RESEARCH REPORT FORWARD

VENEZUELA: OPPORTUNITIES FOR THE NON FAINT OF HEART INVESTOR

RESEARCH REPORT FORWARD: VENEZUELAN INVESTMENT OPPORTUNITIES

RESEARCH NOTE South America 9 November 2012

Energy Analytics Institute (EAI) 15227 Oak Terrace Drive Houston, Texas 77082 T. 1.832.387.0183 Venezuelan satellite office contact: 58.416.403.8945 Follow us on Twitter @EnergyAnalyInst

Investments Opportunities for the Non Faint of Heart Investor

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Venezuelas energy situation continues to attract the attention of investors worldwide. The country is blessed with an abundance of natural resources of which crude oil and natural gas are of utmost interest to companies and countries with large energy demands. At the end of 2011, Venezuelas oil reserves amounted to 297,571 million barrels or MMbbls (of which 258,939 MMbbls were classified as heavy and extra-heavy oil and located in Venezuelas Orinoco Heavy Oil Belt, also known as the Faja), while its oil production amounted to 2,991 thousand barrels per day (Mb/d) which resulted in a reserves-to-production or R/P ratio in excess of 100 years (See Table 1). Venezuela reigns as the largest holder worldwide of oil reserves with control of 17.9% of said resources. The country has even surpassed Saudi Arabia with its 265,400 MMbbls of oil reserves, which represent 16.1% of said oil reserves worldwide. However, Venezuelas oil production still lags behind that of Saudi Arabia, which amounted to 11,161 Mb/d at the end of 2011 (R/P ratio of 65.2 years), and other countries such as Canada, China, Iran, Russia, the United Arab Emirates (UAE), and the United States of America (USA).

At the end of 2011, Venezuelas gas reserves amounted to 195.0 trillion cubic feet (Tcf), while its gas production amounted to 7,125 million cubic feet per day (MMcf/d) gross (4,241 MMcf/d, net after reinjections) which resulted in a R/P ratio in excess of 100 years (See Table 2). As such, Venezuela is the eighth largest holder worldwide of gas reserves with control of just 2.7% of said resources. TABLE 1: WORLDWIDE OIL RESERVES AT THE END OF 2011 (TOP 10 COUNTRIES) Reserves (MMbbls) 297,571 265,400 175,200 151,200 143,100 101,500 97,800 88,200 47,100 37,200 Share of Total (%) 17.9% 16.1% 10.6% 9.1% 8.7% 6.1% 5.9% 5.3% 2.9% 2.3% Production (Mb/d) 2,991 11,161 3,522 4,321 2,798 2,865 3,322 10,280 479 2,457 R/P Ratio (In Years) RESEARCH REPORT FORWARD: VENEZUELAN INVESTMENT OPPORTUNITIES 100 + 65.2 100 + 95.8 100 + 97.0 80.7 23.5 100 + 41.5

Country Venezuela (1) Saudi Arabia Canada Iran Iraq Kuwait United Arab Emirates Russia Federation Libya Nigeria

Rank 1 2 3 4 5 6 7 8 9 10

Note: (1) Reserve and production data provided by PDVSA Source: BPs Statistical Review of Energy TABLE 2: WORLDWIDE GAS RESERVES AT THE END OF 2011 (TOP 10 COUNTRIES) Reserves (Tcf) 1,575.0 1,168.6 884.5 858.8 299.8 287.8 215.1 195.0 180.5 159.1 Share of Total (%) 21.4% 15.9% 12.0% 11.7% 4.1% 3.9% 2.9% 2.7% 2.5% 2.2% Production (MMcf/d) 58,730 14,687 14,208 5,761 63,014 9,601 5,005 7,125 3,856 7,546 R/P Ratio (In Years) 73.5 100 + 100 + 100 + 13.0 82.1 100 + 100 + 100 + 57.7

Country Russian Federation Iran Qatar Turkmenistan USA Saudi Arabia United Arab Emirates Venezuela (1) Nigeria Algeria

Rank 1 2 3 4 5 6 7 8 9 10

Note: (1) Reserve and production data provided by PDVSA Source: BPs Statistical Review of Energy

However, Venezuelas gas production, according to BP at the end of 2011, ranks twenty-sixth worldwide and lags behind that of the following countries: Algeria, Argentina, Australia, Canada, China, Egypt, India, Indonesia, Iran, Malaysia, Mexico, Netherlands, Nigeria, Norway, Pakistan, Qatar, Russian Federation, Saudi Arabia, Thailand, Trinidad & Tobago, Turkmenistan, United Arab Emirates, United Kingdom (UK), USA, and Uzbekistan. In a move to increase its proven oil and gas reserves and production capacity, Venezuelas state oil company Petrleos de Venezuela (PDVSA) has announced a seven-year capital budget plan for 20122018 (See Tables 6-1 and 6-2) that calls for investments of $266,059 million (an average of $38,008 million per year) with the lions share being destined for the following activities: production ($127,941 million), new refineries and upgraders ($59,490 million), onshore gas developments ($25,425 million), existing refineries ($18,999 million) and exploration ($5,970 million). Given the magnitude of PDVSAs capital budget, the company is counting heavily on third party investments from international oil companies (IOCs) as well as national oil companies (NOCs). In short, Venezuela holds wide spread potential for investors searching for activities in the upstream, downstream, and midstream sectors, among others indirectly related to the petroleum sector. Nevertheless, Venezuelas petroleum sector has been undergoing across the board changes and expropriations since 2005. These changes have forced a number of companies to exit the country do to disagreement with the governments Sowing Petroleum Plan and policies, which continuously point the blame at IOCs for a number of issues currently affecting Venezuelas petroleum sector and the country in general. While Energy Analytics Institute is not in complete agreement with the current governments petroleum sector policies, or entirely confident in its means to increase its proven oil and gas reserves and production, we cannot overlook the enormous opportunities that are found in Venezuela. This Investor Research Report takes a look at these opportunities within the framework of PDVSAs sevenyear capital budget plan. It also examines the evolution of PDVSAs Balance Sheets and Income Statements over the last six years. FOR MORE DETAILS, DOWNLOAD THE FULL 59-PAGE RESEARCH REPORT VENEZUELA: OPPORTUNITIES FOR THE NON FAINT OF HEART INVESTOR ONLINE. ######### INVESTOR RESEARCH REPORT FORWARD ENDS

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DISCLAIMER / DISCLOSURES
The Energy Analytics Institute (EAI) is an independent research company and is not a registered investment advisor. Information contained in this report is based on sources considered to be reliable but is not represented to be complete and its accuracy is not guaranteed. Opinions expressed reflect judgment of the author as of the date of publication and are subject to change without notice. This document and its contents do not constitute an offer, invitation or solicitation to purchase or subscribe to any securities or other instruments, or to undertake or divest investments. Neither shall this document or its contents form basis of any contract, commitment or decision of any kind. This material has no regard to specific investment objectives, financial situation or particular needs of any recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Energy Analytics Institute (EAI) accepts no liability of any type for any direct or indirect losses arising from use of this document or its contents. All information is correct at time of publication; additional information may be made available upon request. Energy Analytics Institute (EAI) and its officers, directors, shareholders and employees, and members of their families may have positions in securities mentioned in this report and may as principal or agent, buy and sell such securities before, after or concurrently with publication of this report.

RESEARCH REPORT FORWARD: VENEZUELAN INVESTMENT OPPORTUNITIES

EXECUTIVE TEAM
Editor: Chad Archey Copy Editor: Layla Benitez-James Editorial Council: James Lam Earl Francisco Lopez Ofelia Paredes Vinod Sreeharsha Harold Stewart Commentaries / Analysis: Ian Silverman Aaron Simonsky Jeremy Morgan Jared Yamin Distribution: Fidencio Casillas Proofreading: Rufus Trotman Carlene Williams Photography / Layout: FOTObicion Director General: P. Don Pitts

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Fee-Based Individual Research Reports The fee for each Latin America and Caribbean Region research report is US $395/person. Ad Hoc Research Reports The fees for special ad hoc research reports can be obtained by contacting us directly at the following mailing address: In the USA (Corporate Headquarters): Energy Analytics Institute 15227 Oak Terrace Drive Houston, Texas 77082 T. 1.832.387.0183 W. www.energy-analytics-institute.org E. energy-analytics-institute@hotmail.com Follow @EnergyAnalyInst In Venezuela (Representative Office): Energy Analytics Institute (formerly Editores Latin Petroleum, C.A.) Avenida Francisco de Miranda Edificio Galerias Venezias, Local 3 Municipio Chacao Caracas, Venezuela T. 58.416.403.8945

RESEARCH REPORT FORWARD: VENEZUELAN INVESTMENT OPPORTUNITIES