multipolar world, free of what is seen as US domination. Although its narrative is thus markedly anti-US (anti-imperialist), the economic relations with the US remain strong (the US continues to be the biggest client for Venezuela in the oil sector). The Chvez government has increasingly turned its attention to other overseas countries that it sees as allies in its quest for a multipolar world, and currently maintains intensive relations with amongst others Russia, Iran, Vietnam, Syria and China. Venezuela has recently been signing a large number of cooperation agreements with these countries, including a nuclear program with Iran. Among the Latin American countries with whom Venezuela maintains close relations are Bolivia, Ecuador, Nicaragua and Cuba, with whom along with some smaller Caribbean nations, the Alba (Bolivarian Alternative for Latin America) was founded. Ties with Brazil and Argentina are also cordial. Aside from joining the Mercosur (Venezuelas entry is still blocked by the Paraguayan parliament), Venezuela would be very much in favour of uniting all countries in Latin America to form an own alliance, for example UNASUR (all the countries in South America) and CELAC (the countries in Central and South America, as well as the Caribbean nations), as an alternative to the Organization of American States (OAS), i.e. without the participation of the US and Canada. Venezuela has withdrawn from the Andean Community (CAN: Ecuador, Colombia, Peru and Bolivia) in April 2011. Employers federations, such as Conindustria, Fedecmaras and Fedeagro, have repeatedly requested the authorities that, before opening the local market to these countries, steps should be taken to protect domestic producers. The special relationship between Colombia and Venezuela, which had been tense, has taken a great leap forward since the coming to power of Colombias new president, Juan Manuel Santos, and the countries are currently speaking on a free trade agreement. Amongst the European countries which Venezuela enjoys special relations with, are Spain, Italy and Portugal, which countries have large national communities living in Venezuela.

RELATIONS VENEZUELA AND THE NETHERLANDS

By virtue of the location of the islands of Aruba, Curacao and Bonaire close to the Venezuelan coast, Venezuela and the Kingdom of the Netherlands are neighbours who share common historical links and who have an interest in maintaining good and friendly relations.

The Netherlands embassy is located in Caracas. Honorary consulates are located in Maracaibo, Porlamar, Puerto Cabello and Punta Cardon. Around 1500 Dutch nationals live in Venezuela. The Venezuelan community in the Netherlands consists of around 4400 persons. The activities of the embassy are geared towards maintaining and strengthening the good neighbourly relations with Venezuela and focus amongst others on bilateral political relations, human rights and good governance and trade, as well as environmental, cultural and consular affairs. Venezuela does not receive direct financial aid from the Netherlands related to development projects, but the Netherlands does contribute to the development of Venezuela through the cooperation programme of the European Union and cooperating with various local NGOs in projects aimed at strengthening civil society and promoting human rights, amongst others.

ECONOMIC CONTEXT
INTRODUCTION
Venezuela has the fifth largest economy (GDP/PPP) in Latin America, after Brazil, Mexico, Argentina and Colombia,

NATIONALIZATIONS
During recent years the Venezuelan economy has increasingly been marked by nationalizations and expropriations by the government of companies that are seen to be of strategic importance. For example in 2 2006 and 2007 the government took control over the exploration and production part of the oil sector. But also the electric sector (now controlled by the state-owned company Corpoelec), the telecommunications sector (CANTV) and some parts of the media came under the control of the government. In 2008 the government nationalized the cement industry (Holcim and Lafarge) and the steel and aluminum producers (Sidor, Venalum). More recently, the government has taken over a number of hotels, parts of the banking sector, yet most of the expropriations have been made in the agricultural sector. These nationalizations have led to an increasingly insecure business environment for private companies and a sharp drop in private investments in Venezuela.

DESTINATION COUNTRIES OF VENEZUELAN EXPORT

Following there is al list of the main markets for Venezuelan exports
2006 2007 2008 2009 2009
(millions of Kilograms)

US$ Variation 2006-2009

(percentage)

US$ (billions)

Volume Variation 20062009 (percentage) -95,25 -93,59 -20,64 -78,19 -99,52

United States Netherlands Puerto Rico Colombia Japan

10.274,46 2.497,04 113,11 1.285,50 922,15

8.010,53 823,86 100,05 1.201,09 639,23

25.580,49 2.305,94 205,91 1.132,75 133,85

3.345,46 864,45 103,88 885,51 312,91

654,16 160,98 80,14 228,27 3,83

-67,44 -65,38 -8,16 -31,12 -66,07

Source: DataIntal, IADB.

In Venezuela nationalizations doesnt always mean that the government takes over the whole sector, it can mean that the government only takes control of certain (key) companies in the sector. Also creating joint ventures (empresas mixtas) with Government majority participation is often chosen above a total take over of a company.

Oil and petrochemicals constitute more then 90% of Venezuelas exports. Since 2006, exports have dropped substantially not only in value but also in volume. An important cause is a general decrease in world demand after the 2008 global financial crisis, when demand for oil and its price suffered. For this reason, OPEC decided to lower its supply and has maintained this lower level for sometime now. An increase in the value of Venezuelas exports is projected, since according to Barclays a rise in the price of the Venezuelan oil basket in 2011 is expected, at around 85$/barrel (6-8$ less then the West Texas Intermediate Basket).

ORIGIN OF VENEZUELAN IMPORTS

2006 2007 2008 2009 2009
(millions of Kilograms)

US$ Variation 2006-2009

(percentage)

US$ (billions)

Volume Variation 20062009 (percentage)

United States

3.288,63

3.161,04

4.158,38

4.792,58

4.894,65

45,73

52,13

Japan

102,52

85,37

117,21

64,42

44,52

-37,16

16,86

Germany

224,43

155,67

279,06

228,52

154,19

1,82

8,67

Italy

192,46

182,10

176,10

117,61

123,73

-38,89

-24,72

Brasil

651,98

614,17

1.073,28

1.339,48

1.223,49

105,45

122,25

Source: DataIntal, IADB.

ECONOMIC RELATIONS WITH THE KINGDOM OF THE NETHERLANDS

The proximity of the islands of Aruba, Curacao and Bonaire to Venezuela gives an added significance to the bilateral economic relations between the Kingdom of the Netherlands and Venezuela. Although during recent years there has been a decline in the presence of Dutch companies in Venezuela, Dutch investments in Venezuela still rank amongst the highest FDI and some of Netherlands largest companies are still represented in Venezuela, such as Philips, Unilever, MAKRO, DSM, Mammoet and Shell. In some cases the scope of their activities has been reduced, as in the case of Royal Dutch Shell. Shell stood at the cradle of the Venezuelan oil industry and used to be one of the biggest oil companies in the country. After the nationalizations in the oil industry in the seventies, it came back in the nineties (apertura). Shells interests in Venezuela now comprise a joint venture with PDVSA (Petroregional del Lago, 40% stake) and a lubricant plant, along with an important technical assistance contract for Venezuelan refineries.

According to the statistics from the Inter-American Development Bank (IADB), the volume of imports from Netherlands to Venezuela increased by 87,7% from 2006 and 2009, yet the volume of exports from Venezuela to the Netherlands has decreased by 91,7% during that same period.

MACRO-ECONOMIC OUTLOOK OF VENEZUELA

Source: Barclays Capital.

After enjoying a number of bonanza years in 2008 and the beginning of 2009 thanks to extremely high oil prices, Venezuela felt the effects of the Global Financial Crisis in the period that followed, leading to two consecutive years of negative growth (-3.3% and -1.6%). The situation was aggravated by an internal banking crisis and electrical shortages brought on by a period of extreme drought and overdue maintenance of the electricity net. President Chavez announced several fiscal measures to counteract the impacts of the global crisis. For example, the government increased the VAT from 9% to 12% and has devaluated the official exchange rate of the currency Bolivar Fuerte and implemented a number of pro-cyclical policies to temporarily stabilize the economy. Largely thanks to the recovery of the oil prices, there is a prospect of economic recovery in the second half of 2011. It is expected the government will seek international partners for development projects, especially in the oil and gas sectors, in order to increase production. However private investment has been hesitant to commit itself in view of perceived lack of legal stability and security.

DOING BUSINESS IN VENEZUELA

To have a better outlook and understanding in doing business in each country, the World Bank has recently presented a series of new indicators. In the following table are the results for Venezuela:

Indicator Name

2009

2010

Cost to enforce a contract (% of claim) Cost to register property (% of property value) Credit: Strength of legal rights index (0=weak to 10=strong) Ease of doing business index (1=easiest to 183=most difficult) Procedures required to enforce a contract (number) Procedures required to start a business (number) Profit tax (%) Time required to register property (days) Time required to start a business (days) Trade: Cost to export (US$ per container) Trade: Cost to import (US$ per container) Trade: Documents to export (number) Trade: Documents to import (number) Source: World Bank

43,70 2,20 2,00 170,00 29,00

43,70 2,20 2,00 172,00 29,00

16,00 10,00 47,00 141,00 2.590,00 2.868,00 8,00 9,00

17,00 10,00 47,00 141,00 2.590,00 2.868,00 8,00 9,00

At the same time the World Economic Forum lists that the most problematic factors of doing business in Venezuela are: Foreign Currency Regulations. Political Instability. Restrictive Labour Regulations. Inefficient Government Bureaucracy. Others (Inflation, crime and theft, corruption, etc).

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Venezuela is one of the least competitive countries in the world. According to the World Economic Forum, 3 Venezuela ranks number 122 amongst a total of 139 surveyed countries in its annual report. , illustrating a downward trend since the country ranked number 113 in 2009 and number 85 in 2006.

CONCLUSION
The relatively weak macroeconomic environment due to expansionary fiscal policies and discretionary administrative measures, as well as the deficient quality of national institutions because of credibility issues regarding the rule of law, are challenges that investors may face. Even though the macroeconomic accounts of Venezuela are fairly balanced, the real economy faces a number of distortions and structural challenges. The country is suffering the effects of the so called Dutch disease. As a result, the country may be very rich because of the oil income, but the non-oil sectors of the economy are not very competitive. A more positive outlook in Venezuelas macroeconomic balances is expected in the future due to the increase in the oil price. Foreign and domestic investment has been limited in the past few years, and investors seek to improve legal security while the Government searches to co-partner future investments.

World Economic Forum, The Global Competitiveness Report 2010-2011.

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OIL AND GAS SECTOR IN VENEZUELA

BRIEF HISTORY ON THE OIL SECTOR
In 1878, the first national oil exploration company was created, Oil Company of Tachira. By 1928 Venezuela became the largest oil exporter in the world and in that year its oil revenue exceeded agricultural and mining revenues for the first time. There are other important dates in Venezuelas Oil History: In 1936, Arturo Uslar Prieti published his article Sembrar el Petrleo. This term has created national debate for decades in the matter of the proper use of oil income, and concern for rentier mentality. In 1943 Venezuela made an important move towards controlling its oil industry when the new hydrocarbon law integrated all oil legislation. In 1948 the Venezuelan congress passed a new income tax law, introducing a profit sharing scheme of 50-50%. In 1959 the national government finally decided to grant no further oil concessions. In 1960 OPEC was founded in Baghdad and in that same year Venezuela established its national oil company Corporacion Venezolana de Petrleo (CVP), an entity with legal personality and an independent governing body, which became the official instrument of the countrys petroleum policy. In 1967 the service contracts system was introduced through a partial reform of the Hydrocarbons Law. Discussion started about ensuring the continuity and efficiency of the countrys oil activities after concessions would expire in 1983 and in 1971 a new Hydrocarbons Reversion Law was enacted, envisaging that all industry assets would revert to the state on the expiration of the concessions. Fear of disinvestment by the oil companies in the meantime led to a speeding up of the process, and in 1975, President Carlos Andrs Prez introduced the Organic Law reserving to the State the industry and commerce of Hydrocarbons, allowing the state to take full control on January 1, 1976. Petroleos de Venezuela SA (PDVSA) was created to supervise and coordinate the takeover of the activities of the former 14 operating companies. Although a state enterprise, PDVSA operated largely like an independent company, and was expected to finance its normal investment programme from its own resources. In the 90s, a significant investment cycle began, aimed at increasing production, and the oil industry was 4 partially reopened to allow foreign investment. With the election of President Hugo Chvez, the focus was once again aimed at bringing the oil industry and PDVSA under tight government control. In 2001, the new Hydrocarbons Law replaced the Nationalization Law of 1975, establishing that PDVSA must always have a majority stake (in practice at least 60%) in joint-ventures with foreign companies. This meant that all existing Operational Service Agreements and Strategic Associations with International Oil Companies had to be renegotiated. In 2006, the process of transformation into joint ventures (empresas mixtas) according to the new law began. ConocoPhilips and ExxonMobil, both US based international oil companies, did not reach an agreement with PDVSA and started international arbitration procedures. Currently, the oil industry is under firm control of the state-owned oil company PDVSA. Oil revenues form an important source of funding for the Chvez governments social policies.

This process was known as La Apertura (The Opening)

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STATISTICS OF THE OIL INDUSTRY

RESERVES
According to the information of Venezuelas Oil and Energy Ministry, Venezuelas total oil reserves amount to 296.5 Billion Barrels. The goal set by the Ministry is to further increase this amount to 312 Billion Barrels, making Venezuela the country with the largest proven crude oil reserves in the world.

Top 10 Countries by Oil Reserves

350

Proven Reserves (Thousand Millions Barrels)

300

2010 Additions 124,7

250

200

150

264,6
100

172,3 137,6
50

115,0

101,5

97,8

74,2 44,3 39,8 37,2

Venezuela

Saudi Arabia

Iran

Iraq

United Arab Emirates

Kazakhstan

Russian Federation

Kuwait

Libya

Sources: BP Statistical Review of World Energy June 2010, Venezuelas Ministry of Oil and Energy

However, its worth mentioning that around 80% of these reserves are of Extra-Heavy crude, located in the Orinoco Oil Belt. These hydrocarbons are not commercial grade products, due to their high viscosity and levels of sulphur and heavy metals. This requires the conversion of the Extra-Heavy oil to Synthetic Crude, using techniques that include: delayed coking, hydro cracking or flexi coking.

PRODUCTION
There has been a controversy about the oil production levels of Venezuela. According to information provided by the Ministry of Oil and Energy, output for 2010 is 2.89 million barrels a day, including conventional and upgraded crude from the Orinoco Oil Belt. Secondary sources report lower values for Venezuela. A comparison among the different sources is included below.

Nigeria

13

Evolution of Venezuela's Oil Production

3.400 3.200 3.000 2.800 2.600 2.471 2.400 2.200 2.000 2005 2006 BP EIA 2007 OPEC 2008 Official 2009 2.437 3.012 2.878

Sources: BP Statistical Review of World Energy 2010, OPEC Annual Statistical Bulletin 2009, Energy Information Administration and PDVSA Operational Report.

Due to the differences among secondary sources, in 2009, state-run oil company Petroleos de Venezuela, or PDVSA, hired Inspectorate, a U.K.-based testing and inspection firm, to certify the gross and net volumes of crude leaving the country. Also, in a recent report by Barclays Capital, the bank compared Venezuela's reported oil exports since 2005 with what other countries reported as imports from the South American nation and found only marginal discrepancies. Ministry officials have argued that the differences between different sources about the oil production arise from the fact that secondary sources dont include the upgraded crude produced in the Orinoco Oil Belt, which accounts for about 500 thousands barrel per day. Despite the discrepancies about the actual figures, two conclusions may be reached: 1. Venezuela still has an important role in the world oil market, being the first oil producer in South th th America and ranging between the 7 and 11 position (depending on the source used) in the world ranking of the top oil producers. Venezuelas oil industry has suffered a continuous decline in its production capacity, starting at the year 2005.

Total Oil Production (Thousand Barrels Daily)

2.

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CONSUMPTION
Venezuela consumes about 600 thousand barrels of oil products daily, mostly gasoline used in transportation. Its worth mentioning that this amount is the second highest among South and Central American Countries, only surpassed by Brazil. It has been argued that the reason for the high internal consumption is the extremely low prices charged in the internal market, which makes the Venezuelan gasoline the cheapest in the world (around 10 dollar cents per gallon) according to a recent study by the Corporacin Andina de Fomento, CAF. In the last few weeks, government officials have expressed concerns about the high internal consumption of oil products, and have hinted at measures to reduce it, including eliminating (or reducing) the gasoline price subsidy (currently accounting for about 1.5 Billion USD a year), establishing limits to the gasoline consumption and stimulating the consumption of natural gas instead of gasoline.

EXPORTS
According to PDVSA, crude oil exports reach 1.93 million barrels per day, while refined products account for 5 485 thousand barrels per day in 2010 . The United States remains the main destination of Venezuelas petroleum exports. In 2009, the United States imported 1.35 million barrels per day of crude oil and petroleum products from Venezuela, down from 1.5 million barrels per day in 2008. Historically, Venezuela has been one of the most important suppliers of foreign oil to the United States, but that importance has diminished over time. In 1960, Venezuelas share of U.S. oil imports stood at 50 percent. Thereafter, it fell to as low as 6.8 percent in 1981, before rising to 18 percent in 1996. Since then, the share has steadily declined, reaching 10.7 percent in 2009. Much of the recent decline has been led by falling exports of refined petroleum products, which have declined from 379 thousand barrels per day in 1997 to 123 thousand barrels per day in 2008. The U.S. Gulf Coast is the largest recipient of Venezuelan crude oil imports, with refineries there specifically configured to handle Venezuelan heavy crude varieties. Besides the United States, other important destinations of Venezuelan petroleum exports include South America, Europe, and the Caribbean, though much of the crude oil that is exported to the Caribbean is later reexported as petroleum products to the United States or other locations. In recent years, Venezuela has prioritized the diversification of its petroleum export destinations away from the United States. One of the fastest growing destinations of Venezuelan crude oil exports has been China. In 2009, China imported about 382 thousand barrels per day of crude oil and products from Venezuela, up from only 39 thousand barrels per day in 2005. Venezuelan average export basket price in 2010 was 70.50 USD, an increase of 23.6% over the average in 2009 (57.01 USD). The Venezuelan oil basket is usually traded at a discount of 7-8 USD as compared with the WTI crude, and around 10-12 USD compared to the Brent crude.

The Ministry of Energy and Oil Annual Report to the National Assembly, February 2011.

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STATISTICS ON THE NATURAL GAS INDUSTRY

RESERVES
Venezuela possesses the largest natural gas reserves in South and Central America, with total proven reserves th of around 200 Trillion Cubic Feet, which places the country at the 8 position among the top 10 countries by Natural Gas Reserves.

Natural Gas Proved Reserves (TCF)

1800 1600 1400 1200 1000 800 600 400 200 0

286 280 1.567

1.046 896

245

227

200

185

159

United Arab Emirates

Qatar

US

Nigeria

Sources: BP Statistical Review of World Energy June 2010, Venezuelas Ministry of Oil and Energy

An important characteristic of Venezuelan natural gas reserves is that most of them are associated with the production of oil. Around 90% of the natural gas reserves are concentrated in oil producing fields, which indicates that their exploitation will depend on the oil production (subject to OPEC quotas). Also, most of the non-associated natural gas is located in offshore fields, in which PDVSA has no significant operational experience. Recent discoveries have increased the potential of natural gas for Venezuela. In March 2010, an offshore project developed by PDVSA and Chevron led to the discovery of a 7 Trillion Cubic Feet gas field, and in November 2010, a Joint Venture by ENI and Repsol certified 14 Trillion Cubic Feet of Natural Gas in an offshore field in the west of the country.

Turkmenistan

Saudi Arabia

Russian Federation

Venezuela

Algeria
16

Iran

PRODUCTION
In 2010, total natural gas production of Venezuela reached 6,904 Million Cubic Feet per day . Most of the production of natural gas (around 6,000 Million Cubic Feet per day) comes from oilfields located in the east of the country.
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CONSUMPTION
In Venezuela, natural gas is mostly used for injection in oil fields to improve the recovery factor of oil. For this purpose, in 2009 around 2,964 Million Cubic Feet per Day were used. Also 2,189 Million Cubic Feet per Day were used by the electrical, industrial and housing sectors, while the rest (2,017 MCFD) were consumed by the oil industry.

EXPORTS
Currently Venezuela has no exports of natural gas. In fact, due to the increase of internal demand for natural gas, it has imported an average of 180 MCFD from Colombia through the Antonio Ricaurte Tran Caribbean Pipeline.

The Ministry of Energy and Oil Annual Report to the National Assembly, February 2011.

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INVESTMENT PLANS
DESCRIPTION OF PLAN SIEMBRA PETROLERA
In 2005 the Venezuelan government outlined a plan for the period 2005 2030. This plan is called Plan Siembra Petrolera (PSP) which means plan to seed the petroleum, by which the government will try to diversify the oil and gas sector in order to stimulate the whole economy. PSP can be seen as the umbrella under which the oil- and natural gas-sector will function the coming years and probably the coming decades if President Chvez is to remain in power. Because of this, these plans of the government are important to be aware of. The short-term objectives of PSP are: increase oil production capacity to 4.8 million b/d by 2013; increase installed refining capacity up to 4.1 million b/d; export 4.7 million b/d of crude oil and products; Increase natural gas production to 11.5 billion cF/d.

To realize these goals PSP included six developments projects and consists of two stages: one to be executed in the period 2010-2015 and the second for the period 2015-2030 For the first period of this Plan, an overall investment of around USD 252 billion has been estimated. From that amount, around 78% will be provided by PDVSA through internal and external financing, while the rest will be financed by private partners. Next follows a summary of the planned disbursements for the Plan Siembra Petrolera:

Disbursements by Concept (M USD) Exploration Production Orinoco Oil Belt Onshore Gas Offshore Gas National Refining International Refining Commerce and Supply Plan Socialista Orinoco Non Oil Subsidiaries and Others Total
Source: PDVSAs Annual Report 2009.

2010 2011 2012 2013 2014 2015 Total 319 715 674 1.010 1.173 1.298 5.189 4.418 3.880 5.037 7.056 8.263 7.916 36.570 840 5.120 11.877 21.422 21.299 16.662 77.220 1.553 3.787 4.326 4.283 3.664 3.070 20.683 860 6.654 6.208 6.033 5.584 4.670 30.009 2.478 4.057 7.007 5.275 4.378 6.750 29.945 400 2.265 3.120 2.666 2.297 10.748 901 585 660 456 1.030 739 4.371 418 1.957 2.981 6.175 3.449 2.948 17.928 4.634 3.937 4.325 3.437 1.860 1.311 19.504 16.421 31.092 45.360 58.267 53.366 47.661 252.167

REVIEW OF THE MAIN INVESTMENT PLANS

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MAGNA RESERVE PROJECT

The first pillar of PSP is the magna reserve project. The Magna reserve project is destined toward the quantifying and certifying of oil reserves in the Orinoco Oil Belt; thus, an integrated geological study has to be made of these reserves. According to PSP, the exploration project was expected to be completed by the end of 2009 but this was not the case. The exploration is still being conducted. The objective is to certify the potentially huge reserves which are located in the Orinoco belt. The Orinoco belt is one of the largest known accumulations of oil in the world, containing 1.3 trillion barrels of hydrocarbons of which 272 billion barrels are economically possible to be extracted using existing technology. As part of the Magna Reserve project, PDVSA wants 235 billion barrels of extra-heavy crude oil to be added to the country's reserves. The exploration and quantification of the reserves took a lot of investment by PDVSA and by international oil companies and still is very costly.

ORINOCO OIL BELT DEVELOPMENT

The development of the Orinoco belt is the second pillar of PSP. Thirty one blocks have been selected for development under this project with the cooperation of selected companies. Because of the strategic location of this hydrocarbon reservoir, it is considered of vital importance in reducing levels of overcrowding in some parts of the country and providing local employment. Services and housing will be developed to guarantee adequate oil exploitation. The Orinoco belt is an area which will offer many possibilities for Dutch companies because production in most areas is still in development and a lot of investments will be needed. At this moment several oilfields are already being exploited in the Orinoco belt, but many additional exploitation projects are feasible. Once the area has been successfully explored and production will commence in the other areas, this will boost the national oil production tremendously. That is why the development of the Orinoco belt is one of the main projects of the Venezuelan government. There is growing international interest in the Orinoco fields and during last few years PDVSA has signed several contracts and Memoranda of Understanding with companies to explore the fields.

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Source: PDVSAs Annual Report 2009.

At the moment this is the way the blocks have been distributed among the oil companies. This does not mean that these companies will also produce the blocks, but for now there are active in the designated area and exploring it. The Orinoco belt can be divided into four areas: Boyac, Junn, Ayacucho and Carabobo. The four areas are divided into 31 blocks. The governments plan is to explore the whole Orinoco belt in cooperation with oil companies and to start oil production on a high scale. The plan envisions for the construction of several production modules involvement of third parties and the building of two cities near the heavy crude oil processing complex to encourage de-concentration of the population. The conceptualization phases are aimed at building facilities required for the development of new production fields of 200,000 b/d each of upgraded crude oil in the block located in different areas such as Carabobo, Ayacucho, and Junn and for transportation, upgrading and marketing.

REFINERY PLANS
In addition to exploring and producing oil on a large scale, the government is also planning to increase refinery capacity in order to maximise profits. Refined oil is worth much more worth and refineries are also needed to make the oil usable for domestic markets. Venezuela is already owner of the biggest refinery in the world, but the problem at this moment is that the refineries are not functioning properly. Because of this, Venezuela has had to import much gasoline to meet the domestic demand. This is the main reason why PDVSA is planning to update and improve its existing refineries.

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In addition PSP foresees the creation of new refineries: Cabruta (with capacity for 400,000 extra-heavy crude barrels per day), Batalla de Santa Ines (50,000 barrels) and Caripito (50,000 barrels per day destined to asphalt production). With these three new refineries and the improvement of the existing ones, PDVSAs processing capacity on Venezuelan soil will be increased to 700,000 b/d. The Puerto La Cruz refinery has been included in the refurbishment strategy to widen up both processing of heavy and extra-heavy crude oil and the output of gasoline and jet fuel by 63%. The deep conversion project budgeted at USD 6.50 billion is moving on; the stage of basic engineering was successfully completed according to PDVSA. It should be ready by the first half of 2013. At the El Palito Refinery, the expansion project should enable, turning 22 degree API oil into products with a high marketing value. The project is in the layout stage; investment is estimated at USD 6.5 billion. Commissioning is scheduled by the end of 2014.

EXPLOITATION OF THE GAS POTENTIAL (DELTA CARIBBEAN PROJECT)

Another pillar of PSP is the exploitation of the gas potential. Until now the production of natural gas has been relatively less important in Venezuela. The production was equal to the domestic consumption and the main focus was on the oil production. In PSP there is much more focus on the natural gas. PDVSA will conduct huge natural gas projects, especially offshore. Offshore gas development pursues gas development on the eastern coast: Deltana Platform, with a planned production 1.47 billion cF/d and Mariscal Sucre with 1.2 billion cF/d and in the western region: Rafael Urdaneta Platform with an expected production of 1 billion cF/d. Further development is located in the Paraguan Peninsula in north-western Venezuela.

RAFAEL URDANETA PROJECT ESTIMATED RESERVES 35 TCF

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DELTA CARIBE PROJECT ESTIMATED RESERVES 65 TCF

Another project is the construction of the Gran Mariscal de Ayacucho Industrial Complex (CIGMA) located in Sucre state, for treatment and conditioning of offshore gas. At the moment this project is in construction and is expected that the first commercial production will start in 2014. This contemplates a petrochemical plant, storage areas, docks and terminals, and plants for liquefying gas, as well as an industrial park. The project also foresees energy integration in the gas sector, including supplying gas to several countries in Latin America and the Caribbean and developing the industrial potential of the region.

INFRASTRUCTURE PROJECTS
As part of PSP, Venezuela also wants to construct better infrastructure for the oil and gas sector. More filling centers and pipelines will be set up to guarantee fuel supplies to the whole nation. An agreement for the

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construction of the Transguajiro gas pipeline between Venezuela and Colombia has been signed in 2005. More filling centres and pipelines will be set up to guarantee nationwide fuel supplies.

N ATIONAL G ASIFICATION P ROJECT

PDVSA wants to establish via a national gasification programme a network of more than 20,000 km of infrastructure of distribution of methane gas in the country. Methane gas distribution networks will be constructed to supply gas to 3.26 million families in the country. Communal gas cylinder and government GLP communitarian filling plants will be installed strategically in different states. The estimated investment is USD 2.334 billion, and the project is expected to be completed in 2016.

A UTO GAS P ROJECT

A Vehicular Natural Gas Natural (GNV) programme is being conducted in order to switch the countrys public transport vehicle base to gas as a primary fuel. This project contemplates adding 350 natural gas sales points for vehicles nationwide and the reactivation of 148 points at existing service stations. The government will promote incorporation of social production companies for manufacturing and maintaining high-pressure cylinders to convert 450,000 vehicles in 18 states to natural gas use during 2006-2009. The project was originally scheduled to begin in 2008, but delays in infrastructure plans, amongst other factors, led to a postponement until 2009. The estimated total investment required is calculated at about USD 921 million.

G AS A NACO P ROJECT
A project to replace the old gas infrastructure with modern facilities that guarantee supply of the increasing internal demand of gas. The Anaco project will increase natural gas and crude oil production to 2,400 7 MMSCFD and 35,000 b/d of light crude with the completion of Phase I (San Joaqun, Santa Rosa and Zapato Mata R) and reach 2,800 MMSCFD and 40,000 b/d upon completion of Phase II (Sta. Ana/El Toco, La Ceibita, Soto/Mapiri and Aguasay). Total estimated investment for this project is USD 2.433 billion, and it is estimated that the project may end in 2010.

R AFAEL U RDANETA
The total estimated capital expenditure for the project is USD 2.9 billion. This project foresees the development of non-associated gas reserves located in the Gulf of Venezuela, mainly in the fields of Rbalo, Merluza, Liza and Sierra, to produce 1,000 MMSCFD to be used domestically and the remainder for international business opportunities. The purpose of the project is exploration and development of the infrastructure for the production of offshore gas, necessary pipelines for gas transportation, a liquefaction plant, and facilities required to serve LNGs vessels.

Million metric standard cubic feet per day.

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I NTERNATIONAL G AS P IPELINE C ONSTRUCTION P ROJECT .

The goal of this plan is to construct pipelines between Venezuela and Colombia. Gasoducto Transguajiro, launched in October 2007 pursues gas exchange between Venezuela and Colombia and is expected to link Puerto de Ballena in Colombia to Costa Oriental del Lago de Maracaibo in Venezuela. It will have an estimated cost of USD 467 million with an estimated length of 225 kilometres. PDVSA will operate the pipeline, with a capacity of 500 MMSCFD, and both countries will trade the gas. For the first four years, it will transport up to 150 MMSCFD of natural gas from Colombia to Venezuela and after this from Venezuela to Colombia.

T HE G RAN D ELTA C ARIBE O RIENTAL P ROJECT

This project consists of an infrastructure construction required to bring gas to the domestic market from offshore developments in the east. This project comprises the following facilities: 563 km of marine pipelines; urban planning, roads and services in the CIGMA industrial complex; docks for construction and services; a gas adaptation and processing plant; generation of electric energy (900 MW in Giria city and 450 MW in Cuman city); transmission and electricity distribution networks; and a liquefaction plant of 4.7 million metric tons per year Venezuela: PDVSAs Oil and Gas Projects (MMT/Y) with storage and dock. The estimated investment is USD 371 million, and the project is expected to be completed by 2012.

CCO W ESTERN C RYOGENIC C OMPLEX P ROJECT

This project will allow conversion of gas liquids and components to develop the domestic petrochemical industry. The purpose is to enhance natural gas processing in the west. The project includes design and construction of proper infrastructure to process 950 MMSCFD of gas and produce 62,000 b/d of ethane for Pequiven (the governments chemical company). It also involves construction of a new fracturing line in Ul, Simn Bolvar Municipality, Zulia state, as well as installation of pipeline networks and facilities to interconnect CCO with existing installations. The estimated investment is about USD 926 million and the project is expected to be completed by 2011.

A CONDICIONAMIENTO DE G AS Y L QUIDOS A NACO P ROJECT (AGLA)

This project intends to develop the infrastructure required for conditioning of 815 MMSCFD of gas in Anaco. The total estimated cost of the project is USD 242 million. The project is expected to end by 2010.

I NTERCONNECTION OF C ENTRAL AND W ESTERN G AS P ROJECT (ICO)

The project intends to connect the natural gas transmission systems of eastern/central Venezuela (Anaco, Anzotegui state - Barquisimeto, Lara state) with the western transmission system (Ul, Zulia state - Amuay, Falcn state), in order to meet western region gas demand, expand gas supply to other areas, and promote industrial-commercial development in surrounding areas. ICO includes design, engineering, procurement and construction of a 300 km gas pipeline, with diameters of 30" and 36" and three compression plants (Morn, Los Morros and Altagracia) to interconnect the Anaco-Barquisimeto System with the Ule-Amuay System and ensure gas supply to the Paraguan Refinery (CRP). In the long term, facilities will be also available to export gas toward Colombia, Central and South America. The estimated investment is USD 530 million.

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J OSE 250 P ROJECT

Planned to increase associated gas processing capacity in the fields of Anaco and the north of Monagas state to meet household demand and the demand for gas injected to secondary recovery processes of oil fields in Monagas state. This project includes construction and implementation of the IV Extraction Line in Planta de San Joaqun (1,000 MMSCFD), V Fractioning Train in Jose (50,000 b/d), expansion of Terminal Marino Jose, polypipeline San Joaqun Jose (113 km.), Planta de Control de Punto de Roco in Pirital, and expansion of the pipeline and Ethanol project. The total estimated investment for this project is about USD 800 million. The first phase (2006-2008) foresees the construction of the San Joaquin project. The second phase should be completed in 2013.

M ARISCAL S UCRE P ROJECT

The CIGMA complex will include petrochemical production plants and liquefaction plants and will facilitate processing of heavy and extra heavy oil from the Orinoco Belt. CIGMA aims to develop and extract offshore non-associated gas reserves, as well as construction of a liquefied natural gas plant that contemplates production of gas of 1,200 MMSCFD, plus processing of 4.7 million metric tons per year (MMT/Y) of liquefied natural gas and 300 MMSCFD of methane gas to be used to meet domestic demand; the remainder will be exported. The investment required for offshore field development, the liquefied natural gas plant, and the associated infrastructure is estimated at USD 2.7 billion.

N ORTHEAST G AS S YSTEM P ROJECT

The purpose of the project Sistema Nor-Oriental de Gas (SINORGAS) is the construction of infrastructure to supply gas from offshore developments in eastern Venezuela to residential and commercial customers in the nearby eastern cities of Carupano, Cariaco, Margarita, Cumana and Puerto La Cruz. More than 170 thousand families should benefit from SINORGAS. The estimated investment is USD 2.12 billion, and it was expected to be completed in 2010.

D ELTANA P LATFORM P ROJECT

This includes involvement of Chevron, Statoil and Total in blocks 2, 3 and 4, respectively, to complete exploration. Once exploration is completed and the commercial nature of the reserves is determined, PDVSA will take part in the future development of the area, with a total estimated investment of USD 3.8 billion, including PDVSAs share.

INTEGRATION PROJECT
According to president Chvez' aims, oil is to be used as a geopolitical resource helping the integration of the peoples of Latin America and the Caribbean. The project has been criticized by the opposition for being a political project in order for president Chvez to establish himself as a leader in South-America and the Caribbean region. The main initiative of the integration project is Petroamrica.

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P ETROAMRICA
This is an initiative of the Venezuelan government aimed at sharing the oil and natural gas reserves with the countries in South-America and the Caribbean region. Petroamrica consists of three programmes: Petrocaribe; Petrosur and Petroandina.

P ETROCARIBE
Petrocaribe is an Energy Cooperation Agreement based on support proposed by Venezuelas Government that intends to overcome asymmetrical access to energy resources. Petrocaribe was established in 1980 with the creation of the San Jose Petroleum Accord. The agreement was jointly administered by Venezuela and Mexico and foresees the delivery of up to 160,000 b/d of oil to eleven developing countries in Central-America and the Caribbean region; 80,000 provided by Venezuela and the other 80,000 provided by Mexico. This accord can be seen as a form of development co-operation. In 2000 the Venezuelan energy policy towards the region was further elaborated by the Caracas Energy Accord. This regionally bi-lateral cooperative energy agreement administered by Venezuela was designed to function parallel to the San Jose Petroleum Accord. The Caracas Energy Accord gave the countries in the Caribbean region and in Central-America favourable terms for buying crude from Venezuela. In 2005 Petrocaribe was signed. The member countries are: Antigua and Barbuda; Bahamas; Belize; Cuba; Dominica; Grenada; Guatemala; Guyana; Haiti; Honduras; Jamaica; Nicaragua; Dominican Republic; Saint Kitts and Nevis; Saint Vincent and the Grenadines;

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Saint Lucia; Surinam and Venezuela.

Venezuela provides a sizable amount of crude oil and refined products to its regional neighbours at belowmarket prices and with favourable financing terms (including long repayment terms that often feature barter arrangements instead of cash transactions). The payment system allows for a few nations to buy oil at market value but only a certain amount is needed up front; the remainder can be paid through a 25 year financing agreement at 1% interest. The deal allows for the Caribbean nations to purchase up to 185 million barrels 3 (29,400,000 m ) of oil per day on these terms. In addition it allows for nations to pay part of the cost with other products provided to Venezuela, such as bananas, rice, and sugar. According to industry accounts, Venezuela currently supplies around 80,000 bbl/d of oil under this program. According to the Venezuelan government, it has supplied 59 million barrels of oil to its Petrocaribe partners since 2005. In addition, Venezuela has a separate supply agreement with Cuba, which, according to industry reports, amounts to around 90,000 bbl/d of crude oil and other petroleum products. Venezuela also has an additional agreement with Jamaica to supply the country with an additional 21,000 b/d.

P ETROSUR
Petrosur is a political and economical initiative between Venezuela, Brazil, Argentina and Uruguay. The goal of the initiative is to strengthen the social-economic situation of the peoples of the four member countries by promoting cooperation between the national oil companies of these countries: PDVSA, Petrobras, Enarsa and ANCAP, respectively. This is done by reducing transfer costs by eliminating the middleman in negotiations between the companies, by giving each other preferential deals and working together in economic-social initiatives.

P ETROANDINA
In 2005 the five Andean countries Bolivia, Colombia, Peru, Ecuador and Venezuela established the Petroandina initiative. The aim of this initiative is to strengthen the energy relations between the countries. Petroandina should be seen as a body that promotes cooperation between the countries and nothing more.

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LEGAL FRAMEWORK
Oil Activities in Venezuela are regulated by the National Constitution of 1999, the Hydrocarbons Law of 2001, and the Gas Hydrocarbons Law of 1999. Other laws have been passed during the last few years, regulating aspects of the oil and gas industry, including: the Law for the Rearrangement of the Domestic Fuel Markets, and the Law that Reserves to the State the Assets and Services Related to Primary Hydrocarbon Activities.

NATIONAL CONSTITUTION OF 1999

Some of the most important articles of the National Constitution, regarding the Oil and Gas Industry are: Article 12: The mineral and hydrocarbon deposits, whatever their nature, existing in the country, under the bed of the territorial sea, exclusive economic zone and continental shelf, belong to the Republic, are public property, and therefore inalienable and indefeasible. The coastal seas are public property. Article 302: The State reserves through organic law, and for reasons of national interest, the petroleum industry and other industries, farms, services and public goods and strategic. The State shall promote the domestic manufacture of raw materials from the exploitation of nonrenewable natural resources, in order to assimilate, create and innovate technologies, generating employment and economic growth and creating wealth and wellbeing for the people. Article 303: For reasons of economic and political sovereignty and national strategy, the State shall retain all shares of Petrleos de Venezuela, SA or the organ created to manage the oil industry, except those of its subsidiaries, joint ventures, companies and any other that is incorporated or established as a consequence of business development at Petrleos de Venezuela, SA

HYDROCARBONS LAW
This Law was approved in the year 2001, and since has been the framework for the development of the oil sector. Some of its most important articles regarding private investment are: Article 5: The activities covered by this Decree shall be designed to promote a comprehensive, organic and sustained development of the country, taking into account the rational use of resources and environmental preservation. To this end the State will promote the strengthening of the national productive sector and the transformation in the country of raw materials from mineral oils and incorporating advanced technologies. The revenue on account of oil received by the nation will finance health, education, macroeconomic stabilization funds and productive investment, so as to achieve an appropriate linkage between oil and the national economy, all done in relation to welfare.

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Article 9: Activities relating to exploration for hydrocarbon deposits within this Decree, the extraction of them in their natural state, its collection, transportation and initial storage are called primary activities for the purposes of this Decree Law In accordance with the provisions of Article 302 of the Constitution of the Bolivarian Republic of Venezuela, the indicated primary activities, as well as those relating to works required to their handling, are reserved to the State in terms of this Decree Law Article 18: The National Executive shall adopt measures that encourage domestic capital formation to stimulate the creation and consolidation of operating companies, service, manufacturing and supply of goods of domestic origin for the activities under this Decree Law. In this regard, the State, authorities and companies referred to this Decree, shall incorporate into their recruitment processes, the participation of domestic companies in terms which ensure the optimum and effective use of domestic goods, services, human resources and capital assets. Article 22: The primary activities referred to in Article 9 shall be made by the State, either directly by the National Executive or by companies of their exclusive property. It may also do so through companies in which it has control of its decisions, by keeping a share larger than fifty percent (50%) of social capital, which for the purposes of this Decree are called joint ventures. The companies involved in primary activities are operating companies. However, as an exception, in the operating companies the State may have a share of less than fifty percent (50%) of social capital, as appropriate, provided that this decision is approved by the National Assembly, having informed the National Executive. Article 33: The mixed enterprises and conditions governing the performance of primary activities require the prior approval of the National Assembly, for which the National Executive, through the Ministry of Energy and Petroleum, shall inform all the relevant circumstances that constitution and conditions, including the special benefits provided for the Republic. The National Assembly may amend the proposed terms or set the ones it deems appropriate. Any subsequent amendments to these conditions must also be approved by the National Assembly following a favorable report from the Ministry of Energy and Petroleum and the Permanent Commission of Energy and Mines. Mixed enterprises are governed by this Law and, in each case, by the terms and conditions set forth in the Agreement under the law issued by the National Assembly, based on the report issued by the Permanent Commission of Energy and Mines, by which it approves the establishment of the respective joint venture in special cases and where appropriate the national interest. Additionally, the rules of the Commercial Code and other laws are applicable to them. " Artculo 50: Industrial activities involving refined oil may be undertaken directly by the State, companies exclusively owned by joint ventures involving state and private capital, in any proportion, and by private companies.

GAS HYDROCARBONS LAW

This law was passed in the year 1999, and its objective was to give further incentives to private investors for the development of the natural gas sector. Some of the most important articles are:

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Article 1: Gaseous hydrocarbon deposits existing in the country, under the territorial seabed of the contiguous maritime zone and the continental shelf belong to the Republic, are public property, and therefore, inalienable and indefeasible. Article 2: Exploration activities in the areas listed in the previous article, searching for deposits of non-associated gas hydrocarbons and the exploitation of such deposits, as well as collection, storage and use of both non-associated natural gas from such exploitation, and the associated gas produced with oil or other fossil, the processing, manufacturing, transportation, distribution, internal and external trade of such gases are governed by this Law and may be exercised by the State directly or by entities owned or by private persons or foreign nationals, with or without the State participation, in the terms of this law Article 4: The activities to which this law refers, as well as the works required for their handling, are considered of public interest. Article 15: The activities covered by this Law shall be in accordance with safety, hygiene and environmental protection standards that are applicable to it, as well as the best available scientific and technical practices for the better and rational use of the resource. Article 22: The activities concerning the exploration and exploitation of non-associated gas hydrocarbons, as well as processing, storage, transportation, distribution, manufacturing, marketing and export, may be made directly by the state or by entities owned or private persons domestic or foreign, with or without state participation. Article 30: Industrialization activities of gaseous hydrocarbons may be conducted directly by the State, owned by entities or by private persons or foreign nationals, with or without state participation. Article 34: Volumes of gaseous hydrocarbons extracted from any reservoir, and not reinjected, the State is entitled to a share of twenty percent (20%) as royalty. Its important to mention that currently, there are projects to reform this law, with the main objective of establishing the model of the mixed enterprise as applies to the oil industry, as also the only one applicable to the Natural Gas Industry. This would mean an important change because at the moment, it is still possible for an International Oil Company to explore and produce a non-associated gas field, without any participation of the Venezuelan State

OTHER LAWS
Three recent laws have had a deep impact on the outlook for the oil and gas sector in Venezuela. In the first place the Special Contributions Law, which effectively creates a windfall profit tax for the companies involved in the oil sector. This tax has to be paid as follows: 50% of the difference between the Venezuelan Oil Basket and $70, if the price goes beyond $70 60% of the difference between the Venezuelan Oil Basket and $100 (additional to the 50% between $100 and $70), if the price goes beyond $100.

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According to sources in the industry, this law has been responsible for the delays of some of the investment projects, because when prices of oil pass $120, this tax becomes confiscatory of the profits generated by the mixed enterprises. At higher levels, about $150, even PDVSA starts losing money with this tax. The second Law that has to be mentioned is the Law of Rearrangement of the Internal Market of fuels, which gives the Government complete control of the internal transportation, distribution and retail of the fuel consumed by the country. The third is the Law that Reserves to the State the Assets and Services Related to Primary Hydrocarbon Activities. It states that all assets related to oil producing activities are of public interest, and therefore, subject to possible expropriations without any previous legal requirement. In accordance to this Law many contractors and equipments of service companies have been seized by the Government during the years 2009 and 2010.

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MIXED ENTERPRISES
DESCRIPTION
The mixed enterprises are, by definition, joint ventures between the Venezuelan State (through PDVSA) and private partners. They are established in the Hydrocarbons Law as the most common scheme allowing the participation of private partners in the oil sector. According to the Laws the mixed enterprises must be controlled by the State through a stake of at least 50% of its shares, although in practice the State has reserved at least the 60% of the shares of all the oil producing mixed enterprises. In addition, the mixed enterprises are subsidiaries of PDVSA and, given its majority participation, all the decisions on strategy, planning, production and investments follow the general guidelines provided by PDVSA. This stipulation is contrary to the one agreed between PDVSA and its partners, because PDVSA was supposed to give financial and administrative autonomy to each mixed enterprise.

LEGAL STEPS
For the constitution of a new mixed enterprise, a series of steps have to be accomplished: 1. Selection of partner: This phase depends on the Ministry of Energy and Oil, which has to select a partner for each new project and mixed enterprise to be created. The selection can be done through competitive rounds (as the ones made for the Carabobo Project), or through direct selection (as in the case of the Junn Project). National Assembly approval: By law requirements, every mixed enterprise has to be approved by the National Assembly. This step requires the parliament to review all the terms and conditions applied to the mixed enterprise, including: taxation, tenure of the project, partners and objectives. Government authorization: Once the National Assembly approves the mixed enterprise, the National Government must authorize both partners to start the formal procedures to create and register the new mixed enterprise. Publication of Bylaws of the mixed enterprises: The process of creation and registration of the new mixed enterprise ends with the publication in the Official Gazette of the Bylaws that will rule the mixed enterprise. Transference of rights to carry primary activities to the mixed enterprises: The last step in order to complete the process for the new mixed enterprise is a Presidential decree, in which the National Government transfer its rights to perform oil related primary activities, to the newly created mixed enterprise. Once this step is completed, the actual exploration of production of crude oil may begin.

2.

3.

4.

5.

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PERFORMANCE OF THE MIXED ENTERPRISES

EXISTING AND NEW MIXED ENTERPRISES
The majority of the existing mixed enterprises are a result of the conversion process that took place in the years 2006 and 2007, when the former Operational Service Agreements, Strategic Associations and Risk Sharing Agreements, were all transformed into mixed enterprises. From the 32 Operational Service Agreements, the 21 mixed enterprises created are:

Mixed Enterprise
Petrolera Kaki Petrocabimas Petronado Petrogurico Petroquiriquire Petroboscn Petroindependiente Petrocumarebo Petrocuragua Baripetrol Petroregional Del Lago Lagopetrol Petrowayuu Petroven-Bras Petrokaria Petroritupano Petrowarao Petrodelta Petrolera Sino-Venezolana Petroperij Boquern
Source: PDVSAs Annual Report 2009

PDVSA Share
60% 60% 60% 70% 60% 60% 74.8% 60% 60% 60% 60% 69% 60% 60% 60% 60% 60% 60% 75% 60% 60%

Partners
INELECTRA - POLAR (40%) SUELOPETROL (40%) CGC - BPE - KNOC (40%) INPEX (30%) REPSOL (40%) CHEVRON - INEXPRO (40%) CHEVRON (26.2%) VINCCLER (40%) OPEN - CIP (40%) TECPETROL - LUNDIN - PERENCO (40%) SHELL (40%) HOCOL - EHCOPEK - CIP (31%) PETROBRAS - WILLIAMS (40%) PETROBRAS - COROIL (40%) PETROBRAS - INVERSORA MATA (40%) PETROBRAS - VENEZUELA US - COROD (40%) PERENCO (40%) HARVEST (40%) CNPC (25%) BP (40%) BP - PEI (40%)

In addition a number of new mixed enterprises have been established in recent years, including those in the Orinoco Oil Belt, offshore and mature oilfields:

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Mixed Enterprise
Orinoco Oil Belt
Petrocedeo (SINCOR) Petromonagas (CERRO NEGRO) Petropiar (AMERIVEN) Petrolera Sinovensa Petromiranda Petrocarabobo Petroindependencia Petromacareo Petrojunn Petrourica

CVP Share
60% 83.3% 70% 60% 60% 60% 60% 60% 60% 60%

Partners
TOTAL - STATOIL (40%) BP (16.7%) CHEVRON (30%) CNPC (40%) Russian National Consortium* (40%) REPSOL - PETRONAS - OVL - INDOIL (40%) CHEVRON - MITSUBISHI - INPEX - SUELOPETROL JOGMEC (40%) PETROVIETNAM (40%) ENI (40%) CNPC (40%)

Offshore Fields
Petroparia Petrosucre Petroguiria 60% 74% 64% SINOPEC (32%) ENI (26%) ENI - INEPARIA (36%)

Onshore Fields
Petrozumano Petrolera Bielovenezolana Petrolera Indovenezolana Petrolera Vencupet
Source: PDVSAs Annual Report 2009, and National Gazette.

60% 60% 60% 60%

CNPC (40%) BELORUSNEFT (40%) ONGC VIDESH (40%) CUPET (40%)

The first three mixed enterprises of the Orinoco Oil Belt are the result of the conversion process of the former th Strategic Associations. A 4 Strategic Association was not converted into a mixed enterprise, given that the PDVSAs partner, ConocoPhillips, choose not to accept the new terms established by the Government, and its assets were nationalized. The biggest mixed enterprises are the ones being established in the Orinoco Oil Belt. The following map shows their location and partners.

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Source: PDVSAs Orinoco Magna Reserva Report, 2010

Its worth mentioning that from the 31 blocks of the Orinoco Oil Belt; only 6 have completed all the necessary phases in order to begin the exploration and production phase of the projects. These include the following Mixed Enterprises:

J UNIN P ROYECT
Petromiranda: Signed with the Russian National Consortium , with an estimated investment of $18 billion and a bonus paid to the Government of $1 billion. It includes the construction of an upgrader and a maximum oil output of 450 TBD. Early production of 50 TBD should begin by the end of 2011. Gazprom has been selected as the company leading the construction of infrastructure phase. Petrojunn: Signed with ENI with an estimated investment of $17 billion, includes the construction of a refinery to process the extra-heavy crude. Its production target is 240 TBD. Petrourica: Signed with CNPC with an investment of $16.3billion, and a production target of 400 TBD. This project includes the construction of an oil upgrader. Petromacareo: Signed with Petrovietnam with an production target of 200TBD of extra-heavy crude oil.
8

C ARABOBO P ROJECT

Rosneft, Lukoil, Gazpromneft, TNK-BP and Surgutneftegaz

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Petrocarabobo: Signed with the following companies: Repsol, Petronas, ONGC, Oil Indian Limited and Indian Oil Corporation. This project includes the building of an upgrader, an estimated investment between $10 and $20 billion and a production target of 400 TBD. Petroindependencia: In partnership with Chevron Mitsubishi, Inpex and Suelopetrol. It also has a production target of 400 TBD and an investment estimated between $10 and $20 billion.

In all the other projects for the Orinoco Oil Belt, Memoranda of Understanding (MOU) have been signed with many International and National Oil Companies, but no other legal procedure has been started.

GENERAL TERMS AND CONDITIONS

Among the general terms included in the mixed enterprises established in the Orinoco Oil Belt are: Shares: 60% PDVSA / 40% Partner B Taxes and Royalties: o o o o o 50% Income Tax; 33.33% Royalty 1% from net profits as contributions to Social Investments; 2% over net profits to finance LOCTI projects; 1% over gross income to finance the Anti-drug Law.

Special Contributions Law (Windfall Profit Tax) o 50% of the difference between the Venezuelan Oil Basket and $70, if the price goes beyond $70 60% of the difference between the Venezuelan Oil Basket and $100 (additional to the 50% between $100 and $70), if the price goes beyond $100

Period: 25 years extendible for 15 more years Target output: 450 TBD of extra-heavy crude oil with the construction of an Upgrader to produce 200 TBD of upgraded crude oil. Investment: Estimated between US$ 10-20 Billion, depending of each project.

OPPORTUNITIES AND CHALLENGES

Investors in any country always look for legal and contractual security. In 1999, the Venezuelan Government established a new legal framework with the approval by referendum of the new Constitution. The National Assembly also passed a new Gas Hydrocarbons Law in 1999 and a new Hydrocarbons Law in 2001. The 36

Government has always given assurances regarding the stability of the new legal framework. In fact, there hasnt been any major change in hydrocarbons legislations since their enactment, other than a small increase in the royalty rate in 2006. The long term stability of the current legal framework would certainly help to stimulate further investment in the oil and gas sector in Venezuela. The process of implementation and management of the mixed enterprises model also faces opportunities and challenges. Among the opportunities, both PDVSA and its partners are able to capitalize on each others experience, benefit from the cross-sharing of best practices, balance their local and international experiences, enhance their alignments and good relationships, and optimize their respective technical capabilities to the benefit of the mixed enterprises. Also, the model can work and does not require any legal or substantive modifications to operate efficiently. Contract compliance solidifies the mixed enterprises productivity. Minority partners can learn from PDVSA as a NOC in the business environment of Venezuela. With the participation of good qualified leaders in the mixed enterprises, the model can reach its full potential. The mixed enterprises model also faces some challenges that could be worked out to enhance their performance. Among the most important challenges there are financial management issues, including keeping a programmed cash flow, a strict budget formulation and execution, and the timely payment of accounts receivables and the elaboration of financial statements. Regarding human talent, efforts have to be made to improve the selection, recruitment, evaluation and training processes. In the area of management, improvements could be made to secure the participation of majority and minority partners in the decision making processes and in project management. The sharing of best practices could also help to efficient procurement of goods and services for the mixed enterprises. In this context, the national and international partners of PDVSA are committed to work together with their majority partner (PDVSA) in fulfilling the objectives of the Plan Siembra Petrolera, improving the productivity of the mixed enterprises, increasing output and reserves, maximizing revenues and supporting the sustainable development of Venezuela and its oil and gas industry.

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PDVSA
DESCRIPTION AND SUBSIDIARIES
PDVSA is a corporation owned by the Venezuelan Government, created in 1975 in accordance to the 9 Nationalization Law . Its operations are supervised by the Ministry of Energy and Oil. PDVSA is responsible, in Venezuela, for the development of the Hydrocarbons Industry, as well as the planning, coordination, supervision and control of the activities of its enterprises, inside and outside Venezuela. Some of the most important subsidiaries of PDVSA are:

PDVSA P ETRLEO SA
The most important subsidiary of PDVSA is PDVSA Petrleo. It was founded in 1978. The subsidiary controls the activities of exploration, exploitation, transportation, refining and any other activity which directly involves directly Venezuelan oil. In other words, this subsidiary controls the core-business of the company.

C ORPORACIN V ENEZOLANA DEL P ETRLEO , .S.A (CVP)

This subsidiary is responsible for negotiations with external parties, as well as national and international parties. The subsidiary has the responsibility to maximize the profits of the Venezuelan oil for the state. So whereas PDVSA Petrleo does the actual field work, CVP does the negotiations, the contractual business and the administrative work.

PDVSA G AS , S.A.
This subsidiary has the same responsibilities as PDVSA Petrleo but then for the Venezuelan natural gas sector. Since the natural gas sector is much more pre-mature than the oil sector, it was only founded in 1998.

D ELTAVEN , S.A.
This subsidiarys main activities are the marketing, sales, transport and distribution of products made out of oil targeted for the industrial, commercial, domestic and transportation sector. It offers a ranger of fuels and marine lubricants at all commercial ports along the Venezuelan coast and PDV Marina is one of their main clients.

PDVSA A MRICA , S.A.

PDVSA Amrica, S.A. controls CITGO which is a refiner and marketer of transportation fuels, lubricants, petrochemicals and other industrial products for the US market. PDVSA Amrica, S.A. as subsidiary was

Law that Reserves to the State The Industry and Commerce of Hydrocarbons (1975)

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founded in 2006 and it controls overseas activities of PDVSA. These include exploration, production, refining, transportation and commercialization of oil and products made out of oil. Also, the international bilateral and multilateral agreements signed by Venezuela are conducted by PDVSA Amrica, S.A.

B ARIVEN , S.A.
Having been founded in 1975, this subsidiary handles the purchase of materials and equipment, the planning of the inventory which is required by third parties, the recruitment of services that are needed, the storage and transportation of equipment and the sales of materials and technical services. At this moment, Bariven completely controls all the procurement process of PDVSA and the mixed enterprises. Barivens European purchasing agent, PDVSA Services B.V. is located in The Hague, Netherlands.

PDVSA I NDUSTRIAL , S.A.

Founded in 2007, the subsidiary is responsible for the production of services and the delivery of technical support in order to produce with or without third parties materials and equipment needed in the oil sector. The foundation of this subsidiary is part of the strategy of the PDVSA to reduce the import of products and raw materials necessary to operate the oil industry, as well as to support local investment and increase labour force.

PDVSA S ERVICIOS , S.A.

This subsidiary was also founded in 2007. The main task of PDVSA Servicios, S.A. is to construct and maintain oil wells in Venezuela. Previously, this was always done by international or national service companies but PDVSA officially nationalized the service sector in 2009 and this will give PDVSA Servicios, S.A. a more important role. Currently, PDSA Servicios controls two subsidiaries: PDVSA Operariones Acuticas, SA (in charge of maintenance and services to underwater facilities and equipment) and PDVSA Servicios Petroleros SA (provides services related to the exploration, production and refining of oil). The objective given to this subsidiary is to control and provide, by itself or through third parties, all the services related to perforation of wells, such as maintaining of drills, exploratory and production seismic, drilling fluids, cementing of wells, natural gas injection, among others. PDVSA centralizes all its requirements of these services through PDVSA Servicios, and since 2010 all mixed enterprises are now also being required to do so.

PDVSA I NGENIERA Y C ONSTRUCCIN , S.A.

Founded in 2008, it aims to provide, on its own or in association with others, engineering and construction services needed for projects conducted by PDVSA and its subsidiaries. Since its foundation, this subsidiary has been an intermediary between engineering and construction service companies, and PDVSA and the mixed enterprises, by signing a series of agreement with some of the most important engineering services companies in the world, such as: Technip, Linde AG, SNC Lavalin International, Saipem, Odebrecht, among others.

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At this moment, given the fact that PDVSA wants to centralize all the oil related activities, the objective of this subsidiary is to take charge of the most important engineering and construction projects in the country. According to official information, it is expected that, with an aggressive plan of hiring personnel and expansion across the country, PDVSA Ingeniera y Construccin may become the leading engineering and construction company in the country.

PDVSA N AVAL , S.A.

Established in 2008, this subsidiary aims at the development of shipyards for the construction of vessels and platforms, as well as ports and everything else related to naval infrastructure. This subsidiary is handling the offshore natural gas activities and it is expected that this sector could show strong growth in the coming years, considering the huge discoveries that have been made.

STRUCTURE AND ACTIVITIES

MAIN PROCESSES
PDVSA develops its operations through its subsidiaries, along with the participation of local and foreign enterprises. These operations include: Exploration, production and improvement of crude and natural gas. Offshore exploration and production of natural gas, including the possibility of LNG exports. Refining, marketing and transport of crude and refined oil products, and the processing, marketing and transport of natural gas.

Oil and gas reserves and the activities of exploration, production and improvement are all located in Venezuela, while the refining, marketing and transport operations are located in Venezuela, Caribbean, North America, South America, Europe and Asia.

MAIN ACTIVITIES
PDVSAs activities are structured in 5 geographical areas: West, East, South-Center, Orinoco Oil Belt and Offshore, with the purpose of managing its upstream operations including: exploration, production and extraheavy crude improvement. CVP took control of all the Mixed enterprises and the offshore Natural Gas Licenses. Downstream activities include: Refining and marketing of products in Venezuela under the PDV brand. Refining and marketing of crude oil and products on international markets. The products are commercialized under the CITGO brand in the east and middle-west states of USA. 40

Businesses in the Caribbean, mainly through the Isla Refinery (Curacao), and the operation of storage terminals through BOPEC in Bonaire, BulemBay in Curacao, and BORCO in The Bahamas. Also, PDVSA through its subsidiary PDV Caribe owns a LPG plant in St Vincent. Refining in USA through 8 refineries: 5 of then owned by CITGO (Lake Charles, Corpus Christi, Lemont, Paulsboro and Savannah), a 50% stake in Chalmette and Hovens, and a Vacuum Distillation and Coking unit called Merey Sweeney. Refining activities in Europe through the refineries: Gelsenkirchen, Schwedt, Neustadt, Karlsruhe (these four are in a sale process to the Russian Rosneft), Nynashamn, Gothenburg, Dundee, and Eastham. Naval transport activities through its subsidiary PDV Marina, which owns 21 tankers. The gas business is developed by PDVSA Gas a vertically integrated subsidiary. It is responsible for operating activities of gas and gas processing for NGL production, as well as, transportation and marketing of gas in the domestic market and export of NGL. Additionally, PDVSA Gas processed gas extracted by the exploration and production divisions of the subsidiary PDVSA Petrleo for transportation and marketing in the international market. Deltaven is the subsidiary responsible for the marketing and retail distribution in Venezuela, of gasoline and other products under the PDV brand. This company is promoting the development of infrastructure and commercial services for retail customers. R&D activities are carried through INTEVEP.

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PDVSA IN NUMBERS
An overview of some of the most important data concerning PDVSA is shown in the table below:

Workers Temporary Workers Total Assets Equity 3D Seismic 2D Seismic Active Wells Drills/Year Oil Deposits Oil Fields Oil Pipelines Refinig capacity
Venezuelan International

PDVSA Service Stations Service Stations under Supply Contracts Gas Compression Plants NGL Plants NGL Fractionation Capacity Effective NGL Fractionation Natural Gas Pipelines NGL Pipelines
Source: PDVSAs Annual Report 2009

91.949 10.801 149.601 74.389 3.702 1.168 17.910 121 10.564 365 8.837 3.035 1.303 1.732 803 1058 52 12 282 268 4.432 381

People People M USD M USD Km2 Km Units Units Units Units Km TBD TBD TBD Und Und Und Und TBD TBD Km Km

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FINANCIAL PERFORMANCE
The following table shows an overview of the financial performance of PDVSA, beginning with the Income and Cash Flow Statements:

INCOME STATEMENT
Millions of USD Net Sales Operating Costs General Expenses Social Contributions Royalties Depreciation Net Financial Expenses Other Expenses Earnings Before Taxes Income Tax Net Income
Source: PDVSAs Financial Statements Q3 2010

2010 - Q3 40.824 -9.774 -1.848 -4.786 -6.325 -4.634 -4.035 -443 8.979 -4.867 4.112

2009 47.350 -16.435 -5.259 -3.514 -13.360 -5.794 5.038 -547 7.479 -3.330 4.149

2008 81.071 -17.285 -5.357 -14.733 -23.462 -5.220 -200 -1.099 13.715 -4.281 9.434

2007 68.105 -14.958 -2.856 -14.102 -21.981 -4.018 -501 1.500 11.189 -5.017 6.172

2006 60.474 -14.779 -2.284 -13.784 -18.435 -3.640 -267 2.178 9.463 -4.031 5.432

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CASH FLOW STATEMENT

Millions of USD Net Sales Costs, Expenses and Contributions Taxes and Royalties Variations in Working Capital Net Cash from Operating Activities Acquisition of Fixed Assets Net cash from Investment Activities Net Proceeds from Long Term Debt Funds Received from Stockholder Dividends paid to Stockholders Other financing activities Net Cash from Financing Activities Effect of FX rate depreciation Net Cash Flow Cash at the beginning of the year Cash at the end of the year
Source: PDVSAs Financial Statements Q3 2010

2010 - Q3 40.824 -20.886 -11.192 1.144 9.890 -7.722 -9.368 -50 0 0 -871 -921 -1.514 -1.913 6.981 4.983

2009 47.350 -20.717 -16.690 -2.505 7.438 -15.333 -15.313 10.361 2.000 -2.000 -445 9.916 0 2.041 4.483 6.981

2008 81.071 -38.674 -27.743 1.819 16.473 -18.413 -15.827 -1.539 5.000 -2.000 -928 533 0 1.179 3.325 4.483

2007 68.105 -30.917 -26.998 -6.482 3.708 -12.852 -13.187 13.458 0 -2.658 -379 10.421 0 942 2.282 3.325

2006 60.474 -28.936 -22.466 -5.048 4.024 -7.193 -1.748 -497 0 -1.317 0 -1.814 0 462 1800 2.282

Analyzing the cash flow statements of PDVSA, it seems that the financial performance of the company is fairly normal for an oil producing enterprise: income and cash from operating activities have experienced variations, mainly due to international oil prices movements; investments in fixed assets have increased for the years 2007, 2008 and 2009, and the financing operations have been used to finance the deficits resulting from the investments in fixed assets. However there are some aspects that create some concerns among analysts and members of the oil and gas industry in Venezuela, including:

D EBT O PERATIONS
PDVSAs debt has been increasing rapidly over the last few years. At this moment total debt is around $30 billion. For a company of its size and activity, this amount doesnt seem too large. But the worries result from two factors: 1. Rapid growth of the Debt: In the year 2004, total financial debt of PDVSA only amounted to $3.72 billion. In 2011 debt has risen to over the $30 billion. This implies a growth rate of 26% each year, without showing any significant increase in the production capacity of the company. Moreover, in the last quarter of 2010, PDVSA received financing from the Venezuelan Central Bank so as to allow it to pay royalties and taxes owned to the Government. It is believed that this amount involved was over $3 billion. Deviations from core businesses: as concerns the bond emission of $3 billion in PDVSA 2017 bonds last October, President Chvez instructed PDVSA that half of the receipts from the issue had to be used to finance the construction of houses for the Venezuelan people. This means that about $1.5 billion have 44

2.

to be diverted from productive investment plans in the oil sector, and directed towards social spending, which generates no profit to the company.

D ELAYS OF THE I NVESTMENT P LAN

Venezuelas Minister of Energy and Petroleum said that PDVSA will invest USD 12 billion in 2011, which is 4.3 percent more than in 2010 (11.5 Billion). However, these amounts are well below the initial estimates under the Plan Siembra Petrolera 2010-2015 for the years 2010 (16.4 billion), and 2011 (31.92 Billion). Also it is worth mentioning that the original version of the Plan Siembra Petrolera was elaborated in the year 2005 and foresaw a first phase, running form 2006 to 2012, in which oil production was to reach over 5 Million Barrels per day by the year 2011. This objective, as well as many others included in the original plan, has not been fulfilled.

A RBITRAGES WITH E XXON M OBIL AND C ONOCO P HILLIPS

As stated, the American companies Exxon Mobil and ConocoPhillips decided not to accept the new legal and fiscal terms offered in the context of the conversion process to Mixed enterprises in the year 2007. That decision led the Government to nationalize the assets of both companies in the Orinoco Oil Belt. Subsequently, both companies initiated an arbitration process against the Venezuelan State for the violation of the terms of their contracts. A few months ago PDVSAs President said that Exxon Mobil would reduce its demand for compensation for the assets nationalized in Venezuela from US$ 12 Billion to US$ 7 Billion. He also said that ConocoPhillips expected to receive about US$ 20 Billion in compensation. Such a large payment would seriously impact the weak financial position of PDVSA during the coming two years, when the litigation processes are believed to reach their conclusions. However, in a recent statement, he declared that he expected to pay $2.5 billion between both arbitration cases. He added that PDVSA wouldn't need to sell assets to make the payments.

D ECLINING P RODUCTION
Regardless of the source used to analyze the production levels of PDVSA, its clear that the oil output has been declining over the last few years. Government officials have argued that the reason for the decline has been the OPEC decision to reduce oil production quota. However, industry analysts and experts have indicated other causes, such as the maturity and natural decline of the most important oil fields, the lack of a clear and effective strategy to increase production of new fields, deviations from the core business of PDVSA, an unfavourable fiscal regime for the private partners in the mixed enterprises (which have delayed many investment plans) and all sorts of managerial, administrative and technical problems faced by the state company. It is difficult to see how the Government will solve these problems. Some analysts expect that the government will have to ease some of the legal and fiscal terms it demands to the private partners and investors, in order to stimulate the much needed investments to improve the oil infrastructure, given that the most important source of fiscal revenues come from the oil industry, and a decline in production means also a decline in Government income. On the other hand, the experiences with all the other industries that have faced similar 45

problems in Venezuela (for example: declining production and labour issues) shows that Government reaction has rather been to decide to nationalize or expropriate the enterprises, in order to take the direct control of the assets. This is done with two objectives in mind: in the first place as propaganda against capitalism and the oligarchy, which is blamed for the problems, and in the second place to generate political support by showing a Government that is working to solve the problems of the people, no matter that the problems were created by the Government itself.

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INVESTMENT OPPORTUNITIES
GENERAL CONSIDERATIONS
A SOCIALIST GOVERNMENT
President Chvez has often declared that he leads a Socialist Revolution and that he intends to do away with capitalism and the oligarchy in Venezuela. It is hard to distinguish between propaganda phrases and the real politics. The Chvez government has sought to explain its policy of seeking greater control of the economy under the motto power to the people. However, according to the opposition, the president seems primarily concerned in maintaining high levels of popularity with the masses. With this in mind, the government has increased its spending for social projects. At the same time, it seemed less concerned by the need to increase the countrys national income by raising industrial competitiveness. Its also not clear what its strategy is for periods when oil prices decrease. Most of the projects have simply been financed out of PDVSAs resources. But there are also moments when the government takes a more pragmatic approach. The main example is the Plan Siembra Petrolera itself. By giving some space to private and capitalist investors, the Government accepts that PDVSA is not able to fulfill all of its objectives by itself, and therefore accepts the participation not only of national oil companies (NOCs) from countries like China and Vietnam, but also of International oil companies (IOCs), including from countries the Government openly criticizes (USA and United Kingdom for example). As mentioned before, it is very hard to try to predict the future behavior of the Government. At times it becomes very radical in implementing its socialist ideals, which leads to further regulation, expropriation and nationalizations. Then at times, it becomes much more pragmatic and searches for cooperation with private sectors. This is the main reason for the uncertainties affecting investment decisions in Venezuela.

CHANGES IN LAW
In the past, Chvez has never shown any reluctance in changing the laws in his favour. This was made very easy for him, when the government party (PSUV) had full control of the National Assembly (NA). During the most recent elections, the opposition parties have however managed to gain a blocking minority in the NA for e.g. organic laws, which is expected to lead to more legal stability. Oil Activities in Venezuela are regulated by the National Constitution of 1999, the Gas Hydrocarbons Law of 1999 and the Hydrocarbons Law of 2001. More recently two important laws were added: the Law for the Rearrangement of the Domestic Fuel Markets, and the Law that Reserves to the State the Assets and Services Related to Primary Hydrocarbon Activities.

FOREIGN EXCHANGE CONTROLS

The Exchange control is the Governments way to limit capital outflow and provides it with the means to boost Government spending ahead of an election by devaluating the currency. The exchange control is at the same time an important barrier for investors and the Venezuelan population. The many distortions in the economy created by the Exchange Control and its inefficient management have led to high levels of inflation and

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shortages of various products, including in food and medical supplies, not to mention the creation of a black market for those in need of dollars. A main concern among foreign investors in Venezuela is related to the possibility of transfer the profits generated in Venezuela to their headquarters. Under the foreign exchange control, any operation of this kind must be previously approved by the National Government through an agency called CADIVI, which is in charge of managing all the foreign exchange operations in Venezuela. This implies an important loss of financial and commercial freedom. As political reasons persist for the exchange control to be maintained, no change is foreseen with respect to its application and recurrent devaluations can probably be expected.

EXPROPRIATIONS AND NATIONALIZATIONS

During its 11 years in office the Chvez Government has nationalized most of the heavy industry, and business and finance are tightly regulated. These nationalizations have led to a feeling of great insecurity for private companies and to low private investments in Venezuela. Unfortunately, the reasons why the Government takes these actions still persist. Consequently, as a new investor, perhaps the best strategy is to create a joint venture with a state owned company, or to deal directly with the Government. However, the risks involved still remain considerable.

POLITICAL INFLUENCE
It may be assumed that every decision the Venezuelan Government takes is measured by the political benefit it may give. This fact involves some pros and cons. On the one hand, the Governments political influence would seem almost limitless, seeing that there no longer seems to be an adequate separation of power in the country. The Government therefore not only has complete economical control over a large number of national sectors, government policies also carry an international dimension, due to Chvez search for regional integration and leadership. On the other hand, realization of this fact can help to devise a clear strategy for companies who want to invest in Venezuela: develop activities and alliances that provide certain political benefits to the government. One example of this were the recent investment plans in mature oil fields by Turkish enterprises. In January 2011, the visit of Turkeys Minister of Energy and Natural Resources sealed a deal in which Turkish enterprises would participate in the exploitation of light and medium oil fields in exchange for Turkish participation and help in the building of thousands of homes for the Venezuelan people. This is an important objective for the government, as Venezuela has suffered a big deficit in the construction of houses during the last 10 years and the situation has been further aggravated by recent floods that have left many people homeless. Therefore, by supplying houses to families, the Government can count on political benefits with a view to the 2012 Presidential elections. This is just an example of the influence of politics in the business environment of current day Venezuela. From the viewpoint of the Turkish enterprises involved, this is a means of reducing the risk of the Venezuelan Government expropriating or nationalizing their investment.

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FOREIGN INVESTMENT PROTECTION TREATY

The treaty on the encouragement and reciprocal protection of investments, between the Kingdom of the Netherlands and the Republic of Venezuela, was signed on 22 October 1991. This treaty is applicable not only to the Kingdom of the Netherlands in Europe, but also to the Dutch Caribbean islands. This treaty protects any form of investment, including investment in real estate, movable property, shares, bonds and other kind of interest in companies and joint ventures, title to moneys, rights in the fields of intellectual property or technical process, goodwill and know how and rights granted under public law, including the rights to prospect, explore, extract and win natural resources. The contracting parties furthermore guarantee that payments relating to any investment may be transferred. The transfers shall be made in a freely convertible currency, without undue restriction or delay. Such transfers include in particular, although not exclusively: a. b. Profits, interest, dividends and other current income; Funds necessary for the acquisition of raw or auxiliary materials, semi fabricated or finished products etc.; Additional funds necessary for the development of an investment; Funds in repayment of loans; Royalty or fees; Earnings of national persons; The proceeds of sale or liquidation of the investment.

c. d. e. f. g.

In other words, the treaty protects assets and movement of moneys in the broadest sense of the word. Unfortunately, the Chvez government decided to unilaterally rescind the agreement in November 2008, probably as a reaction to the fact the EXXON Mobil, which was operating in Venezuela through its Dutch holding, decided to lodge its complaint against the Venezuelan government following the nationalization of its oil assets, as provided for by the Dutch Investment Treaty. Although new investments therefore are no longer governed by the investment treaty, existing investments are still protected until 2023. Currently Venezuela is still a member of the ICSID (International Centre for Settlement of Investment Disputes), which means that any investor can demand a proper compensation and settle their investment disputes through this international organization. Venezuela has declared that they intend to leave the ICSID, but no further step has as yet been taken in that direction.

OIL UPSTREAM SECTOR

Given the large oil reserves in Venezuela, the most important opportunities for private investors are related to Exploration & Production of oil. This is why the biggest investment project in the Plan Siembra Petrolera is the development of the Orinoco Oil Belt. The exploitation of these reserves requests the most advanced technologies in the areas of thermal recovery and deep conversion of heavy and extra-heavy crude oil.

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Oil E&P activities are open for private investors, under the model of Mixed enterprises, with a majority stake owned by national government. All international tenders involving oil projects are governed by the Plan Siembra Petrolera, and the majority of the projects that have been signed thus far have been awarded through direct assignment. In the year 2010, 6 new blocks were awarded in the Orinoco Oil Belt: 2 blocks in the Carabobo Project, that were assigned through a competitive bidding (a third block was also offered, but no bids were received); and 4 blocks in the Junn Project, that were awarded through direct assignment. As concerns the Junn Project, 4 other blocks also seem to have been awarded: 2 blocks to Chinese oil company Sinopec, one to Spains Repsol, and another to a Japanese company. All of these partners have been selected directly by the Government. However, no legal step has been taken to advance on these projects and these assignments are liable to future changes. At this moment, no further competitive biddings are foreseen. The block number 2 in the Carabobo Project received no bids, and it seems that it will now be developed exclusively by the Government, unless they choose to offer it through bidding. The creation of a new Mixed Enterprise in the Orinoco Oil Belt requires that PDVSAs partner pays a bonus to the Government. This amount is calculated on the basis of the estimated total amount of petroleum reserves on site. For the Carabobo biddings, the Government also demanded external financing provided by each of the partners. Another consideration for the new Mixed enterprises in the Orinoco Oil Belt is related to the royalties paid to the Government. In the agreements approved by the National Assembly, it is contemplated that if in 7 years after the start of production of Enhanced Crude Oil, the Mixed Enterprise hasnt been able to recover all its investment, the royalty tax will be reduced from 30% to 20% until all investment have been recovered. There is also the possibility of receiving additional benefits from the Government. Regarding the Windfall Profit Tax, which some members of the industry point as an important reason not to participate in E&P activities in Venezuela, there has been in the mean time a verbal commitment by the Ministry of Energy and Oil, to study the reduction or exemption of the Windfall Profit Tax for the new projects in the Orinoco Oil Belt. However no concrete steps have as yet been taken in this direction. Other oil projects involve the production of mature oil fields. These are light and medium oil producing fields, where the technical and financial needs are much lower than the projects in the Orinoco Oil Belt. There is not much public information available about the plans of the Ministry of Oil and Gas with regards to these fields. In fact the most likely approach to gain access to these projects is Government-to-Government negotiations, which is the scheme used by countries such as Byelorussia, Russia, Turkey, India and Vietnam.

OIL DOWNSTREAM SECTOR

REFINING
Local legislation, in principle, allows for private investment in oil refining operations, not only through Mixed enterprises, but also by 100% privately owned companies. In case of a 100% private investment in an oil refinery, a licence must be granted by the Ministry of Energy and Oil. However, there are no examples of such a licence ever having been granted.

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Recently a Mixed Enterprise was created between the Venezuelan State and ENI to build and operate a new refinery to process Enhanced Crude Oil (EHCO) produced in the Orinoco Oil Belt, in which the Government maintains a majority stake of 60% of the shares.

TRANSPORTATION AND RETAIL

Although the Hydrocarbons Law allows for private investment in the transportation and retail activities of oil products, legislation signed in 2008 dictates that the domestic distribution chain of oil products must be directly and fully controlled by the government.

NATURAL GAS SECTOR

In accordance with the Gas Hydrocarbons Law, the scheme used to participate in the Natural Gas E&P activities is through Licences granted by the Ministry of Energy and Oil. In these licences the private partner can own a 100% stake in the exploration and production, although the Government may reserve for itself a participation of 35%. Some of the general conditions included in the Natural Gas Licences are: Regulated by National Constitution and Gas Hydrocarbons Law of 1999 Taxes and Royalties: Income Tax 34% over net income Royalty 20% over volumes extracted Special Contribution: 5% over volumes extracted

Other Contributions: 1% of gross income to LOCTI (Law of Science and Technology) projects. 1% to Anti-Drugs Law, The highest between 1% of gross income or USD 1 Million to social development plans

Period: 25 years

Lately the emphasis of the Government has been on the offshore Natural Gas Fields, mainly in the projects Plataforma Deltana, Rafael Urdaneta and Mariscal Sucre projects. Its worth mentioning that many delays have been faced by these projects, specially the Mariscal Sucreproject, in which the first commercial production of 600 Millions Cubic Feet per Day was expected in the year 2009. Currently however, the project is still in the exploration phase. The Mariscal Sucre Project has been offered through competitive biddings a number of times in the last year, but no firm offers were received by the Government. At the moment all the exploration work is being carried out by PDVSA itself, and recently several companies have been invited to participate in the project, including CNOOC, Petronas, SONATRACH and the Russian National Consortium (Lukoil, Rosneft, Gazprom, Surgutneftegaz and TNK-BP)

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In the Rafael Urdaneta Project, located in the western part of the country, there was a recent discovery of gas by the companies ENI and Repsol, in which reserves were calculated at about 15 Trillion Cubic Feet, making it the largest non-associated natural gas fields in Venezuela. Currently, the two companies are in the process of negotiations with PDVSA in order to determine their participation in the production project. The Plataforma Deltana, the other large offshore project of natural gas, is also suffering from delays in the production phase. In April 2010, Chevron obtained the Government authorization for producing natural gas in the Block number 2, but so far the commercial production has not begun. One of the main difficulties faced in the production of natural gas is the decision that the new production will be used to supply the internal market, where prices are much lower than on the international markets. Another issue is the fact that PDVSA is said to be planning to implement the same model used for Oil E&P activities (Mixed enterprises) in the Natural Gas industry. This could imply the end of the Natural Gas Licences, and entail the obligation that PDVSA have a majority stake in all the projects. However, no legal steps have been taken in that direction as yet. Another concern is the lack of experience of PDVSA in offshore activities. This is due to the fact that the most important activity of PDVSA is oil, and that historically, almost all the oil has been produced in onshore fields.

OIL & GAS SERVICES

For the service business, PDVSA depends greatly on the three large foreign service companies: Baker Hughes, Halliburton and Schlumberger. Dozens of other private oil service companies were nationalized during the last couple of years as a perceived solution to the accumulated debt PDVSA owed to these companies. Some compensation has still to be paid out. On May the 7 2009 the Venezuelan government announced in the Gaceta Oficial the Organic Law that 10 Reserves to the State the Assets and Services Related to Primary Hydrocarbon Activities. This law authorizes PDVSA or its affiliates to take possession of the assets and take over control of those operations related to the reserved activities. This is the case of all the aquatic operations in the Lake of Maracaibo, as well as in those activities related to the compression and injection of gas. At the same time, PDVSA has taken over all supply management of gas stations and gas transport in the country. The law has created a new legal uncertainty and risks of expropriation. In addition, Venezuela's production of crude levels seems to be seriously affected because of PDVSA's difficulty to provide oilfield services without the participation of foreign oilfield contractors. PDVSA has tried to negotiate the incorporation of mixed companies with the major oilfield services providers - as was negotiated with the operating services agreements in 2005 and the association agreements in 2006 - resulting in the state taking full control of the Venezuelan oil industry. It is clear that the government is nationalizing certain service companies, but then again a lot of service companies have not yet been nationalized. Ultimately PDVSA will need the (foreign) service companies since it
th

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http://www.tsj.gov.ve/gaceta/mayo/070509/070509-39173-1.html

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does not have the know-how or the capital to deliver all the services which are needed by the oil and natural gas sector.

ASSOCIATIONS WITH PRIVATE COMPANIES

PDVSAs has made several agreements with international partners to generate new industries. Since PDVSA wishes total control yet does not have the necessary capacity or the technology, it will be forced to outsource or share certain responsibilities. Next is a list of partners, according to the industrial sector concerned:

H YDROCARBONS :
Chinese-Venezuelan Industry of Drills, S.A (ICVT): mixed enterprise that strives to promote the development of infrastructure and road projects to ensure energy supply. Industrial Park of Natural Gas Vehicle (PIGNV): works with LANSIRENZO (Italian company), ACHILLE, ARGENTOIL, PELMAG (Argentinean companies) and others, to build an industrial park of natural gas transportation vehicles for the liberation of 75 MBD of gasoline and 3MBD of diesel for export. Several Pipe Factories: HEVESA, TUBHELCA, SOLTUCA and TAVSA.

B ASIC S UPPLIES :
Timber Plant Libertadores de Amrica (CIMLA): working with CVG- Proforca and Ducolsa for the production of timber to build 50.000 homes a year. CFLs Plant, VIETVEN Iluminaciones S.A: mixed enterprise with Vietnamese company DQLJSC. Manufactures of Packaging and Food Packaging, RC 2008 Plastic Venezolana, SA Sheds Factory Ultimate Building Machine Technology.

E NERGY S ECTOR :
Assembly plant of photovoltaic solar modules. Assembly plant of digital counters for electric power: in association with CHINT of China and UNE of Cuba.

T ELECOMMUNICATIONS AND I NFORMATICS :

Socialist factory of Software, Guardian of Alba: in association with PDVSA Industrial and ALBET Engineering and Systems S.A.

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The creation of mixed enterprises has been the method to establish new projects and market positioning. For example, Gazprom has aligned with PDVSA to create Services VENRUS for the purification of pits and the recuperation of crude, OMT, etc. Another example is VENCANA Oil Services with Plus from Canada and Services Bielo-Venezolana S.A with Bielorusneft from Bielorussia for the supply of equipment for drilling and logistical support.

PAYMENTS
Another problem which the service companies have to deal with in Venezuela is payments by PDVSA. For example, Ensco International, which has rigs contracted to the mixed company Petrosucre and Chevron, claimed it was owed USD 33.5 million by PDVSA and in 2009 stopped activities because of this debt until PDVSA settled its arrears. Williams Companies in 2009 threatened with the possibility of international arbitration over a payment dispute with PDVSA if the outstanding debt of USD 241 million was not settled. Helmerich & Payne, another service company, claimed that it is owed almost USD 100 million. Even though there are serious payment problems with PDVSA, these seem to depend mainly on the level of oil prices. The complaints of the service companies were very urgent at the beginning of 2009 but most companies seem to have been paid on time during recent months, with the higher oil prices.

CONCLUSION
No doubt the potential benefits of participation in the Venezuelan Oil and Gas industry are high. Venezuela has the largest oil reserves in the world, the largest natural gas reserves in South America, an infrastructure that is still largely underdeveloped for the objectives established in the Plan Siembra Petrolera, enormous needs of engineering, construction, procurement and maintenance services and a legal framework that allows the participation of private partners in most of the activities related to oil and gas. Accordingly, Venezuela should be the ultimate investment prospect for oil and gas. However, the socialist orientation and participation of the State in several key areas, coupled with excessive regulation and price controls have reduced the competitiveness of the companies in Venezuela and the ever-present influence of the politics in the business decisions, and PDVSAs limited capacity (financial and technical) to implement the objectives established in the Plan Siembra Petrolera have created a complicated business environment for foreign investment in the country. This situation represents a big challenge for any potential investor in Venezuela. Many companies have decided to limit their exposure by delaying investment plans and wait for an improvement in the general conditions. Others, however, have decided that the opportunities in Venezuela are just too big to miss and that any potential trouble will be solved in the future or offset by generated profits. One of the strategies followed by companies that have decided to stay in the country involves associations with the government, which can provide a political benefit and reduce the risk of expropriations and nationalizations. In this environment, it is difficult to give a straightforward recommendation with respect to questions relating to investing in Venezuelas Oil and Gas Sector, but it is obvious that any decision taken by possible investors will have to take account of all possible risks which exist in the uncertain business environment that Venezuela currently provides.

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APPENDIX - CONTACTS
GOVERNMENT
PDVSA
Avenida Libertador, Edifico Petrleos de Venezuela, S.A Torre Este, Piso 6, La Campia, P.O. Box 169 Caracas 1050-A Tel: +58 212 708 3999 (commercial manager) Tel: +58 212 708 3332 (supervisor documentation and information) Tel: +58 212 708 4129 (public affairs) Website: www.pdvsa.com

PDVSA SERVICES B.V.

President Kennedylaan 19 2517 JK Den Haag The Netherlands Tel: +31 (0)70 348 8588 E-mail: info@pdvsa.nl

MINISTERIO DEL PODER POPULAR PARA LA ENERGA Y PETROLEO

Av. Libertador con Av. Empalme, Edificio Petroleos de Venezuela, Torre Oeste, Urb. La Campia, Parroquia El Recreo, Caracas Tel: +58 212 708 1229/ 2134/ 2797 Website: www.menpet.gob.ve/

CORPORACIN VENEZOLANA DEL PETRLEO

Ca. Cal, Edf. Pawa, PB Las Mercedes Phone: +58 212 999.5804/5825/5522/5804 Fax: +58 212 999.5835

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JOINT-VENTURES (EMPRESAS MIXTAS) OPERATING IN ORINOCO REGION

PETROPIAR
Av. Nueva Esparta, cruce con Calle cerro Sur Centro Empesarial, Centro Bahia Pazuelos Torre A PH Barcelona, Anzoategui, Venezuela Tel: +58 281 262 2635

PETROCEDEO
Av. Solano con calle Negrin Edificio Centro Empresarial Sabana Grande Pent House Caracas, Venezuela Tel: +58 212 706 2000

INTERNATIONAL OIL COMPANIES

SHELL VENEZUELA PRODUCTOS, C.A.
Zona Industrial Municipal Sur, Av. Domingo Olavarra, Parcela 6-2 Planta de Lubricantes Shell, Valencia, Carabobo, Venezuela Tel: +58 241-874-4600 Email: pedidos-sac@shell.com

SHELL VENEZUELA S.A.

Av. Francisco de Miranda, Edificio Parque AvilaTorre B, Piso 14 Los Palos Grandes, Caracas, Venezuela Tel: +58 212 278 2111 Fax: +58 212 278 2300 Website: www.shell.com

BP VENEZUELA
Edificio Centro Seguros Suramerica, Pisos 3 y 5 El Rosal, Caracas, Venezuela Tel.: +58 212 901 9000 Webite: www.bp.com

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CHEVRON LATIN AMERICA

Av. La Estancia, Centro Banaven (Cubo Negro), Torre D, Piso 7 Caracas, Venezuela Tel.: +58 212 902 5400 Website: www.chevron.com

TOTAL VENEZUELA
Av. Principal de la Castellana, Torre Corpbanca, Piso 13 La Castellana, Caracas, Venezuela Tel: +58 212 277 6000 Website: www.total.com

REPSOL VENEZUELA
Av. Nueva Esparta, Centrol Comercial, Baha de Pozuelos, Torre Ameriven Barcelona, Anzoategui Tel: +58 281 262 5700 Website: www.repsol.com

ENI VENEZUELA B.V.

Calle Orinoco c/c Macuchies, Edificio 448 Las Mercedes, Caracas Venezuela Phone: +58 212 318 2000 / 2031 Fax: +58 212 318 2034 Strawinskylaan 1725 Amsterdam, The Netherlands Tel: +31 (0)20 570 7100 Website: www.eni.com

ENI OILFIELD SERVICES, CONSTRUCTION AND ENGINEERING

Calle Los Chaguaramos, Edificio Centro Gerencial Mohedano, Piso 2 La Castellana, Caracas, Venezuela Tel: + 58 212 263 7410

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NATIONAL OIL COMPANIES

CNPC VENEZUELA
Av. Francisco de Miranda, Torre Edicampo, Piso 5, Campo Alegre Caracas, Venezuela Tel: +58 212 266 6917 Email: cnpcoffice_ve@cnpc.com.cn Website: www.cnpc.com

PETROPARS LTD. BRANCH OFFICE IN VENEZUELA

Calle La Guairita, Centro Profesional Eurobuilding Piso 8, Oficina 8E, Chuao Caracas, Venezuela Tel: +58 212 993 7497 Email: talebi@ppars.com Website: www.petropars.com

GAZPROM
Open Joint Stock Company Gazprom 16 Nametkina Street, 117997, GSP-7 Moscow, Russia Tel: +7 495 719 3001 Website: www.gazprom.com

PETROBRAS VENEZUELA
Av. Venezuela, Edificio Torre Lamaletto, Piso 9, El Rosal Caracas, Venezuela Tel: + 58 212 957 7300 Website: www.petrobras.com

PETROBRAS NETHERLANDS
Rokin 55, 1012 KK P.O. Box 9900, 1000 AZ Amsterdam, The Netherlands Website: www2.petrobras.com.br/minisite/holanda/ingles/index.asp

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STATOIL INTERNATIONAL VENEZUELA AS

Final Av. Tamanaco, El Rosal, Edificio Centro Empresarial, Piso 9 Caracas, Venezuela Tel: +58 212 958 3100 Website: www.statoil.com

SERVICE COMPANIES
SCHLUMBERGER VENEZUELA
Av. Rio Caura, Torre Humboldt, Piso 23, Prados del Este, Parque Humboldt Caracas, Venezuela Tel: +58 212 907 4711 Website: www.slb.com

BAKER HUGHES VENEZUELA, S.C.P.A.

Caracas office Av. De La Castellana, Centro Letonia, Torre ING Bank, Piso 18 Tel: +58 212 277 2403 Caracas, Venezuela Website: www.bakerhughesdirect.com

Maracaibo office Av. 66 #62-609, Zona Industrial primera Etapa Maracaibo, Zulia, Venezuela Tel:+58 261 736 3244 Puerto La Cruz office Eduado Escobar, Av. Principal de Lecherias, C.C. Anna, Piso 1, Local 22 Puerto La Cruz, Anzoatequi, Venezuela Tel; +58 281 286 8706

SERVICIOS HALLIBURTON DE VENEZUELA, S.A.

Caracas office Av. Venezuela c/c Calle Mohedano, Torre BOD, Piso 5, Oficinas C y D El Rosal, Caracas, Venezuela Tel; +58 212 210 6300 Website: www.halliburton.com
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Maturin office Calle 13 entre 4 y 5, Zona Industrial ZIMCA Maturn, Monagas, Venezuela Tel: +58 291 300 2001 Maracaibo office Av. 3E entre Calles 78 y 79, Torre Epresarial Claret, Piso 10, Oficina 10.01 Maracaibo, Zulia, Venezuela Tel: +58 261 200 5211 Punta Camacho office Av. Pedro Lucas Urribarri, Municipio Santa Rita, Sector Punta Camacho Zulia, Venezuela Tel: +58 264 200 0999

INTERMEDIARY ORGANIZATIONS
CAMARA PETROLERA DE VENEZUELA
Av. Abraham Lincoln con Calle Olimpo, Torre Domus, Piso 3, Oficina 3-A, Sabana Grande, Caracas, Venezuela Website: www.camarapetrolera.org

ASOCIACIN VENEZOLANA DE LOS HIDROCARBUROS (AVHI)

Calle Guaicaipuro, Torre Forum, Piso 14, Oficina 14-A, El Rosal, Caracas, Venezuela Website: www.avhi.org

ASSOCIATION OF DUTCH SUPPLIERS IN THE OIL AND GAS INDUSTRY (IRO)

Engelandlaan 330 2711 DZ Zoetermeer The Netherlands P.O. Box 7261 2701 AG Zoetermeer The Netherlands Tel: +31 79 3411981 Email: info@iro.nl
Website: www.iro.nl

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VERENIGING FME-CWM
Postbus 190, 2700 AD Zoetermeer Boerhavelaan 40, 2713 HX Zoetermeer Tel: +31 (0)79 353 1100 Email: info@fme.nl Website: www.fme.nl

DUTCH GOVERNMENT CONTACTS

EMBASSY OF THE KINGDOM OF THE NETHERLANDS
Av. San Juan Bosco and 2 Transversal, Edificio San Juan, Piso 9, Caracas 1060-A Venezuela Tel.: +58 212 2769300 Fax: +58 212 2769311
Website: http://venezuela.nlembajada.org E-mail: car@minbuza.nl (general); car-ea@minbuza.nl (Economic Affairs)

NL EVD INTERNATIONAAL Agentschap NL

Postbus 20105, 2500 EC Den Haag Juliana van Stolberglaan 148 2595 CL Den Haag Tel: + 31 (0)70 778 88 86/+31 88 602 11 63
Website: www.agentschapnl.nl/evdinternationaal

CONSULTANTS
IPD LATIN AMERICA
Tel: +58 416 614 5099 Website: www.infrastrategy.com

PFC ENERGY
Marcela Segade Regional Representative Tel: (54 11) 4805-7503 info@pfcenergy.com

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ERNST & YOUNG VENEZUELA

Avenida Francisco de Miranda, Centro Lido, Torre A, Piso 13, El Rosal, Caracas Tel.: +58 212 953 5222 Fax.: +58 212 954 0069 Website: http://www.ey.com/VE/es/Home

PRICEWATERHOUSECOOPERS VENEZUELA: ESPINEIRA, SHELDON Y ASOCIADOS

Avenida Principal de Chuao, Edificio Del Ro, piso 7, Caracas Tel.: +58 212 7000 6666 / +58 212 902 6666 Fax.: +58 212 991 5210 Website: http://www.pwc.com/ve/es/index.jhtml

KPMG INTERNATIONAL VENEZUELA

Torre KPMG, Avenida Francisco de Miranda, Chacao, Caracas - Venezuela Tel.: +58 212 277 7811 Fax: +58 212 263 6350 Website: www.kpmg.com.ve

LATIN TRADE LOGISTICS

Sluisweg 80; 3311 WV Dordrecht Tel: +31 (0) 84 837 3573 Fax: +31 (0) 84 839 9477 Email: info@latintradelogisitcs.com Website: www.latintradelogistics.com

TCA (TREBES CONSULTING & ADVIES)

c/El Retiro, Edf. Mary Flor, ofic 7, Urb. Alta Florida, CP 1050, Caracas, Dtto Federal Tel: +58 212 635 8729 Mob: +58 414 739 5161 Email: info@tcaconsult.com Website: www.tcaconsult.com

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