Petróleos de Venezuela S.A. and Subsidiaries (PDVSA) Financial

Petróleos de Venezuela S.A. and Subsidiaries (PDVSA)
Wholly-Owned by the Bolivarian Republic of Venezuela
Financial and Operational Information
December 31, 2007
The New PDVSA with a National, Popular and Revolutionary Vision
MESSAGE FROM THE PRESIDENT OF PDVSA
6
I. General Business Vision
12
1.
History and Development of the Company...................................................................12
2.
Strengths Supporting the Oil Industry..........................................................................13
3.
Business Description .......................................................................................................14
a.
b.
c.
d.
Activities ...................................................................................................................... 14
Social Development .................................................................................................... 15
Energy Cooperation Agreements ............................................................................... 15
New Businesses ......................................................................................................... 16
II. Organization
17
1.
Organizational Structure................................................................................................17
2.
Description of Main Subsidiaries...................................................................................17
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
3.
Corporate Government ..................................................................................................21
a.
b.
c.
d.
4.
PDVSA Petróleo, S.A.................................................................................................. 17
Corporación Venezolana del Petróleo, S.A. (CVP) .................................................... 17
PDVSA Gas, S.A. ....................................................................................................... 18
PDV Marina, S.A......................................................................................................... 18
Palmaven, S.A. ........................................................................................................... 18
Interven Venezuela, S.A. ............................................................................................ 18
Deltaven, S.A. ............................................................................................................. 18
PDVSA América, S.A.................................................................................................. 18
Bariven, S.A. ............................................................................................................... 19
INTEVEP, S.A............................................................................................................. 19
COMERCHAMP, S.A.................................................................................................. 19
PDVSA Agrícola, S.A.................................................................................................. 19
PDVSA Industrial, S.A. ............................................................................................... 19
PDVSA Servicios, S.A. ............................................................................................... 20
Subsidiaries and Foreign Affiliates ............................................................................. 20
Stockholder’s Meeting................................................................................................. 21
Board of Directors ....................................................................................................... 21
Audit Committee ......................................................................................................... 26
Internal Control ........................................................................................................... 26
Human Resources............................................................................................................27
III. Strategic Plan
30
2
1.
Axes of the “Plan Siembra Petrolera”...........................................................................31
a.
b.
c.
d.
e.
f.
g.
2.
Certification of the Orinoco Oil Belt (Magna Reserva Project) ................................... 31
Expansion of Orinoco Oil Belt Projects....................................................................... 32
Production in Traditional Areas................................................................................... 32
Offshore Gas Development ........................................................................................ 32
Refining Increase and Improvement........................................................................... 33
Commercialization of Crude Oils and Products .......................................................... 33
Development of Infrastructure .................................................................................... 33
Business Strategy.............................................................................................................33
a.
b.
c.
d.
e.
f.
3.
Capital Expenditures................................................................................................... 34
Exploration, Production and the Upgrading of Crude Oils.......................................... 35
Refining ....................................................................................................................... 35
Trade and Supply........................................................................................................ 36
Natural gas.................................................................................................................. 36
Social Production Companies..................................................................................... 36
Summary of Capital Expendicture Plan and Main Projects.......................................37
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.
t.
u.
Ceuta – Tomoporo ...................................................................................................... 37
Electric Energy Supply Costa Oriental del Lago - Occidente ..................................... 38
Northern District Growth ............................................................................................. 38
Morichal District Growth.............................................................................................. 38
New Developments in the Orinoco Oil Belt Area ........................................................ 38
Trans-Caribbean Gas Pipeline Antonio Ricaurte........................................................ 38
Gran Delta Caribe Oriental ......................................................................................... 39
Complejo Criogénico de Occidente ............................................................................ 39
Gas Anaco .................................................................................................................. 39
Acondicionamiento de Gas y Líquidos Anaco (AGLA) ............................................... 39
Interconexión Centro Occidente (ICO) ....................................................................... 39
Jose 250...................................................................................................................... 40
Mariscal Sucre ............................................................................................................ 40
Nor-East Gas Sistem .................................................................................................. 40
National Gasification ................................................................................................... 40
Plataforma Deltana ..................................................................................................... 40
Autogas - Natural Gas for Vehicles (NGV) ................................................................. 41
Rafael Urdaneta.......................................................................................................... 41
Deep Conversion for Puerto La Cruz Refinery ........................................................... 41
Deep Conversion for El Palito Refinery ...................................................................... 41
Construction of New Refineries in Venezuela ............................................................ 41
IV. Main Activities
1.
43
Extraction and Production .............................................................................................43
a.
b.
c.
d.
Reserves ..................................................................................................................... 43
Production................................................................................................................... 48
Third-Party Associations ............................................................................................. 51
Magna Reserva Project .............................................................................................. 58
2.
Gas ....................................................................................................................................61
3.
Refining ............................................................................................................................63
3
a.
b.
c.
4.
Refining Capacity........................................................................................................ 63
Domestic Refining....................................................................................................... 66
Foreign Refining.......................................................................................................... 66
Trade and Supply............................................................................................................70
a.
b.
c.
5.
Exports ........................................................................................................................ 70
Domestic Market ......................................................................................................... 73
Deltaven, S.A .............................................................................................................. 75
Transportation/Vessels and Tankers.............................................................................77
a.
b.
Supply and Logistics ................................................................................................... 77
PDV Marina................................................................................................................. 77
6.
Research and Development ............................................................................................79
7.
Environmental and Safety ..............................................................................................82
a.
b.
8.
Occupational Health and Environmental .................................................................... 82
Industrial Safety .......................................................................................................... 84
Social Development .........................................................................................................86
V. Energy Cooperation Agreements
100
VI. New Business
105
a.
b.
c.
Oil Service Companies ............................................................................................. 105
Social Production Companies................................................................................... 109
Agricultural Sector Companies ................................................................................. 113
VII. Electricity Sector Companies
115
VIII. Litigation and Other Claims
117
IX. Operating and Financial Analysis
118
1.
Executive Summary ......................................................................................................118
2.
Inflation and Devaluation.............................................................................................119
3.
Contributions Paid to the Nation.................................................................................119
a.
b.
c.
d.
e.
f.
Income Tax ............................................................................................................... 119
Royalty ...................................................................................................................... 120
Extraction Tax ........................................................................................................... 120
Export Registration Tax ............................................................................................ 120
Surface Tax............................................................................................................... 120
Value Added Tax (VAT) ............................................................................................ 121
4
g.
h.
General Consumption Tax ........................................................................................ 121
Dividends .................................................................................................................. 121
4.
Monetary Reconversion................................................................................................122
5.
Operating and Financial Results .................................................................................122
a.
b.
c.
d.
e.
f.
g.
h.
6.
Consolidated Summary of Financial Information...................................................... 125
Production................................................................................................................. 128
Total Sales ................................................................................................................ 129
Cost and Expenses................................................................................................... 129
Cash Flows ............................................................................................................... 130
Restricted Cash ........................................................................................................ 131
Supply Agreement .................................................................................................... 133
Significant Accounting Policies ................................................................................. 134
Consolidated Financial Debt ........................................................................................136
X. Schedules
141
5
MESSAGE FROM THE PRESIDENT OF PDVSA
The results of our operations of the year 2007 show an strengthened PDVSA, clearly invested in
its role and responsibilities with the Venezuelan society. PDVSA is aware of its role as the
National Petroleum Company of the Venezuelan state, responsible for operations related to one
of our main non-renewable resources: hydrocarbons. PDVSA is, and must continue to be the
engine for domestic development and the leverage for the integral transformation of our society.
The new PDVSA is proud to be a National Company, subordinate to the Venezuelan state and
deeply committed to the true owners of petroleum: the Venezuelan people.
This report contains the operational and financial results at the end of the fiscal year, in which
we have had the task of overseeing and guiding the course of our main industry. Likewise, we
have shed light on the biggest and most significant challenges that lie ahead, committed to our
goal of planting the seed of petroleum.
Our course of action is always compelled by profound moral and ethical convictions, aimed at
ensuring responsible, efficient and transparent operations.
After the terrible consequences of the sabotage to our oil industry in 2002 and 2003, which
deeply affected the Venezuelan population, PDVSA has managed to consolidate an
organizational structure capable of dealing with the everyday challenges inherent to our
fundamental activity. We have performed an extraordinary recovery of our production, refining,
administrative and control systems, fuel supply, international trade and all the facilities that had
been sabotaged.
At the same time, we have been decidedly involved with important and necessary social
activities, supporting the efforts of the Bolivarian Government to achieve a society in which
fairness prevails as a means of inclusion for all citizens, based on equality and social justice,
thus facilitating the integral development of the country and departing from hundreds of years of
unfairness and inequities among our population.
PDVSA’s staff is young, highly committed and technically prepared to support and ensure the
consolidation and continuity of our operations. These traits propel us to optimal quality levels
and enhanced performance. This human resource, comprised of women and men of our own
society, displays its commitment to the people on a daily basis and its role within a new PDVSA,
identified with a national, popular and revolutionary vision.
Full Petroleum Sovereignty
In 2007 we completed the migration process to the structure of ”Empresas Mixtas”, in
accordance with the Organic Hydrocarbons Law, in which PDVSA is a major stockholder, of the
old joint ventures of the Orinoco Oil Belt, as well as of the old extraction, risk and shared-profit
agreements. These efforts consolidated the policies aimed at achieving the Full Petroleum
Sovereignty.
These steps toward sovereignty have complemented other important decisions of recent years,
have put an end to the so-called “open oil-related activities”, which was a perverse chapter in
our recent history sparked by the “meritocratic” management of the old PDVSA at the beginning
6
of the nineteen nineties, which intended to privatize our industry in benefit of a cross-border
interest and, as a result, affect the legitimate rights of the Venezuelan people and nation, the
sole owners of our petroleum.
As the end to the open-petroleum era, PDVSA takes control over all activities relating to
extraction of hydrocarbons in the country and, in so doing, it ensures coherence with the
strategic plans of the Nation and the guidelines imparted by the National Branch of Government
through the Ministry of Popular Power for Energy and Petroleum.
The policies of the Full Petroleum Sovereignty have brought about great social, economic and
political progress for the nation. These developments include the following:
Increased Tax Collection:
The government strategy of standardizing and adjusting the rates to determine and pay royalties
and taxes on oil-related income, including new tax laws, has allowed the National Treasury to
increase its collection by over 40 billion U.S.dollars (dollars or $) from 2002 to 2007. These
resources are currently managed by the Venezuelan state and enable a revolutionary
distribution of the oil revenue through social programs and support to the National Development
Plan.
Cost Savings for PDVSA:
The migration of joint ventures to ”Empresas Mixtas”, mandated and performed as of April 1,
2006, has resulted in operating cost savings for PDVSA of over 2,7 billion dollars from 2006 to
2007, a significant increase in financial income and consolidation of our equity position.
PDVSA has undertaken these processes, as acts of sovereignty, based on current laws and
regulations, without improper treatment and within an environment of respect and fairness
toward our partners. Under the structure of ”Empresas Mixtas”, we continue to do business with
oil companies from all over the world, but all our efforts are performed under the provisions of
the Constitution of the Bolivarian Republic of Venezuela, the Organic Hydrocarbons Law and
Organic Gas Hydrocarbons Law, as well as other regulations and standards governing
petroleum activities in our nation, with the aim of protecting the interests of our people.
Operational and Financial Results
The results obtained in 2007 evidence the high operating capacity and financial strength of
PDVSA, confirming it as the 5th largest oil company in the world and the biggest in Latin
America, according to recently studies published by Petroleum Intelligence Weekly (PIW).
In 2007, PDVSA and its subsidiaries earned an international operating income of 96 billion 242
million dollars, thanks to its efforts to maintaining crude-oil liquefied natural gas levels at 3.3
million barrels per day, including the production from companies operating in the Orinoco Oil
Belt.
Total exports of the year, including sales by businesses in the Orinoco Oil Belt, amounted to 2.8
million barrels per day.
Export prices of the Venezuelan basket average was 64.74 dollars per barrel. These income
levels, along with the consistent and systematic reduction of our cost and expenses levels gave
way to a net operating profit of 25,3 billion dollars. From this amount, upon deduction of
contributions for social development and income tax expenses caused in the year, resulted a net
worldwide consolidated profit of 6,3 billion dollars arose.
7
As a result of the income of recent years, and the decisions, policies and guidelines of National
Government, in 2007 PVSA managed to revert the terrible deficit existing at the end of 1998,
when Hugo Chávez Frías became president of Venezuela.
As denounced by the Statutory Auditor of PDVSA in his report of 1999, the financial statements
at the end of 1998 showed a deficit of 14.6 billion dollars. The leaders of the Fourth Republic, in
alliance with the “meritocratic” management of the old PDVSA, had taken our main industry to
the verge of bankruptcy because of their unwise decision-making in financial and operating
issues.
With great pride and satisfaction, we now present to the Venezuelan people a healthy, vigorous
company in good standing and with assets of over 107 billion dollars and a net equity of over 56
billion dollars.
Support of Integral Social Development of the Country
In 2007, PDVSA furthered emphasized its unconditional support to different social-development
projects, plans and programs, established by the Bolivarian Government. Contributions for social
development, made by PDVSA in that year amounted to 13.9 billion dollars, distributed as
follows:
•
•
•
6.8 billion dollars for Fondo de Desarrollo Nacional (Fonden), for completion of
infrastructure work and projects.
5.7 billion dollars for social missions and other social programs (Misiones Barrio Adentro
I, II and III, Ribas, Mercal, Milagro, Revolución Energética, Sucre e Identidad, and
others).
1.4 billion dollars for special investment plans in Housing and Habitat (524 million
dollars), and Agricultural Projects (919 million dollars).
Through contributions made by PDVSA for social development, the Venezuelan state distributes
excess oil revenues among the Venezuelan population through allocation of resources for
infrastructure and support projects aimed at different social missions.
International Streghthening and Regional Integration
The current capitalist development plan, based on an irrational extraction of energy, is
unfeasible and unsustainable. Hydrocarbon reserves throughout the world do not suffice to
sustain the enormous current consumption of industrialized countries or future growth
expectations.
In light of this outrageous voracity toward energy, the Bolivarian Government of Venezuela
carries out efforts within the Organization of Petroleum Exporting Countries (OPEC) to
encourage rational management of the extraction rate of these non-renewable natural
resources, maximum valuation of oil resources, global energy balance and strategic use of
hydrocarbons for integration, social justice, solidarity and the fight against poverty and social
exclusion.
The energy integration of the peoples of Latin America and the Caribbean is fostered by our
Government through Petroamérica, an initiative part of “Alternativa Bolivariana para los Pueblos
de Nuestra América” (ALBA).
Petroamerica is a geopolitical enabler aimed at establishing means of cooperation and
integration, using the energy resources of the regions of the Caribbean, Central America and
South America. Three sub-regional initiatives merge into Petroamérica, namely, Petrocaribe,
Petrosur and Petroandina, whose objectives include, but are not limited to, the following:
8
•
•
•
Mitigate asymmetries in the access to energy resources.
Establish means for cooperation and integration, based on complementation.
Foster energy interconnection and joint investment in economic, social and energyrelated projects.
The New Challenges of PDVSA: The Plan to Sow Petroleum
As part of PDVSA’s Development Plan of the Nation, PDVSA performs its Plan to Sow
Petroleum, which addresses seven axes for national petroleum and gas development:
•
Magna Reserva Project: Quantification and certification of reserves in the Boyacá,
Junín, Ayacucho and Carabobo blocks of the Orinoco Oil Belt.
The purpose of the Magna Reserva Project is to quantify and certify at least 17% of the
Original Oil on Site (POES) as proved reserves, based on an integral review of all the
Orinoco Oil Belt area and the application of leading-edge technology to enhance the
recovery factor.
Since the project was launched in 2005, up to the end of 2007, MENPET has quantified
and certified 20 billion barrels of heavy crude oil of the 235 billion barrels taken into
account for the project; that is, as of 2007 approximately 9% of the overall goal has been
reached; the balance is estimated to be completed by the end of 2009.
•
Expansion of Projects in the Orinoco Oil Belt: Integral development of the northern
Orinoco region.
The Plan to Sow Petroleum takes into account the development of three modules for
production of 615 thousand barrels per day of upgraded crude oils, with involvement of
third parties. In addition, two (2) cities will be built around the heavy crude oil processing
complex to encourage the process for de-concentration of the population.
•
Production in Traditional Areas: Increased production up to 5.8 million barrels per day by
the year 2012.
Offshore Gas Development: Integral industrial development of offshore gas reservoirs in
the eastern region (Delta Platform, with a planned production of 1.47 billion cubic feet of
gas per day, and Mariscal Sucre with 1.2 billion cubic feet of gas per day) and in the
western region (Rafael Urdaneta, with an expected production of 1 billion cubic feet of
gas per day).
The construction of the Gran Mariscal de Ayacucho Industrial Complex (CIGMA) is
under way. This complex is for treatment and conditioning of offshore gas, located in
Sucre State, which encompasses a petrochemical plant, storage areas, docks and
terminals, plants for liquefying gas, as well as an industrial park.
•
Refining Expansion and Improvement: Creation of new refineries (Cabruta, Batalla de
Santa Inés and Caripito).
Plans in this axis are to increase the processing capacity of Venezuelan crude oil in the
country by creating new refining complexes: Cabruta, with a capacity of 400 thousand
barrels per day; Batalla de Santa Inés, located in the state of Barinas, with 50 thousand
barrels per day; and Caripito with 50 thousand barrels per day for production of asphalt.
Furthermore, it is aimed at reinforcing and enhancing the processes of existing plants
(Paraguaná Refining Complex, Puerto La Cruz and El Palito) to increase residual
processing and obtain more medium distillates.
9
This plan to expand and enhance refining is integrated with agro-energetic projects for
production of ethanol, as an additive of gasoline, thus significantly impacting the
occupation of the field and contributing to territorial consolidation.
•
Commercialization of Crude and Products: To ensure domestic energy security and
reliability and strengthen foreign oil policies.
By 2012, the crude oil availability expected for exports is of 4.4 million barrels per day
and 1.8 million barrels per day for refining, amounting to a total supply of crude oil of 5.2
million barrels per day.With the production of ”Empresas Mixtas” arising from former joint
ventures of the Orinoco Oil Belt of 622 thousand barrels per day, the domestic supply of
crude oil amounts to 5.8 million barrels per day.
•
Infrastructure: To expand the recovery capacity, storage and transportation of
hydrocarbons.
The purpose is to facilitate regional integration through gas pipelines with the South, the
Andes and the Caribbean and replace obsolete infrastructure. Additionally, the project
includes plans to develop a residential gas supply network. Expansion of this
infrastructure will enable greater flexibility to handle the increased volumes under the
plan, in terms of crude oil, products and natural gas.
The Plan to Sow Petroleum entails investments of 78.12 billion dollars from 2007 to 2012, which
will increase the operating capacity of PDVSA, thus significantly boosting Venezuelan economy
and generating opportunities for the integral development of the country.
The new PDVSA subsidiaries created to support the Siembra Petrolera Plan will serve as
valuable tools for the Venezuelan state to generate the necessary space to increase balance in
the domestic market.
• PDVSA Servicios: This subsidiary will give rise to important savings in the area of
PDVSA services, supporting the administration of drilling rigs recently nationalized,
manufactured in China, leased out from third parties, as well as those used in servicing
reservoirs, machinery and seismic processes.
• PDVSA Industrial: Its purpose is to meet the needs of the population through a product
line of household products. Manufacturing of end products for mass consumption will
take place, such as clothing, shoe wear, home appliances, tools, beds, furniture, as well
as white and brown goods, television sets and radios.
• PDVSA Agrícola: Lands owned by PDVSA will be used to harvest food. Under this plan,
in 2007, a program for planting soybeans and sugar cane was launched. To complement
the agricultural value chain, the company Productora y Distribuidora Venezolana de
Alimentos (PDVAL) is created for the purpose of carrying out production, supply and
domestic and foreign marketing of foodstuff, thus ensuring a stable, permanent and
growing supply.
• PDVSA Gas Comunal: This plan is basically centered on gas supply to communities
from filling plants to homes.
• PDVSA Ingeniería y Construcción: Platforms for offshore production activities will be
developed.
• PDVSA Naval: will build boats, shipyards and dams.
10
• PDVSA Desarrollos Urbanos: will contribute to housing and habitat developments. In
tight cooperation with other institutes and ministries, construction of homes and housing
developments throughout the country will take place.
This management report corresponding to the year 2007 is the result of the efforts of men and
women whose work and consistency have supported the operating and financial consolidation of
PDVSA. The triad comprised by the People, Armed Forces and Oil Employees, has been a key
factor in the success achieved.
This capacity for teamwork, professional development, discipline and organization must continue
to be employed to fulfill the goals of the Plan to Sow Petroleum in benefit of the Venezuelan
people as a fundamental tool for creating economic and social conditions to facilitate the
development of socialism in our country.
Rafael Ramírez Carreño
Minister of Popular Power for Energy
and Petroleum, and
President of PDVSA
11
I. General Business Vision
1. History and Development of the Company
Petróleos de Venezuela, S.A. (PDVSA) is a company owned by the Bolivarian Republic of
Venezuela1, created by the Venezuelan state2 in 1975, in accordance with the Organic Law
Allocating to the State, the Hydrocarbons Industry and Trade. Its operations are supervised and
controlled by the Ministry of Popular Power for Energy and Petroleum, formerly the Ministry of
Energy and Oil (MENPET).
PDVSA is responsible, in Venezuela, of developing the hydrocarbons industry as well as
planning, coordinating, supervising and controlling activities relating to exploration, extraction,
manufacturing, refining, transportation through special means and sale of hydrocarbons and
their derivatives in Venezuela and abroad. Most of its foreign subsidiaries are involved in
refining and marketing activities at a global level.
Under the Constitution of 1999, the Venezuelan state must exercise exclusive ownership of
PDVSA’s shares. Nevertheless, the Constitution makes it possible for Venezuela through
PDVSA and its subsidiaries to enter into exploration, production and refining agreements and to
incorporate ”Empresas Mixtas” for the development of the oil industry yet keeping a majority
interest in those companies.
The main activities pursued by PDVSA are regulated by the Organic Hydrocarbons Law,
effective since 2002, amended by Decree Law for Partial Amendment of the Organic
Hydrocarbons Law, published in Official Gazette number 38,443, dated May 24, 2006. With
regards to gas-related transactions, the provisions of the Organic Law on Gaseous
Hydrocarbons of September 1999 and its Regulation of June 2000 are applied.
In accordance with articles 302 and 311 of the Constitution of Venezuela and article 5 of the
Organic Hydrocarbons Law, referring to PDVSA’s involvement in the integral and social
development of the country, PDVSA undertakes a new social responsibility and takes part in
different programs established by the Executive Branch of Government for the purpose of
supporting the work or services aimed at social development of infrastructure and roads,
agricultural, health and education activities and any other productive investment in Venezuela.
PDVSA is incorporated in Venezuela, and its Parent Company offices are located at Avenida
Libertador, La Campiña, Apartado Nº 169, Caracas 1010-A, Venezuela. Its telephone number is
+58-212-708-4111. Its website is www.pdvsa.com.
1
2
Hereinafter referred to as Venezuela
Hereinafter referred to as the state
12
2. Strengths Supporting the Oil Industry
The following charge conveys financial, operating and human-resources data of the Oil Industry,
as of December 31, 2007 and for the year then ended:
STRENGTHS SUPPORTING THE OIL INDUSTRY
Workforce - Employees
Workforce - Outsourced
Operating income - Consolidated
Net profit - Consolidated
3D Seismic purchases
Proved Oil Reserves
Oil Reserves under Certification Process (Estimate)
Proved Gas Reserves
Gas Reserves under Certification Process (Estimate)
Potential Oil Production
Domestic Oil Production
Active Wells
Drilling Rigs / Year
Reservoirs
Oil Fields
Main Oil Pipelines
PDVSA Refining Capacity
Refining Capacity in Venezuela
Foreign Refining Capacity
PDV Service Stations in Venezuela
Service Stations under Trademark Agreements
Gas Compression Plants in PDVSA Gas
Natural Liquefied Gas LGN Plants
Installed Liquefied Natural Gas Fractioning Capacity
Actual Liquefied Natural Gas Fractioning Capacity
Methane Gas Pipelines
Poliducts for transportation of liquefied natural gas
61,909
15,383
96,242
6,273
3,531
99.4
215
170.9
196
3,561
3,150
15,817
111
18,176
394
4,865
3,098
1,303
1,795
784
203
21
3
283
268
4,267
381
Persons
Persons
MMUS$
MMUS$
Km2
MMMBls
MMMBls
MMMMPC
MMMMPC
MBD
MBD
Und
Und
Und
Und
Km
MBD
MBD
MBD
Und
Und
Und
Und
MBD
MBD
Km
Km
PDVSA’s Ranking
According to a comparative analysis published on December 3, 2007 by Petroleum Intelligence
Weekly (PIW), PDVSA is ranked among the largest oil companies in the world in the following
positions: fifth in proved reserves of oil and gas, sixth in production, fifth in refining capacity and
eighth in sales. This analysis was based on a series of operating criteria, such as reserves,
production, refining and sales.
13
The chart below shows PDVSA’s position compared with that of other companies:
Ranking
Company
Country
Liquid
Production
Liquid
Reserves
Gas
Production
Gas
Reserves
Refining
Capacity
Sales
1 Saudi Aramco Saudi Arabia
1
1
7
4
10
7
2 NIOC
Iran
2
2
2
1
14
12
3 Exxon Mobil
USA
5
14
3
13
1
1
4 BP
United Kingdom
8
16
4
15
6
3
5 PDVSA
Venezuela
6
5
26
5
5
8
Royal Dutch
6 Shell
Netherlands
9
26
5
16
2
2
7 CNPC
China
4
9
13
12
9
14
15
22
9
19
7
6
8 Conoco Phillips USA
9 Chevron
USA
14
19
11
23
12
5
10 Total
France
18
23
12
20
8
4
11 Pemex
Mexico
3
11
14
33
13
13
12 Gazprom
Russia
23
18
1
3
25
26
13 Sonatrach
Argeria
12
13
6
6
34
25
14 KPC
Kuwait
7
4
39
14
19
20
15 Petrobras
Brazil
10
17
23
35
11
10
Source: Petroleum Intelligence Weekly, December 2007.
3. Business Description
PDVSA carries out its operations through its subsidiaries, and its interest in associations with
local and foreign companies. The latter are subject to different laws and regulations. These
operations include the following:
•
Exploration, production and upgrading of crude oil and natural gas.
•
Exploration and production of natural gas from offshore resources, including the export of
natural gas liquids.
•
Refining, marketing, transportation of crude oil and refined products, and processing,
marketing and transportation of natural gas.
Oil and natural gas reserves of Venezuela as well as exploration, production and upgrading
operations are located solely in Venezuela whereas refining, production and transportation
operations are located in Venezuela, the Caribbean, North America, South America, Europe and
Asia.
a.
Activities
The activities of PDVSA are structured into five geographical areas: East, West, South Central,
Oil Belt and Offshore, to run its upstream operations which include exploration, production and
upgrading of extra-heavy crude oil. CVP, a subsidiary of PDVSA took over control of the
activities of all ”Empresas Mixtas” and offshore natural gas.
Downstream operations include the following:
14
•
Refining and marketing of products in Venezuela under the PDV brand.
•
Refining and marketing of crude oil and products in international markets. Products are
traded under the CITGO trademark in the East and Midwest regions of the United States.
•
Businesses in the Caribbean, mainly through Refinería Isla and operation of storage
terminals through Bonaire, BulemBay in Curacao and BORCO (currently being sold) in the
Bahamas. Likewise, PDVSA through its subsidiary PDV Caribe owns a Liquefied Gas Oil
filling plant in St. Vincent.
•
Refining business in the United States of America through eight refineries, five of which are
owned by CITGO: Lake Charles, Corpus Christi, Lemont, Paulsboro, Savannah and a 50%
interest in Chalmette, Hovensa and a vacuum oil and coke distilling plant named
MereySweeny.
•
Refining businesses in Europe through its interest in eight refineries: Gelsenkirchen,
Schwedt, Neustadt, Karlsruhe, Nynashamn, Gothenburg, Dundee and Eastham.
•
Maritime transport activities, through its subsidiary PDV Marina owner of 21 tankers.
•
The gas business is run by PDVSA Gas, S.A., a vertically integrated subsidiary in charge of
gas extraction and proccesing for the production of liquefied natural gas, as well as
transportation and marketing of gas in the domestic market and exports of liquefied natural
gas. Furthermore, PDVSA Gas, S.A. processes gas produced by the divisions of Exploration
and Production of the subsidiary PDVSA Petróleo (receiving all of the remaining gas after
the consumption requiered by PDVSA for its operations) for transportation and marketing in
the international market.
•
Deltaven, S.A. is the subsidiary in charge of wholesale marketing and distribution in
Venezuela, of gasoline and other products under the PDV trademark. This company,
together with the private sector, fosters the development of infrastructure and services for
retail clients.
•
Another significant subsidiary is INTEVEP, S.A. through which PDVSA performs its
Research and Development activities.
b. Social Development
From 2001 to 2007, with greater emphasis beginning in 2003, in accordance with the guidelines
and strategies of National Government, PDVSA has participated and contributed in the integral
and social development of the country, supporting work or services aimed at the development of
infrastructure, roads, agricultural activities, health, education and any other productive
investment in Venezuela. Social projects are performed by PDVSA through trust funds, missions
and social programs; likewise, it makes contributions under the Law of “Fondo de Desarrollo
Nacional (FONDEN)”.
c.
Energy Cooperation Agreements
As an initiative fostered by the Venezuelan Government, Energy Cooperation Agreements are
established to contribute to energy security, socioeconomic development and integration of
countries of the Caribbean, Central America and South America, through sovereign use of
energy resources. Cost of energy transactions between member countries are minimized and
15
energy resource usage is enhanced as a cornerstone for the creation of societies that are fair,
efficient and employ join efforts to fight against poverty and to reduce asymmetries through
regional integration.
d.
New Businesses
As part of the policies to regain National Petroleum Sovereignty and taking into account national
complementary strategies and international solidarity and interdependence, PDVSA carries out
projects and initiatives to promote industrial development in the country, using sovereign,
humanistic and harmonious criteria with regards to the environment, respecting the customs of
the different locations of our country and contributing to the design of a new social and economic
structure encompassing all individuals.
The association projects and initiatives include the creation of companies that offer goods and
provide services, which will help leverage the strategic projects of the Siembra Petrolera Plan3,
through manufacturing, assembly, production and supply of assets, equipment, spare parts and
pieces as well as strategic and necessary supplies for the development of the oil industry.
3
See Chapter III, Strategic Plan
16
II. Organization
1. Organizational Structure
Until December 31, 1997, PDVSA ran its operations in Venezuela through three main operating
subsidiaries: Lagoven, S.A.; Maraven, S.A. and Corpoven, S.A. In 1997 a new operating
structure was established based on business units. Subsequently, PDVSA has been involved in
a transformation process of its operations for the purpose of improving its productivity, updating
its administrative processes and increasing its return on capital.
The transformation process involved the merger of Lagoven, S.A., Maraven S.A. and Corpoven
S.A. effective on January 1, 1998, and renaming the combined company PDVSA Petróleo y
Gas, S.A. In May 2001, PDVSA Petróleo y Gas, S.A. changed its corporate name to PDVSA
Petróleo, S.A., thus giving rise to another change in the organizational structure of the oil
industry since the activity related to non-associated natural gas would be handled by the
subsidiary PDVSA Gas, S.A.; likewise, by the end of 2002, certain production assets of nonassociated gases were transferred to said subsidiary.
In accordance with instructions by national government and the guidelines of MENPET and
PDVSA, the process for signing agreements of the operating agreements and nationalization of
the Orinoco Oil Belt, as well as Risk Exploration Agreements to be converted into ”Empresas
Mixtas”, as well as creation of new businesses, which has been a historic step in reaffirming oil
sovereignty.
Furthermore, PDVSA has made adjustments within the organization for the purpose of improving
internal control over its operations and management model in order to align the structure of its
operations with the long-term strategies of the stockholder. These adjustments basically consist
of adopting a new operational structure which increases the involvement of the board of
directors in its activities and, at the same time, increases the operating flexibility of PDVSA.
2. Description of Main Subsidiaries
a. PDVSA Petróleo, S.A.
PDVSA Petróleo, S.A. was incorporated in 1978. Its purpose is to perform exploration,
extraction, transportation, manufacturing, refining, storage, marketing or any other activity
relating to oil and other hydrocarbons in Venezuela.
b. Corporación Venezolana del Petróleo, S.A. (CVP)
This subsidiary was incorporated in 1975. With the last amendment to its corporate purpose
having been made in 2003, CVP guides and manages all aspects relating to the business that
PDVSA may carry out with oil companies of national or foreign capital. This subsidiary is in
charge of maximizing the value of hydrocarbons for the Venezuelan state, through effective and
efficient management and control of the business with participation of third parties, thus ensuring
an appropriate relation of the benefits with the collective well-being through sustainable
development.
17
In addition, CVP controls the trust funds for housing, agriculture, sustainable development, and
others, which were created to finance social projects in the country. As regards to the “Centro
de Arte La Estancia”, defined as the cultural and social extension of PDVSA, was allocated to
CVP.
c. PDVSA Gas, S.A.
Incorporated in 1998, this subsidiary is aimed at performing exploration, extraction, recovery,
storage, processing and industrialization activities of natural and liquid gas, both industrial and
domestic, as well as transportation, distribution and hiring of other companies for its placement
and sale.
d. PDV Marina, S.A.
This subsidiary was incorporated in 1990, and its purpose is to carry out activities relating to
transportation of hydrocarbons and their derivatives, to subsidiaries of PDVSA, through
maritime, river or sea, inside or outside of national territory, by tankers owned or leased by it.
e. Palmaven, S.A.
This subsidiary was incorporated in 1975. In 2004, it amended its corporate purpose. The
operations of the company are aimed at promoting and participating in the social development of
the nation, in harmony with the oil industry and communities, contributing to the productivity of
the different sectors, supporting regional development and rendering services to the community.
Income earned by the company will be used to develop and to finance agricultural, fishing,
forestry, farming, agro-industrial, environmental and service activities, as well as to advise to
state industries for integral organization and education of the community. Such income will also
be used to support education and health plans to strengthen the family, to develop community
projects, to perform high-impact studies, as well as to develop supervision and control plans.
f.
Interven Venezuela, S.A.
Incorporated in 1975, for the purposes of following up and evaluating the international business
of PDVSA, invoicing to its subsidiaries professional fees for advisory and support, this subsidiary
amended in 2005 its purpose to exploration, extraction, transportation, manufacturing, refining,
storage, marketing or any other activity directly or indirectly related to oil and other
hydrocarbons.
g.
Deltaven, S.A.
Incorporated in 1975, it was reactivated and amended its bylaws on 1996. The company’s
purpose is the purchase, sale, import, export, supply, transportation, storage, distribution,
mixing, filling and retail provision of products derived from hydrocarbons and assets for use in
industrial, commercial, household and transportation sectors, as well as the provision and
receipt of services.
h.
PDVSA América, S.A.
Created in 2006, its purpose is to carry out abroad exploration, extraction, recovery,
transportation, initial storage and marketing of hydrocarbons on its own, through third parties or
in association with third parties. Likewise, the company may perform in Venezuela or abroad,
18
refining, distribution or industrialization activities of hydrocarbons, aw well as the marketing of its
products, on its own, through third parties or in association with third parties, as well as domestic
and foreign trade of hydrocarbons or byproducts within the framework of negotiations, bilateral
and multilateral agreements entered into by the Bolivarian Republic of Venezuela and any public
and private international hiring.
i.
Bariven, S.A.
Incorporated in 1975, its purpose is the purchase of inventory materials and equipment, planning
inventory in accordance with the requirements and specifications of third parties, hiring services
associated with procurement, storage and transportation of real and/or personal assets, sale of
materials and technical services, among other.
j.
INTEVEP, S.A.
This subsidiary was incorporated in 1979 and is aimed at basic oriented research, applied
research and technological development of hydrocarbon areas, in addition to technical and
information support services in those areas to PDVSA and its subsidiaries, as well as to public of
private organizations.
k. COMERCHAMP, S.A.
Incorporated in 1987, its main purpose is to trade hydrocarbon and derivative products for the
international market.
l.
PDVSA Agrícola, S.A.
This subsidiary was incorporated in 2007; its purpose is to perform, in Venezuela and abroad,
on its own, through third parties or in association with third parties, production activities of raw
materials of agricultural nature for agrifood and agrienergy industrial processing in Venezuela,
thus contributing to sustainable agricultural development in the country through addition of
selected commodities. In addition, it must visualize, define, implement and run industrial projects
for the agrifood and agrienergetic production in the country, as well as to ensure the harmonious
development of the environment and active participation of rural communities in the master plan
for local socio-productive development associated with the projects of PDVSA Agrícola and
aimed at ensuring food supply, improving the quality of life and promoting the creation of Social
Production Companies to support the new national industry.
m. PDVSA Industrial, S.A.
Incorporated in 2007, its purpose is to perform, on its own, through third parties or in association
with third parties, production of services and technical support in the construction of equipment,
goods and industrial materials required for the development of the oil industry. Likewise, this
subsidiary may perform in Venezuela or abroad, on its own, through third parties or in
association with third parties, the production of services that lead to build oil’s equipments, in
addition to the provision of services for the development of the community environment in
organization, preparation, training, goods and assets, social and socio-productive infrastructure.
19
n. PDVSA Servicios, S.A.
This subsidiary was incorporated in 2007; it performs in Venezuela and abroad, on its own,
through third parties or in association with third parties, the construction and maintenance
services of oil wells. The company may provide services for development of the community
environment with regards to its organization, training, preparation, goods and social and socioproductive infrastructure.
o. Subsidiaries and Foreign Affiliates
In view of its subsidiaries in the United States of America, PDVSA is one of the largest oil
refiners of that country based on its refining capacity equivalent to 1,201 MBPD as of December
2007.
In the United States of America, PDVSA performs its oil refining and marketing operations of
refined products through its subsidiary PDV Holding, in which it indirectly owns 100% of CITGO
Petroleum Corporation (CITGO) through PDV América. Likewise, it indirectly owns 50% of
Chalmette Refining through PDV Chalmette, Inc. and 50% of Merey Sweeny through PDV
Sweeny, L.P.; these companies are associated with ExxonMobil Corporation and
ConocoPhillips, respectively.
CITGO is domiciled in Houston, Texas, it’s a company which refines, markets and transports
gasoline, diesel, aircraft fuel, petrochemicals, lubricants, asphalt and other refined oil products in
the United States of America.
PDVSA also indirectly owns 50% of Hovensa through PDVSA Virgin Island, Inc. (PDVSA VI),
“Empresa Mixta” with Hess Corporation, which processes oil in the U.S. Virgin Islands.
In Europe, PDVSA carries out its refining activities of oil and derivatives through its wholly
owned subsidiary PDV Europa, which owns a 50% of interest equity participation Rühr Oel
GMBH (ROG), a company domiciled in Germany and owned jointly with British Petroleum (BP).
Through ROG, PDVSA refines oil, markets and transports gasoline, diesel, heating oil,
petrochemicals, lubricants, asphalt and other refined-oil products. PDVSA also holds 50% of AB
Nynäs Petroleum (Nynäs), a company with operations in Sweden and the United Kingdom and
owned jointly with Neste Oil. Through Nynäs, PDV Europa refines oil, markets and transports
asphalt, specialized products, lubricants and other refined-oil products.
In addition and as part of its operations in the Caribbean, PDVSA operates a refinery under a
lease agreement between PDVSA and Refinería di Korsou N.V. (RDK), a company owned by
the government of Curacao, which is the owner of the refinery; and Refinería Cienfuegos, in
which PDVSA holds an equity participation of 49% through an ”Empresa Mixta” of PDVSA and
Cupet.
The Bahamas Oil Refining Company International Limited (BORCO) is a storage terminal wholly
owned by PDVSA, located in the Bahamas, which includes the following: one (1) marine terminal
spanning 640 acres of land, four (4) docks with eight (8) offshore posts and seventy-three (73)
storage tanks with a nominal capacity of 19.7 MMBls.
Bonaire Petroleum Corporation N.V. (BOPEC) is a storage, mixing and filling terminal of crude
oil and its derivatives, wholly owned by PDVSA, located in Bonaire, which includes twenty-three
(23) storage tanks with a nominal capacity of 10.1 MMBls.
20
3. Corporate Government
PDVSA is a national company subordinate to the state and deeply committed to the Venezuelan
people. The Corporate Government of PDVSA is highly important because of its duty to handle
the company transparently, efficiently and suitably, under ethical and professional principles,
and in the best interest for the nation, based on a series of standards regulating the operation of
its administration and management organs.
a. Stockholder’s Meeting
Its purpose is to exercise the supreme direction and administration of PDVSA; it represents all of
the shares and its decisions, within the limits of its powers, are mandatory for the company,
through resolutions issued in Annual or Special Stockholder’s Meetings, as the case may be.
The main powers and duties of the Stockholder’s Meeting include approving or disapproving the
annual report of the Board of Directors; approving or disapproving the consolidated budgets of
investments and operations of PDVSA and affiliated companies or entities, and issue regulations
for internal organization.
b. Board of Directors
The Board of Directors is the administrative body of PDVSA with the broadest powers of
administration and disposal, without any other limitation than those set forth by Law and Decree
number 1313, dated May 29, 2001, published in Official Gazette of the Bolivarian Republic of
Venezuela, under 37,236, dated July 10, 2001.
The Board of Directors is responsible for calling meetings with the stockholder, preparing and
presenting the Operating and Financial Results at the end of each fiscal year, as well as
preparing and monitoring operating, economic, financial and corporate strategies.
The president of PDVSA has broad powers to act on behalf of PDVSA and represent it in
negotiations with third parties, subject only to powers expressly reserves for the Board of
Directors or resolutions of the Stockholder’s Meeting. The President of PDVSA determines and
is responsible for implementing of strategies, goals and budgets for the different businesses of
PDVSA, which must be approved by the Stockholder’s Meeting. The strategies, goals and
budgets are reviewed and monitored by the Board of Directors through presentation of accounts.
There are ten (10) members of the Board of Directors: one (1) president, two (2) vice presidents,
four (4) internal directors and three (3) external directors. The Board of Directors is appointed by
Decree of the President of Venezuela for an initial term of two years, which may be indefinitely
extended until a new Board of Directors is appointed.
21
As of December 31, 2007, the Board of Directors was comprised of the following officers:
Name
Rafael Ramírez Carreño
Asdrúbal Chávez
Luis Vierma
Eudomario Carruyo
Jesús Villanueva
Déster Rodríguez
Eulogio del Pino
Iván Orellana
Bernard Mommer
Carlos Martínez Mendoza
Position
President
Vice President
Vice President
Internal Director
Internal Director
Internal Director
Internal Director
External Director
External Director
External Director
Appointment Date
2004
2007
2005
2005
2005
2003
2005
2005
2005
2005
Information about members of the Board of Directors of PDVSA:
Rafael Ramírez Carreño, Minister of Popular Power for Energy and Oil and
President of PDVSA
Rafael Ramírez Carreño is a mechanical engineer graduated from Universidad de Los Andes in
1989, with a master’s degree in Energy Studies from Universidad Central de Venezuela. He
began his professional activities in the oil industry with INTEVEP, a subsidiary of Research and
Development of PDVSA, where he was initially assigned to the extra-heavy crude oils area at
the Orinoco Oil Belt. Subsequent duties and positions in other subsidiaries provided him with
extensive experience in the development, coordination and management of engineering and
construction projects. His work in the United States of America includes development of the
Upgrading and Expansion Project of Refinería de Cardón, and the Natural Liquefied Gas Project
in Nigeria and France. Ramírez was the founding president of Ente Nacional del Gas (Enagas),
an organization in charge of restructuring the national gas plan and responsible for design,
development and promotion of state policies in this sector. In February 2002, he was appointed
External Director of PDVSA and, in July of that same year, he was appointed by the President of
Venezuela Hugo Chávez Frías as Minister of Energy and Mining. On November 20, 2004, under
presidential decree number 3.264, he was appointed President of PDVSA, a position he
currently holds, simultaneously with the position of Minister of Popular Power for Energy and Oil.
Asdrúbal Chávez, Vice President of PDVSA
Asdrúbal Chávez is a Chemical Engineer who graduated from Universidad de Los Andes in
1979. In that same year, he began his career in the oil industry at Refinería El Palito of PDVSA,
as engineer in Proyecto de Expansión de la Refinería El Palito (PAEX), the largest expansion
project of that refinery. He held different positions in the areas of industrial services, distilling and
specialties, conversion and treatment, movement of crude oil and products, programming and
economy and process engineering. In 1989 he was assigned to Universal Oil Products (UOP) in
the United States of America. In 1990 he was appointed head of the expansion project of crudeoil units and vacuum distilling at Refinería El Palito. From 1995 to 1999, he held different
supervising and management positions. In 2000, PDVSA temporarily assigned him to the
Ministry of Production and Trade to provide assistance in restructuring the Ministry and then in
the Economic Constituent process of Venezuelan. In 2001, he was assigned to BITOR, a
subsidiary of PDVSA, as Human Resources Manager and coordinated the team in charge of
restructuring the expansion project of the company. In 2002, he was appointed assistant to the
Board of Directors of BITOR and in January 2003 he undertook duties as General Manager of
Refinería El Palito. In August 2003, he was appointed Executive Director of Human Resources
at PDVSA and served as leader of the team that negotiated the Collective Employment
22
Agreement 2004-2006. In March 2004, he was appointed Executive Director of Trade and
Supply. In January 2005, he was sworn in as Director of PDVSA, responsible of Trade and
Supply of PDVSA and President of PDV Marina and BITOR, subsidiaries of PDVSA, and
Director of CITGO Petroleum Corporation, a subsidiary of PDVSA based in Houston, U.S.A.. In
May 2007, he was appointed Vice President of Refining, Trade and Supply of PDVSA and
President of subsidiary PDV Caribe, S.A.
Luis Vierma, Vice President of PDVSA
Luis Vierma holds a Bachelor’s Degree in Chemistry from Universidad Central de Venezuela
(1979). He earned a master’s degree in Geology (Geochemistry of Petroleum) in 1984 from the
University of Indiana, in Bloomington. From 1975 to 1978 he was professor of chemistry at the
Chemistry Department of Universidad Central de Venezuela. He joined the industry in 1978, as
geochemist of exploration at the research and development center of PDVSA (INTEVEP);
subsequently, he was appointed head of the Organic Geochemistry Laboratory, where he was
project leader of hydrocarbon exploration and then Head of the Inorganic Chemistry Unit. In
1993, he was appointed Manager of Upgraded Recovery of Crude Oil with Microorganics,
according to an agreement executed between the Ministry of Energy and Mining of Venezuela
and the Department of Energy of the United States of America. In 1995 he was appointed head
of the Organic Geochemistry Section and in 1997 he held the position of Head of the Geology
Section. In 1998 he became leader of the Bosque-Bucare Project to implement the strategy of
shared productivity efforts. In 1999 he was appointed Manager of Exploration Businesses and in
2000 he was appointed Director of the Office of Policies and Plans of the Vice Ministry of
Hydrocarbons of the Ministry of Energy and Mining (currently named the Ministry of Popular
Power for Energy and Oil). At the beginning of 2003, he was sworn in as Director General of
Hydrocarbons and External Director of PDVSA in March of the same year. Subsequently, he
was named President of CVP, Vice President of PDVSA GAS, and member of the Board of
Directors of CITGO. In January 2005, he was appointed Vice President of Exploration and
Production of PDVSA.
Eudomario Carruyo, Director of PDVSA
Eudomario Carruyo earned a Bachelor’s Degree in Public Accountancy from Universidad del
Zulia in 1972. In 1992 he took part in a training program at the Chase Manhattan Bank in New
York. He has completed specialization and postgraduate courses in the areas of Finance and
Management at University of Columbia, New York, and University of Michigan, Ann Arbor. He
has 40 years of experience in the national oil and petrochemical industry. He began his career in
1964, in Corporación Venezolana del Petróleo (CVP) and, after the nationalization of the
Venezuelan oil industry in 1976 and the creation of PDVSA, he continued at Corpoven, a
subsidiary of PDVSA, where he worked until 1997 in the position of: Corporate Treasury
Manager, Corporate Comptrollership Manager, Corporate Budge and Economic Evaluation
Manager, Corporate Cost Manager, Finance Manager of the West Division, Finance Manager of
the area of San Tomé and Finance Manager of Refinería El Palito. In 1992 he was transferred to
PALMAVEN, a subsidiary of PDVSA, where he worked for five and a half years (1992-1997) as
Finance Manager and subsequently as Director of that subsidiary. From April 2000 to December
2002 he worked as Mercantile Statutory Auditor of PDVSA (first as auxiliary and then as main
auditor). In January 2003, he was appointed Executive Director of Finance of PDVSA. In July
2003, he was appointed Director of PEQUIVEN, coordinating the end of the fiscal year 2002 of
PDVSA and its subsidiaries, and preparation of operating and financial reports for internal use
and for the Securities and Exchange Commission (SEC). In addition to his responsibilities in
PEQUIVEN, he was director of the following subsidiaries of that company: Fertinitro,
Monómeros Colombo-Venezolanos, Metor International, Produven, Super Octanos,
Supermetanol, Tripoliven, Clorozulia, Coramer, Olefinas del Zulia, Polinter, Propilven, Pralca,
Produsal, Servifertil, International Petrochemical Holding LTD (IPHL) and International
Petrochemical Sales Limited (IPSL). In January 2005, he was appointed Director of PDVSA,
also working as Director of CITGO Petroleum Corporation; Director of PDVSA Petróleo S.A.;
23
Director of DELTAVEN S.A.; Vice President of INTERVEN, S.A.; Vice President of PDV Marina,
S.A.; President of PDVSA Finance; President of PDV Insurance; Director of PDV Holding and of
Refinería Isla (Curacao), S.A.
Jesús Villanueva, Director of PDVSA
Jesús Villanueva holds a Bachelor’s Degree in Public Accountancy who graduated at
Universidad de Oriente in 1976 with a Master’s Degree in Economics and Administration of
Hydrocarbons of Universidad Central de Venezuela in 1988. In 1974, he began his professional
activities in the firm Espiñeira, Sheldon y Asociados (PriceWaterhouseCoopers). He joined the
oil industry in 1982 through Meneven, a subsidiary of PDVSA. In his professional experience, he
has held several supervision and management positions in San Tomé, Anaco, Puerto La Cruz
and Caracas, in the Audit and Finance Departments of Meneven and Corpoven. In 1999 he was
appointed General Auditor of PDVSA and in February 2002 he became Main Director of
PDVSA. Subsequently, he returned to his previous position of General Auditor. In January 2005,
he was appointed Director of PDVSA. He has been certified internationally as Internal Auditor by
the Institute of Internal Auditors (1999) and as Fraud Examiner (2004).
Déster Rodríguez, Director of PDVSA
Déster Rodríguez is a General of the Venezuelan Armed Forces with a Bachelor’s Degree in
Science and Arts issued by Academia Militar de Venezuela. He completed Systems Engineering
studies at Universidad Experimental de la Fuerza Armada. In 1997 he was appointed Head of
Staff at Escuela de Ingeniería Militar del Ejército. In 1998 he was named Head of the Staff
Registration and Control Division of the Army. In 1999 he was appointed Director General of the
Ministry Office of Information Technology of the Ministry of Education, Culture and Sports, a
position he held together with the Presidency of the Bolivarian Information Technology and
Telematics Foundation which he undertook in 2001. In December 2002, he was appointed
member of the Restructuring Committee of PDVSA. In March 2003, he was named Director of
PDVSA and, simultaneously, Director of CITGO Petroleum Corporation, Vice President of
Refinería Isla, member of the Board of Directors de PDV Holding and President of Centro
Internacional de Educación y Desarrollo (CIED) and COMMERCHAMP. In January 2005, he
was named president of PALMAVEN.
Eulogio Del Pino, Director of PDVSA
Eulogio Del Pino is a Geophysical Engineer who graduated from Universidad Central de
Venezuela in 1979, with a Master’s Degree in Oil Exploration from Stanford University in 1985.
In 1979 he began his career in the Venezuela oil industry with INTEVEP, a subsidiary of
Research and Development of PDVSA, occupying different technical and supervising positions
until 1990, when he was named Technical Manager for Latin America in the company Western
Atlas. In 1991 he returned to PVSA, where he held different positions in Corpoven. In 1997 he
was appointed Exploration and Delineation Manager of PDVSA, where he coordinated the
Offshore Exploration Program in the Delta Platform in 2001. In 2003, he was appointed General
Manager of Strategic Associations in Corporación Venezolana del Petróleo, a subsidiary of
PDVSA. In 2005 he was named Director of PDVSA and President of CVP. Del Pino has been
elected President and Vice President of the Association of Geophysical Engineers of Venezuela
(1990-1994), Vice President of the American Society of Geophysicists (1996-1997) and was
Founder and Coordinator of the Latin American Union of Geophysicists. He was a professor at
pre-graduate and postgraduate levels at Universidad Central de Venezuela and Universidad
Simón Bolívar in Caracas.
Iván Orellana, Director of PDVSA
Iván Orellana is a Chemical Engineer who graduated in 1975 from Universidad Simón Bolívar,
Caracas, Venezuela, with a Master’s Degree in Business Administration, majoring in Strategic
Planning at Henley Management College (United Kingdom) and Specialized Postgraduate
24
Studies in Management and Economics of Hydrocarbon Resources and Logistics of Oil and
Natural Gas Supply and Trade of the College of Petroleum Studies en Oxford (United Kingdom).
Likewise, he has specialized in International Private Law and Economic Regulatory Law at
Universidad de Salamanca, Spain. He has worked at Petróleos de Venezuela, S.A. (PDVSA) for
thirty years, where he has developed his career occupying managerial positions in the areas of
Gas and Planning. In January 2005, he was sworn in by the President of the Bolivarian Republic
of Venezuela, as External Director of PDVSA and in February 2006 he was named External
Director of subsidiary PEQUIVEN, positions he currently holds. He was appointed, by order of
the President of the Republic (Ad honorem) from 2003, Governor of Venezuela before the
Organization of Petroleum Exporting Countries (OPEC) and Executive Assistant to the Minister
of Popular Power for Energy and Oil, in the position of Director General. In 2005, he was also
appointed Director General of the Office of International Relations of MENPET, and in 2006 he
was named Director General of the Strategic Planning Office of the same Ministry, positions he
holds at present. In June 2004, he was appointed Director General of Hydrocarbons of the
Ministry of Popular Power for Energy and Oil, a position he held for 1 year. Likewise, and for the
year 2004, he was President of the Board of Governors of the Organization of Petroleum
Exporting Countries (OPEC). He is a main active member of the Executive Commission of the
International Forum on Energy and has been National Technical Representative of Venezuela
before the Organization of Petroleum Exporting Countries (OPEC) and before the Forum of Gas
Exporting Countries. He has published numerous articles in the local press about the economic
regulation of monopolies, gas and electricity.
Bernard Mommer, Director of PDVSA
Bernard Mommer earned a Master’s Degree in Mathematics and a PhD in Social Science at the
University of Tübingen, Germany. He has been a professor and researcher for many years at
different Venezuelan universities. Form 1991 to 1995 he was Lead Consultant in the Planning
Coordination Office of Petróleos de Venezuela and of the Strategic Planning Coordination
Office. From 1995 to 2001, he was a main associated researcher of the Oxford Institute for
Energy Studies at St. Anthony’s College, Oxford. He was also an advisor of the Venezuelan
Minister of Energy and Oil from 1999 to 2000, and consultant of the Secretary General of OPEC
in Vienna in 2002. Prior to being appointed as Director in PDV UK located in London, he worked
as Advisor to the President of PDVSA. His published work include “Die Ölfrage” [Oil Issues]
(1983: Institut für Internationale Agelegenheiten der Universität Hamburg, Nomos
Verlagsgesellschaft Baden-Baden); “Petroleum in the Venezuelan Economic Thought – An
Essay (Coauthored with Asdrúbal Baptista and prologue by Arturo Uslar Pietri. Ediciones IESA,
Caracas, 1987); y “The New Governance of Venezuelan Oil” (1998: Oxford Institute for Energy
Studies), “Global Oil and the Nation State” (published by Oxford University Press, on behalf of
the Oxford Institute for Energy Studies, in 2002). In 2004, the Ministry of Energy and Oil
published his book “The Myth of Orimulsión®”. In 2005 he was appointed Director of PDVSA
and Vice Minister of Hydrocarbons.
Carlos Martínez Mendoza, Director of PDVSA
Carlos Martínez Mendoza is a General of the Venezuelan Armed Forces with a Bachelor’s
Degree in Military Science and Arts from the Military Academy of Venezuela in 1975, as a
member of the Class “Simón Bolívar II”. He is part of the infantry division of the Venezuelan
army. In addition, he completed studies in Command and General Staff at “Escuela Superior de
Guerra del Ejército” in Argentina in 1990. He holds a Master’s in Security and National Defense.
He completed postgraduate studies in Strategic Planning and Administration, as well as
Resource Management for Defense at the Hemispheric Center for Defense (U.S.A.). He has
held positions complementary to this military rank: Council of Defense Secretary and Director of
the Office of the President of Venezuela. At present he is president of Corporación de Desarrollo
de la Región Zuliana (Corpozulia) and Carbozulia. He is Vice President of the “Banco de
Inversión de Venezuela Sofioccidente”. In 2005, he was appointed External Director of PDVSA.
25
c. Audit Committee
The Audit Committee of PDVSA provides assistance to the Board of Directors in compliance
with its responsibilities, regarding monitoring the quality and sufficiency of the Internal Control
System of the domestic and foreign businesses of the Corporation. The Committee performs its
basic function through understanding, evaluating and monitoring the information of the results of
internal and external audits in relation to the quality and suitability of corporate financial
information.
To comply properly with responsibilities allocated by the Board of Directors of PDVSA, the Audit
Committee has the power to order the research on any subject within the scope of its
competence. The Audit Committee may use services of the Internal Corporate Audit Office,
external auditors, independent consultants or other internal or external resources to advance the
required studies or research.
The members of the Audit Committee and the secretary are appointed by the Board of Directors
of PDVSA. The Presidency of the Committee is exercised by the President of PDVSA, who is
responsible for the direction, orientation and organization of issues addressed by the
Committee. The Director of Fiscal Audit and the Main Statutory Auditor of PDVSA are
permanently invited to the Meetings of the Audit Committee.
Activities and Responsibilities:
•
•
•
•
•
Overseeing the quality and sufficiency of the internal control system in domestic and
international business of PDVSA.
Recommending to the Board of Directors the course of action over the areas requiring
greater attention from the Audit Committee.
Approving policies and standards for internal audit of the Corporation.
Ensuring the preservation of independence and objectiveness of the duties of the
Internal Corporate Audit.
Reviewing with the Main External Auditor the opinion on the financial statements of the
company, on the quality of the internal control system, the largest risk areas and the
integrity of financial and management reports.
d. Internal Control
Petróleos de Venezuela, S.A. (PDVSA), in compliance with its corporate purpose, under the
administration and powers of its Board of Directors, under its bylaws, performed its operations
for the year 2007, establishing and maintaining proper controls, supervision of the activities of
PDVSA and its subsidiaries based on the concepts and generally accepted principles, in
accordance with applicable laws and standards, especially the Organic General Comptrollership
Law of the Republic and other associated laws.
In this connection, the Internal Control Project incorporated into the functional infrastructure of
PDVSA is comprised by validating and evaluating entities and organizations, either internal or
external, (MENPET, Statutory Auditor, External Auditors and General Comptrollership of the
Bolivarian Republic of Venezuela). Internally, its is made up of a series of policies, standards
and procedures, formally imparted and aimed at coordinated operation of this process,
reinforced through greater participation of offices, managements, corporate organizations and
their interrelations with entities that conform the Internal Control System of PDVSA, such as the
auxiliary delegate committees of the Board of Directors of PDVSA, (Operations Energy and Oil,
Refining, Gas, Orinoco Oil Belt and Mixed Companies, Planning, Projects and Audit Businesses,
Finance, Human Resources, Social Development, Donations and Concessions and Bidding
Commissions), lnternal Audit Commissions, Tax Audits, Prevention and Loss Control, Human
26
Resources, Finance, Occupational Environment and Health, Industrial Safety and general staff
of PDVSA.
The synergy between the validating entities favored improvement of the Corporate Internal
Control Process and reasonable achievement of business objectives, mainly through protection
of equity, efficiency and effectiveness of the operations, reliability of data/information with
financial operations performed, which are reflected in preparation and publication of its financial
statements.
In addition, to enhance operating dynamics, based on its new social responsibility and the
political framework of Full Petroleum Sovereignty, PDVSA currently makes progress in the
Project for Improving the Internal Control System, which is aimed at maximizing transparency
and efficiency of internal controls associated with financial and administrative processes of
greatest impact on the consolidated financial statements of the corporation, taking the following
aspects into account:
•
Strengthening the Internal Control System to reasonably ensure the accuracy of the
information used in the preparation of financial statements, through documentation and
evaluation of risks and controls of the key related processes.
•
Fostering implementation of procedures and solutions to bridge gaps in control and
mitigate critical risks associated with information on business processes to improve the
reliability of financial reports.
•
Assessing the operating effectiveness of internal controls in benefit of the Corporation.
•
Reinforcing its image of a corporation that generates reliable financial information.
•
Generating a solid process base in terms of internal control strengthening the
segregation of duties.
•
Availability of a shared environment of diagrammed processes, maps and matrixes of
risks including identified and validated controls with process owners.
•
Training its own staff in the methodology of analysis and evaluations of risk and controls.
•
Facilitating the training of new staff.
4. Human Resources
As of December 31, 2007, the total amount paid by PDVSA in consideration for the services of
its Board of Directors amounted to approximately 2.5 MMUS$.
A summary of number of employees of PDVSA over the last six (6) years follow:
27
Chart: Number of Employees
2007
2006
2005
2004
2003
2002
Venezuela
Offshore
Total Employees
56,769
5,140
61,909
47,433
5,383
52,816
43,807
5,373
49,180
33,281
5,238
38,519
28,841
5,157
33,998
40,133
5,550
45,683
Contractors
15,383
15,290
10,498
25,930
38,998
22,967
In 2007, the staff grew mainly because the Plan to Sow Petroleum was implemented.
In October 2007, the Collective Employment Agreement for the Oil Sector 2007 – 2009 was
executed, which includes the staff of current ”Empresas Mixtas”, and former joint ventures. In
this connection, it should be noted that the negotiation and execution of this Collective
Agreement was performed with the Federación Unitaria de Trabajadores del Petróleo, del Gas,
sus Similares y Derivados de Venezuela (FUTPV), which encompasses most of the unions and
strives for social justice for employees under the Collective Agreement for the Oil Sector. This
agreement, in addition to preserving the peace at the workplace, contains substantial
improvements to the benefits and severance indemnities of workers, thus enabling consolidation
of the unions into a Sole Federation of Oil-Sector Workers and improving conditions for retired
employees.
In efforts to democratize hiring of human resources, an automated solution named
Democratization System of Employment Opportunities (DOSE) www.dose.gob.ve in which
as of the end of 2007, approximately 45,000 professional and technical candidates have been
registered.
The process for the Special Plan for Nationalization of Drilling Rigs was launched, and 1,700
employees were hired. In addition, 1,678 employees over the age of 45 have been hired.
Likewise, hiring of staff through third parties was discontinued, thus eliminating a legal figure that
affected the direct hiring duties of PDVSA. In this connection, professional-fee hirings were
suspended.
Support was provided to ”Empresas Mixtas” of the Orinoco Oil Belt in massively uploading
4,980 workers onto the Contractor Information and Control System.
For the purpose of reinforcing the knowledge and bridge any gaps in the core areas of the
Corporation, academic agreements were executed with the following universities: Universidad
Marítima del Caribe, Universidad Bolivariana de Venezuela, Universidad Nacional Experimental
de las Fuerzas Armadas (UNEFA) and Universidad Simón Rodríguez, as well as Cooperation
Agreements with the company Petroleum Corporation of Jamaica, and engaging the
professional services of University of the West Indies of Jamaica and Barbados for development
of English programs for PDVSA employees.
In its production centers, PDVSA added 928 apprentices of Instituto Nacional de Cooperación
Educativa (INCE), 4,439 interns and dissertators, and granted 73 professional skills scholarships
(fourth and fifth level) abroad.
It gave advisory and coordinated the design of the Organizational Structure and new processes
at Corporación Eléctrica Nacional, together with CADAFE, ELECTRICIDAD DE CARACAS,
ELEVAL, ENELVEN, ENELBAR, EDELCA, ENELCO, SENECA and PROCEDATOS, thus
complying with the reorganization decree of the National Electricity Sector issued by the
Presidency of the Republic under 5330, dated July 31, 2007.
28
Furthermore, it gave advisory and coordinated the design of new subsidiaries PDVSA América,
PDVSA Gas Comunal, PDVSA Agrícola, PDVSA Servicios, PDVSA Industrial and PDVSA
Ingeniería y Construcción, which will reinforce the relations between the state and Community
Councils by building social production networks through promotion of Social Production
Companies and mixed companies as ideal forms for productive development of Venezuela.
Human Resources / Health
Hospital Coromoto in Maracaibo, Zulia State was recovered, and 35 industrial clinics and 3
hospitals of PDVSA were opened at a national level for the use of communities, thus
contributing to integration with communities.
Agreements for strengthening the National Health Plan System for the purpose of expanding its
scope and specialized areas of medical attention, decreasing cost of investments under the
agreements with friendly governments and institutions: Hospital Militar, for care of patients in
specialized areas; Venezuelan Armed Forces, to transfer critical-care patients by air ambulance;
Hospital Universitario de Caracas and Fundación Otológica de Venezuela, for the Cochlear
Implant program; Hospital Italiano in Argentina and Hospital de Niños de Caracas JMR, for care
of children weighing less than 25 kg with liver-transplant indications; Fundación para
Transplante de Medula Ósea Maracaibo, with different hospitals in Hospitals in Italy, Cuba and
Venezuela, for the purchase and advisory in handling and using medicine and medical
equipments.
Health infrastructure and equipment programs were reinforced in the East and West regions to
provide better care in the area of health and increase medical care at the health centers related
to PDVSA and incorporating communities to the benefits provided by the industry.
In coordination with MENPET, a total of 28,800 children took part in recreational programs,
vacation plans and sports programs, thus lowering associated costs.
A total of 15,505 persons, including children, employees and members of the community took
part in recreational, sports and cultural activities at a national level, benefiting the physical,
mental and spiritual development of the Venezuelan people.
29
III.Strategic Plan
On August 18, 2005, the Plan to Sow Petroleum was introduced to the nation. This plan is
aligned with the oil policies accorded by the state and establishes guidelines of oil policies until
2030, as indicated below:
•
•
•
•
Leverage national socio-economic development for the purpose of building a new economic
development that is more fair, balanced and sustainable to fight poverty and social exclusion.
Boost the energy integration process of Latin America and the Caribbean.
Serve as a geopolitical instrument to promote the creation of multi-polar system benefiting
developing countries and, in turn, counterbalance the current uni-polar system.
Defend the cohesion and articulation of oil policies of OPEC.
In this context and under the guidelines of the Ministry of Popular Power for Energy and
Petroleum, the general strategy of the company is based on seeking maximum valuation of nonrenewable natural resources by obtaining fair and reasonable prices in benefit of the sovereign
people, with a fair, efficient and balanced distribution of oil wealth to aid in eradicating poverty
and social exclusion. PDVSA, based on this strategy, has the following initiatives:
•
•
•
•
•
•
Search and development of light and medium oil.
Integral development of the Orinoco Oil Belt.
Acceleration of natural gas extraction on land and offshore.
Integration of the system for domestic and foreign refining.
Creation of Social Districts, promotion of Social Production Companies and development of
core endogenous development.
Leverage social policies of the state and contribute to “Fondo de Desarrollo Económico y
Social (FONDEN)”.
In the geopolitical and international trade area, the international strategy of PDVSA
encompasses the following:
•
•
•
•
•
Maintaining the presence in traditional energy markets.
Diversifying markets through incursion in rising markets such as China and India, as well as
obtaining a better share in the markets of Europe and Asia, under criteria of permanence in
contrast to being a punctual or sporadic supplier.
Reinforcing the bonds of energy, economic and technical cooperation with countries of the
Middle East and East Europe, under principles of solidarity, justice and complementation.
Acting as the executing body of the geopolitical strategy for energy integration of Latin
American and the Caribbean.
Contributing, through the Ministry of Popular Power for Energy and Petroleum, to emphasis
on OPEC as the sovereign organization seeking stability in international oil markets and fair
compensation of its resources.
Through the Plan to Sow Petroleum, PDVSA projects its vision of the country’s integral
development, aims to reinforce its capacities, strengthen technological sovereignty and boost
our industrial sector. Furthermore, it supports de-concentration of the population and enhances
the national and local economy in the areas where projects are being developed, for the purpose
of building a more balanced and fair socio-economic order.
It should be noted that since the announcement of the Plan to Sow Petroleum 2006 - 2012, in
August of 2005, by the President of the Republic, changes in the national, regional and
international environment have taken place. The demand of energy continues to rise, especially
in developing countries of southeast Asia, WTI oil prices have broke the barrier of 100 dollars
per barrel, with that trend expected to continue; in addition, new projects have been
30
implemented for regional energy integration and several social, operating and financial premises
have changed.
Likewise, over the past two years, a number of experiences and lessons have been learned
which evidence the need to adjust the Plan to new situations. In this connection, and taking into
account the long-term nature of energy projects, the Board of Directors of Petróleos de
Venezuela, S.A. has decided to review and adjust the demand and crude-oil price projections,
review the project portfolio of the Plan and prioritize the project portfolio taking into account the
supply and demand of technical, financial and staff resources.
Therefore, the new Plan to Sow Petroleum is being prepared and will be announced promptly in
2008. In addition, the Board of Directors of Petróleos de Venezuela, S.A. decided to create an
Operating Plan for PDVSA and establish a Volumetric Committee to monitor and control the
projects and activities required to ensure compliance with the goals set forth in the Plan.
1. Axes of the “Plan Siembra Petrolera”
In preparing the Plan to Sow Petroleum seven (7) axes for oil and gas development were
established. A description of the main projects is summarized below:
a. Certification of the Orinoco Oil Belt (Magna Reserva Project)
According to Official Letter number 1.036 dated June 2005, the Ministry of Popular Power for
Energy and Petroleum assigned to CVP the Magna Reserva Project to quantify and certify the
reserves of the Orinoco Oil Belt. The strategic guidelines are aimed at converting the Orinoco Oil
Belt into an axis for economic, social, industrial, technological and sustainable development of
the country through valuation and optimal development of its hydrocarbon resources, within the
current legal standards and the national development plan.
In order to quantify and certify reserves, the Orinoco Oil Belt was divided into four large areas:
Boyacá, Junín, Ayacucho and Carabobo; and these, in turn, into twenty-eight (28) blocks
(excluding the area of mixed companies, former joint ventures and Bitor-Sinovensa), from which
sixteen (16) blocks will be quantified and certified in a joint effect between CVP and eighteen
(18) state and private companies of fifteen (15) different countries which have entered into
understanding agreements with PDVSA for that specific purpose. At least 235 MMMBls of heavy
crude oil are expected to be certified.
31
It should be noted that the Original Oil on Site quantified in the Orinoco Oil Belt amounts to
1.360 MMMBls of crude oil, from which the country reported only 40 MMMBls as proved
reserves which represents only 3%. The purpose of the Magna Reserva Project, carried out by
CVP, is to quantify and certify at least 17% of the Original Oil on Site as proved reserves, based
on an integral review of the whole area of the Orinoco Oil Belt and the application of leadingedge technology to improve the recovery factor.
Since 2005, when the project began, to the end of 2007, MENPET has quantified and certified
20 MMMBls of heavy crude oil of the 235 MMMBls taken into account for the project; that is, until
2007 over 9% of the overall goal has been met, and it is expected to be completed by the end of
2009.
b. Expansion of Orinoco Oil Belt Projects
These projects involve the integral development of the northern region of the Orinoco coherently
with the social infrastructure to contribute to the de-concentration of national territory. The
Orinoco Oil Belt, once its reserves are quantified and certified, will become the fundamental axis
for sustainable development from a social, industrial, economic and technological standpoint.
To achieve this objective, the state will perform a master plan of sustainable development taking
into account fostering projects not associated to the production of hydrocarbons. The plan
envisions three modules for the production of 615 MBPD of upgraded crude oil with the
involvement of third parties and will build two (2) cities near the heavy crude oil processing
complex to encourage de-concentration of the population. The economy of the region is
expected to become more dynamic, and new jobs will be generated, which will help to desconcentrate the population of the north coast zone of the country. Through this initiative, the
Orinoco Oil Belt will become the fundamental axis for endogenous development.
c. Production in Traditional Areas
This effort encompasses a series of projects in the areas of Exploration and Production required
to increase production up to 5.8 MMBPD by the year 2012, in accordance with oil-field
conservation policies issued by the Ministry of Popular Power for Energy and Oil, development
of plans for replacements of reserves and investments to increase recovery factors. These
projects involve implementation of oil-field management techniques, enhancement of
infrastructure and coherent development of the industrial sector and the environment.
In addition, and in line with the strategy for development of crude oil at the belt, the incorporation
of reserves of 1,495 MMBLs of condensed, light and medium crude oil is contemplated for the
2008-2012 term.
d. Offshore Gas Development
Its purpose is the integral industrial development of offshore gas deposits in the eastern region
of the country (Delta Platform, with a planned production of 1,470 MMPCD and Mariscal Sucre
with 1,200 MMPCD) and in the west (Rafael Urdaneta, with an expected production of 1.000
MMPCD). These projects seek to balance the Venezuelan energy matrix and boost regional
energy integration, which includes supplying of gas to countries in Latin America, the Caribbean
and the Atlantic Basin, as well as reaching the industrial potential of the region.
For treatment and conditioning of such offshore gas, is in progress the construction of the Gran
Mariscal de Ayacucho Industrial Complex (CIGMA) located in Sucre State, which contemplates
a petrochemical plant, storage areas, docks and terminals, plants for liquefying gas, as well as
an industrial park.
32
e. Refining Increase and Improvement
This axis is aimed at increasing the processing capacity of crude oil in the country, through the
creation of new refining centers: Cabruta, with a capacity of 400 MBPD; Refinería Zulia, with 200
MBPD; Batalla de Santa Inés, with 50 MBPD; and Caripito with 50 MBPD for asphalt production.
Likewise, efforts are directed toward reinforcing and enhancing the processes of existing plants
(Paraguaná Refining Center, Puerto La Cruz and El Palito) to increase residual processing and
obtain more medium distillates.
These new refining capacities are expected to leverage the endogenous development in the
communities where they are located and to establish synergies with other countries, in the areas
of energy and socio-economics.
This expansion and optimization plan for refining will be integrated with agri-energy for the
production of ethanol as an additive of gasoline, which has a significant impact of the occupation
of the fields and contributes to territorial consolidation.
At an international level, the operation to reactivate Refinería Cienfuegos in Cuba was launched,
as well as the basic engineering phase of Refinería Pernambuco in Brazil and the basic
engineering phase of Refinería Kingston in Jamaica. Furthermore, pre-visualization studies
were performed for a possible refinery in Nicaragua. In addition, analysis is being done on the
possibility of one (1) refinery in Ecuador, one (1) in Syria, one (1) in Vietnam and three (3) in
China.
f.
Commercialization of Crude Oil and Products
This is aimed at ensuring security and reliability of domestic energy and strengthening
international oil policies, under a sovereign approach on oil resources, by defending and using
oil as a geopolitical tool to promote multi-polarity, regional energy integration of Latin America
and the Caribbean and diversification of markets without neglecting supply in traditional markets.
By 2012, an availability of crude oil for export of 3,368 MBPD is expected and 1,847 MBPD for
refining, adding up to a total supply of crude oil of 5,215 MBPD. With the production of
”Empresas Mixtas” from the existing joint ventures of the Orinoco Oil Belt of 622 MBPD,
domestic supply of crude oil amounted to 5,837 MBPD.
g. Development of Infrastructure
This is aimed at creating conditions to expand the recovery, storage and transportation
capacities of hydrocarbons throughout the national territory, facilitate regional integration
through gas pipelines with the South, the Andes and the Caribbean, and replace obsolete
infrastructure. In addition, this project envisions development of a household gasification
network to secure energy resources for consumption by all of our population. The expansion of
this infrastructure will allow for greater flexibility to handle the expansion in volume expected
under the plan in terms of crude oil, products and natural gas.
2. Business Strategy
In accordance with this strategic orientation, guided by the axes of development, the Plan to
Sow Petroleum is based on the following business objectives:
•
Increase the production capacity to 5.8 MMBPD by the year 2012, from which 4 MMBPD
correspond to direct management; 460 MBPD to ”Empresas Mixtas”; 622 MBPD to
”Empresas Mixtas” of former joint ventures of the Oil Belt; 121 MBPD to “Empresas
33
•
•
•
Mixtas” of former shared-profit entities and 615 MBPD under the new ”Empresas Mixtas”
of the Orinoco Oil Belt.
Increase the installed refining capacity up to 4.1 MMBPD.
Export a volume of crude oil and products of 4.7 MMBPD.
Increase the production of natural gas to 11,500 MMPCD of gas.
For the purpose of achieving those objectives, the strategies of each of the main businesses
include the following:
Exploration, production and upgrading
• Incorporate reserves of light and medium crude oil.
• Increase the total recovery factor
• Continue development of projects of extra-heavy crude oil of the Orinoco Oil Belt.
• Leverage the existing technology to maximize the return of the investment.
Refining and marketing
• Ensuring the upgrading of products and compliance with environmental provisions in
Venezuela and abroad.
• Expanding and diversifying our markets in Latin America, the Caribbean, Asia and
Europe.
• Improving the efficiency of our processes of refining and marketing activities.
• Evaluating opportunities for development of petrochemical products in our refineries and
provide PEQUIVEN, on a timely basis, of base materials and other raw materials for the
petrochemical development of the country.
Natural gas
• Promoting actively the national and international participation of the private sector in
exploration, extraction and processing of non-associated gas reserves in Venezuela or
abroad.
• Improve distribution processes for the purpose of increasing the coverage of the
domestic and international markets.
• Ensuring our share in natural liquid gas markets.
The performance of the Corporate Plan of PDVSA includes the following initiatives:
a. Capital Expenditures
In carrying out these business strategies, PDVSA believes that its Business Plan will require for
the term 2007-2012 of approximately 78,116 MMUS$ to reach a sustainable production of 5.8
MMBPD by 2012. PDVSA hopes to provide approximately 75% of the funds required for this
plan and 25% of investments of third parties. The following chart shows a summary of actual
capital expenditures January-December 2007 and the estimate of the rest of the 2008-2012
term.
34
Chart: Capital Expenditures in MMUS$
Capital Expenditures (in MMUS$)
(1)
Exploration
Production
"Empresas Mixtas" (former Operation Agreements)
"Empresas Mixtas" (former joint ventures)
New "Empresas Mixtas" of the Oil Belt
"Empresas Mixtas" (Shared Profits)
Gas
Refining
Trade and Supply
Support and Management (Includes PDVSA Agrícola)
Total
2007
199
4,610
462
219
198
263
1,122
3,933 (2)
11,006
2008
323
4,102
1,154
1,253
68
336
3,910
2,276
2,249 (3)
15,671
2009
505
2,387
527
309
1,576
174
2,197
3,733
73
11,481
2010
413
2,400
467
388
4,533
369
2,534
3,834
117
15,055
2011
284
2,485
361
320
3,542
380
2,201
3,290
126
12,989
2012
24
998
253
695
6,493
133
2,176
1,094
48
11,914
(1) Actual figures as of December 31, 2007.
(2) Includes purchase of Electricity Companies and investments in Electricity Projects and PDV Marina, and other.
(3) Includes investments in PDVSA América, PDV Naval, and other.
PDVSA remains committed to maintaining high safety and health standards in all its operations.
To integrate timely and effective business technology in its operating activities, PDVSA focuses
on the development of a sustainable competitive advantage. It continually provides its staff with
quality training. In addition, the Business Plan emphasizes on strengthening the national
economy and contributing to social programs: education, health and employment opportunities.
b. Exploration, Production and the Upgrading of Crude Oils
The strategies of Exploration and Production are aimed at increasing efforts in the search of new
light and medium crude oil reserves and the systematic replacement of these reserves in
traditional areas to develop new production areas, always adjusting production activities in
accordance with market demands and agreements between the OPEC members and other oilproducing countries. In this connection, there are plans to purchase 8,034 Km of 2D seismic
lines; 17,736 Km2 of 3D seismic lines; and approximately 102 exploration wells will be drilled.
PDVSA will drill approximately 6,590 production wells and will perform maintenance (Ra / Rc) in
8,117 wells, among other activities, in order to reach a production capacity of 5.8 MMBPD for the
year 2012. PDVSA will also make efforts to maintain competitive production costs using
leading-edge technology.
c. Refining
The refining strategy focuses on the expansion of the capacity and improvement of efficiency of
downstream operations. In Venezuela, four new refineries will be built: Cabruta (400 MBPD),
Batalla de Santa Inés (50 MBPD), Zulia (200 MBPD) and Caripito (50 MBPD); likewise, deep
conversion capacity will be added to the refineries of Puerto La Cruz, Centro de Refinación
Paraguaná (Amuay and Cardón) and El Palito, to increase efficiency in processing heavy crude
oil. In refineries located in U.S.A., Europe and the Caribbean, investments will be made to
comply with the quality standards set forth for those markets. In addition, investments will also
be made in the refineries of Kingston-Jamaica, Cienfuegos-Cuba and a new refinery with
Petrobrás in the north of Brazil. The purpose is to reach higher margins of refined oil products.
All the applicable environmental quality standards will remain.
35
Total
1,748
16,982
3,224
3,184
16,212
1,590
13,281
15,349
364
6,182
78,116
d. Trade and Supply
International Market. PDVSA plans to continue expanding its operations in foreign markets to
increase its share in the crude oil and products market, as well as to improve brand recognition.
It plans to diversify its client portfolio by taking part in new markets such as China, India and
Japan. PDVSA will expand its operations in the Caribbean and South America through the
initiative PDVSA América, which will include the initiatives of Petrosur, Petrocaribe and
Petroandina, to encourage regional integration and fair distribution of energy amongst Latin
American nations. PDVSA will focus on maintaining its market share in the U.S.A. through more
efficient use of the distribution system of CITGO. To improve its logistics and maritime
transportation capacity, PDVSA will build 42 tankers through strategic agreements with
Argentina, Brazil, China and Spain. This effort will increase the number of ships from 21 to 58,
owned and operated by subsidiary PDV. This fleet will increase the transportation volume to
2,100 MBPD by 2012.
Domestic Market. PDVSA will continue to promote in Venezuela reliable supply of its products
and use of unleaded gasoline, a process that began in the fourth quarter of 1999, to improve the
competitive position of its service stations, lubrication centers and large stores. Also, it will
continue to develop its commercial network through business relations and other associations
aimed at increasing the supply of the product to airports with significant traffic. Likewise, a
project is being advanced for the production of ethanol to improve the octane rating in the
production of gasoline. With the use of ethanol, PDVSA will have products that are more
innocuous to the environment and promote agricultural and social development in rural areas
since ethanol is produced using agricultural raw materials: sugar cane, corn and cassava.
e. Natural gas
Development of the gas business is one of the main goals. Activities will mainly focus on
complying with the growing domestic demand of gas to foster national development and a higher
standard of living. PDVSA plans to focus on the creation of investment opportunities attractive to
the private sector in the production of non-associated gas. The system of transmission and
distribution, extraction of natural gas liquids, processing and fractioning and development of new
operations for gas exports, including export of liquid natural gas, will be expanded. Most of the
existing fields of associated natural gas, currently allocated to PDVSA by the Ministry of Popular
Power for Energy and Petroleum will be operated. Efforts will continue in the area of exploration
and development of non-associated gas reserves with the support of private investors. Activities
related to the gas business will be promoted using the existing system for transmission and
distribution of gas. PDVSA is committed to the development of a large gas-distribution network
in different cities of the country to promote the use of natural gas by households, businesses
and industries. It is expected that the development of the gas business will require
approximately 13 MMMUS$ of capital from 2007 to 2012. Such capital disbursements are
expected to be obtained not only through PDVSA but also from private-sector partners.
f.
Social Production Companies
The Program for Social Production Companies launched by PDVSA, approved by the Board of
Directors of the Corporation in October 2005, has shown results in 2007 because the application
of its elements required the creation of organizations, a new information campaign and the
implementation of such program in businesses and contractors.
The elements of this program include contributions by PDVSA contractors to a Social Fund. This
contribution is discounted from the billing, according to percentages established based on the
total amount billed. The fund is aimed at attending to the needs of communities. A second
quantitative aspect of the program is the social offer, which must be submitted in the hiring
processes and which is also valued in accordance with the sum of the contract using a scale
36
ranging from 2% to a maximum of 5% of the total. Other elements of the program are
represented by cooperation to Social Production Companies by Promoting Companies, which
are companies that have ascribed to the program after being recorded in the system of the
Registry of Social Production Companies of PDVSA. Another element is the incorporation of
consortia and alliances with Social Production Companies to migrate knowledge and skills from
core companies to the new production model. In this connection, a Financing Fund aimed at
leveraging the Social Production Companies was created. Finally, this program includes the
creation and support of Community Production Units.
In addition, the Social Production Companies Production companies involves the creation of
companies, in the line of the main production of the hydrocarbons sector in Venezuela, which
represents a significant center of attention of efforts to be placed in creating a new social
production model in Venezuela.
Operations of new subsidiaries of PDVSA
In the second half of 2007, four (4) new subsidiaries were created and three (3) additional
subsidiaries are expected to be incorporated, for the purpose of turning PDVSA into an engine
boosting industrial and agricultural development in sectors directly related to the oil industry and
other complementary areas for the development of the nation.
The subsidiaries of PDVSA will be helpful tools for the state to generate the necessary spaces to
balance the domestic market.
•
PDVSA Servicios: will achieve important savings in the area of services of PDVSA, such
as seismic, wells and drilling rigs.
•
PDVSA Agrícola: will use lands owned by PDVSA to harvest food. A program was
launched to harvest soy and sugar cane.
•
PDVSA Industrial: will attempt to meet the needs of the people with household product
lines. The purpose is to manufacture end products for mass consumption such as
clothing, shoes, household appliances, tools, beds and furniture, as well as white and
brown appliances; televisions and radios are some of the commodities to be produced.
•
PDVSA Gas Comunal: will be used basically for distribution of gas to communities from
filling plants to homes.
•
PDVSA Ingeniería y Construcción: will develop platforms (in process).
•
PDVSA Naval: will build ships, boats and dams (in process).
•
PDVSA Desarrollos Urbanos: will contribute to the development of housing and habitat
(in process).
3. Summary of Capital Expenditure Plan and Main Projects
a. Ceuta – Tomoporo
This integral project is aimed at maximizing the recovery of value of crude oil reserves at the
field Ceuta – Tomoporo located in the west region of the country, which has estimated reserves
of 1,000 MMBls of 23.6° API crude oil. The total estimated cost of the project is $3,870 million,
with an average oil production from 90 MBPD to 277 MBPD. It is estimated that the development
project of these reserves will be completed by 2021. As of December 31, 2007 and 2006, the
balance of construction in progress is approximately $379 million and $253 million, respectively.
37
b. Electric Energy Supply Costa Oriental del Lago - Occidente
This project will satisfy the demand of energy derived from the Plan 2006 – 2012 in the West
region, especially at Criogénico and Tomoporo, replace obsolete electricity plants and leverage
the national electricity system in the west region. This project involves the construction of two (2)
electricity plants of 500 MW each in Costa Oriental del Lago and interconnection work in 230 Kv
and 115Kv to enable transmission of energy. The total cost of the project is $1,125 million, the
same was launched in January 2007 and is expected to be completed by October 2010.
c. Northern District Growth
The purpose of this project is to increase the production of crude oil by 98 MBPD to reach a
production of 910 MBPD with an estimated investment of $11,645 billion and a social investment
of $521 million. The scope of the project envisions an extraction plan based mainly on
secondary recovery projects of gas and water injection (PIAVOS - Proyecto Inyección Vapor
Orocual Somero), drilling activities, new infrastructure, expansion and maintenance of existing
facilities and addition of socio-productive projects in the most relevant areas of the Northern
District of Monagas State. This project was launched in January 2006 and ends in December
2021.
d. Morichal District Growth
This project encompasses extraction and production in traditional areas of heavy and extraheavy crude oil in the Morichal District to increase production by 167 MBPD during the term of
the Plan. The goal is the integral development of 285 MBPD of heavy and extra-heavy crude oil
through an accelerated production contemplating seismic purchases (320 km2 in the term 2006
- 2007), increase the transportation capacity of crude oil, adaptation of facilities for handling
diluents and centralizing the production of crude oil. The total estimated cost of the project is
$8,295 million, and the project was launched in January 2006 and ends in December 2021.
e. New Developments in the Orinoco Oil Belt Area
These projects are in the visualization and conceptualization phase and are aimed at developing
the facilities required for the development of new production fields of 200 MBPD each of extraheavy crude oil in the blocks located in the different areas of the Belt such as Carabobo,
Ayacucho, Junín and Boyacá for transportation, upgrading and marketing. This activities will be
performed by incorporating a mixed company between PDVSA and potential partners (still
undefined), in the framework of a geopolitical and multi-polar vision for the extraction of extraheavy crude oil at the Belt. Development of these fields will be performed with the maximization
of technological resources to enable better a better recovery factor.
f.
Trans-Caribbean Gas Pipeline Antonio Ricaurte
Trans-Caribbean Gas Pipeline Antonio Ricaurte project began in 2006 for the purpose of gas
exchange between Venezuela and Colombia and it is expected to span the route Puerto de
Ballena in Colombia to Costa Oriental del Lago de Maracaibo in Venezuela. It will have an
estimated cost of $473 million with an estimated length of 225 kilometers. For the first four years,
it will transport gas from Colombia to Venezuela and then from Venezuela in Colombia. As of
December 31, 2007 and 2006, the balance of construction in progress is approximately $461
million and $114 million, respectively.
38
g. Gran Delta Caribe Oriental
This project consists of the construction of the infrastructure required to incorporate in the
domestic market gas from offshore developments in the East region of the country. 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; gas adaptation
and processing plant; generation of electric energy (900 MW Güiria and 450 MW in Cumaná);
transmission and electricity distribution networks, and a liquefaction plant of 4.7 million metric
tons per year (MMT/A) with storage and dock. The estimated investment is $371 million, and the
project is expected to be completed by 2012. As of December 31, 2007 and 2006, the balance
of construction in progress is approximately $170 million and $33 million, respectively.
h. Complejo Criogénico de Occidente
The purpose of the Complejo Criogénico de Occidente is to enhance the natural gas processing
structure in the western region of the country. This project includes design and construction of
the necessary infrastructure to process 950 MMPCD of Gas and produce 62 MBPD of Ethane
for PEQUIVEN. It also involves construction of a new fractioning train in Ulé, Simón Bolívar
Municipality, Zulia State, as well as installation of pipeline networks and facilities to interconnect
CCO with existing installations. Its estimated investments amounts to $926 million and the
project is expected to be completed in 2011. As of December 31, 2007 and 2006, the balance
of construction in progress is approximately $197 million and $108 million, respectively.
i.
Gas Anaco
The Gas Anaco project is aimed at increasing the production of gas to meet domestic demand.
This project includes the design and construction of facilities to increase daily production to
2,400 MMPCD of gas and 35 MBPD of light crude oil, with the completion of Phase I (San
Joaquín, Santa Rosa and Zapato Mata R) and reach 2,800 MMPCD and 40 MBPD upon
completion of Phase II (Sta. Ana/El Toco, La Ceibita, Soto/Mapiri and Aguasay). Total
estimated investment is $2,433 million, and it is estimated that the project may end in 2010. As
of December 31, 2007 and 2006, the balance of construction in progress is approximately
$1,032 billion and $612 million, respectively.
j.
Acondicionamiento de Gas y Líquidos Anaco (AGLA)
The AGLA project consists of development of the infrastructure required for condition of 815
MMPCD of gas in Anaco. The total estimated cost of the project is $242 million and it is
estimated for the project to end in 2010.
k. Interconexión Centro Occidente (ICO)
The ICO project is aimed at connecting the transmission systems of natural gas of the central
and east regions of Venezuela (Anaco, Anzoátegui State - Barquisimeto, Lara State) with the
transmission system of the west of the country (Ulé, Zulia State - Amuay, Falcón State), for the
purpose of meeting the gas demand of the western region of the country, expanding the delivery
of gas to other regions and cities of the nation and promoting the industrial and commercial
development in areas surrounding the construction of this transmission system. This project
includes the design, engineering, procurement and construction of a gas pipeline 300 Km long,
with a diameter of 30" and 36"; three (03) Compression Plants (Morón, Los Morros and
Altagracia) to interconnect the Anaco-Barquisimeto System with the Ule-Amuay System and
secure the gas supply to Centro Refinador Paraguaná (CRP) and, in the long term, export gas
toward Colombia, Central and South America. The estimated investment is $530 million, and it is
expected that by mid 2008 construction of the gas pipeline will be completed near the
recompression plant at Morón. By 2009, the two remaining recompression plants will be ready,
39
and the maximum capacity of 520 MMPCD of the gas pipeline would be reached. As of
December 31, 2007 and 2006, the balance of this construction in progress is approximately
$436 million and $242 million, respectively.
l.
Jose 250
The Jose 250 project is aimed at increasing the associated gas processing capacity in the fields
of Anaco and the north of Monagas State to meet the demand of households and the supply of
gas injected to the secondary recovery processes of the oil fields of the north of Monagas State.
This project includes the construction and implementation of the IV Train for extraction at Planta
de San Joaquín (1,000 MMPCD); V Train of fractioning in Jose (50 MBPD); expansion of
Terminal Marino Jose; poly-pipeline San Joaquín – Jose (113 km.); Planta de Control de Punto
de Rocío, at Pirital; expansion of the poly-pipeline and Ethanol project. The total estimated
investment of this project is $664 million, and it is estimated for this project to be completed in
2009. As of December 31, 2007 and 2006, the balance of construction in progress is
approximately $77 million and $21 million, respectively.
m. Mariscal Sucre
The Mariscal Sucre Project of Liquefied Natural Gas is aimed at developing and extracting
offshore non-associated gas reserves, as well as the construction of a Liquefied Natural Gas
plant which contemplates a production of gas of 1,200 million natural cubic feet per day
(MMPCD) and processing of 4.7 million metric tons per year (MMT/A) of Liquefied Natural Gas;
300 MMPCD of methane gas will be used to meet the demand of the domestic market and the
rest will be exported. The investment required for the development of offshore fields, the plant of
Liquefied Natural Gas and the associated infrastructure is estimated at $2.7 billion. As of
December 31, 2007 and 2006, the balance of construction in progress is approximately $136
million and $32 million for the year 2006.
n. Nor-East Gas Sistem
The purpose of the project “Sistema Nor-Oriental de Gas” is the construction of the infrastructure
to incorporate into the domestic market gas from offshore developments from the east region of
the country. The estimated investment is 1,066 billion, and the project is expected to be
completed in 2010.
o. National Gasification
The project for National Gasification includes the installation of methane gas distribution
networks to supply gas to 3,260,000 families at a national level. The estimated investment is
$2.334 billion, and the project is expected to be completed in 2016.
p. Plataforma Deltana
The gas project of the Plataforma Deltana includes the involvement of ChevronTexaco, Statoil
and Total in blocks 2, 3 and 4, respectively, to complete exploration. Once the exploration
phase is completed and the commercial nature of the reserves found is determined, PDVSA will
take part in the future development of the area, with a total estimated investment of 3,810
MMUS$, including the share of PDVSA. As of December 31, 2007 and 2006, the balance of
construction in progress is approximately $161 million and $157 million, respectively.
40
q. Autogas - Natural Gas for Vehicles (NGV)
This project contemplates the implementing at a national level of 350 sales points of Natural Gas
for Vehicles and reactivation of 148 points at existing service stations. To foster the
incorporation of Social Production Companies for manufacturing and maintenance of highpressure cylinders for the purpose of converting 450,000 vehicles for use of Natural Gas for
Vehicles in 18 states in the term 2006-2009, a total investment of 921 MM$ is required. As of
December 31, 2007 and 2006, the balance of construction in progress is approximately $23
million and $38 million, respectively.
r. Rafael Urdaneta
The total estimated capital expenditure for the project is 2,900 MMUS$. This project
contemplates development of non associated gas reserves located in the Gulf of Venezuela,
mainly in the fields of Róbalo, Merluza, Liza and Sierra, to produce 1,000 MMPCD to be used in
the domestic market and the remainder in international business opportunities. The purpose of
the project is the performance of exploration activities; development of the infrastructure for the
production of offshore gas, necessary pipelines for transportation of gas and condensed gas
from a gas liquefying plant and facilities required to serve modern natural liquefied gas ships.
The area intended for exploration was divided into 29 blocks in which exploration licenses were
granted to ChevronTexaco for block Cardón III, Repsol YPF and ENI for block Cardón IV,
Gazprom for blocks Urumaco I and II, Petrobrás and Teikoku for blocks Moruy and Petropars for
block Cardón II.
s. Deep Conversion for Puerto La Cruz Refinery
The purpose of the project is to maximize the heavy and extra-heavy crude oil processing
capacity to meet the internal demand and export fuel. This project is comprised of design,
procurement, construction, installation and implementation of service units to process 210
MBPD of crude oil. The total estimated investment amounts to $1.6 billion, and it is expected to
be completed in 2011. As of December 31, 2007 and 2006, the balance of construction in
progress is approximately $129 million and $20 million, respectively.
t.
Deep Conversion for El Palito Refinery
The purpose of this project is to adapt this refinery for processing 140 MBPD of heavy and extraheavy crude oil with a minimum production of residuals, ensuring the production of light products
(gasoline/distillates) with export quality and improve the refining margin, in harmony with the
natural and social environment of the facilities. This is aimed at increasing the processing of
heavy and extra-heavy crude oil in the national refining park and will lead to the refining of crude
oil of 28° API to 22° API. The total estimated investment is $2.0 billion, and the project is
expected to be completed in 2011. As of December 31, 2007 and 2006, the balance of
construction in progress is approximately 33 million and $9 million, respectively.
u. Construction of New Refineries in Venezuela
The Cabruta refinery is being designed to process 400 MBPD of oil of 8.50 API of the Orinoco
Oil Belt. Nowadays, conceptual engineering is being performed to produce high-quality refined
products: gasoline, distillates, aircraft fuel and export fuel. According to plans, this refinery will
have a deep conversion plant based on HDH PLUS technology. The refinery will be located in
Cabruta, at the south of Guarico State. The operations will be launched in 2013. The Batalla de
Santa Inés refinery is being designed to process 50 MBPD of Guafita Blend of 28° API. This
project aims at meeting the regional fuel demand. The configuration structure of this process
41
does not involve deep conversion. Operations are expected to be launched in 2010. The
Caripito refinery is designed to process 50 MBPD of heavy oil from the east region of Venezuela.
Operations are expected to begin in 2009. The total investment in Cabruta refinery amounts to
14,073 MMUS$, Caripito amounts to 566 MMUS$ and Santa Inés amounts to 630 MMUS$, and
Refinería Zulia to 200 MBPD (in pre-visualization).
42
IV. Main Activities
1. Extraction and Production
All extraction and production activities are performed in Venezuelan territory, mainly by PDVSA
Petróleo, CVP and PDVSA Gas.
a. Reserves
All crude oil and natural gas reserves are located in Venezuelan territory and are owned by
Venezuela. Crude oil and natural gas reserves are estimated by PDVSA and reviewed by
MENPET, applying definitions set forth by the Society of Petroleum Engineers (SPE), Society of
Petroleum Evaluation Engineers (SPEE), World Petroleum Council (WPC) and the American
Association of Petroleum Geologists (AAPG).
Geological and engineering data is used to estimate proved oil and natural gas reserves,
including proved reserves developed and undeveloped. This data shows, with reasonable
certainty, recoverable reserves in future years of unknown wells, under existing operating and
economic conditions. It is expected to recover proved oil and natural gas reserves mainly from
new wells and in undrilled areas, using available equipment and operating methods.
Reserve estimates are not exact and are subject to review. These oil and natural gas reserves
are reviewed annually to take into account, among other things, production levels, field reviews,
addition of new reserves resulting from discoveries and economic feasibility analyses. Estimated
proved reserves may be materially different from the quantities of oil and natural gas recovered
in the end.
Proved reserves do not include additional volumes that may result from extending current
unexplored areas or applying secondary recovery processes that have not been tested and
qualified as economically feasible.
Developed oil and gas proved reserves are comprised of the quantities that may be recovered
from existing wells, using current equipments and methods. Undeveloped proved reserves are
volumes expected to be recovered through investment in drilling new wells in undeveloped
areas or completing work in existing wells.
Proved reserves have continued to increase through the years. In 2007, production was 1,144
MMBls, which has resulted in an accumulated oil production since 1914 to December 31, 2007,
of approximately 61,544 MMBls. commercial production of oil in Venezuela is concentrated in
the Maracaibo-Falcón basin (formerly referred to as Western - Zulia) which extends through
Zulia and Falcón states; the Barinas-Apure basin (formerly referred to as Mid-Central Barinas
and Apure), which extends through the states of Barinas and Apure; the East basin, which
extends through the states of Guárico, Anzoátegui, Monagas and Sucre; and the Carúpano
basin, incorporated in 2006, which extends through the states of Sucre and Nueva Esparta, and
the territorial waters located in front of the eastern coasts of Venezuela. The accumulated
production of oil from 1914 to December 31, 2007 for the Maracaibo-Falcón basin is 41,612
MMBls, in the Barinas-Apure basin it is 1,330 MMBls, in the East basin it is 18,602 MMBls and in
the Carúpano basin there is no accumulated production.
The chart below shows the proved reserves, developed proved reserves and the ratio of proved
reserves with regards to annual production in each of the main basins as of December 31, 2007
and the production of 2007.
43
Venezuelan Reserves and Production
Proved
(1)
Proved
2007
Developed Production
(MMBls as of
12/31/2007)
(MBPD)
Ratio of Proved
Reserves /
Production
(years)
Oil (2)
Maracaibo-Falcón
20,574
5,776
1,130
50
1,835
306
82
61
76,893
9,455
1,923
110
75
---
---
---
Total Oil
99,377
15,537
3,135
87
Extra Heavy
58,173
4,355
706
226
5,973
4,181
184
89
77
46
10
53
20,876
2,543
13,903
---
505
---
113
---
29,469
18,130
669
117
128,846
33,667
3,834
93
Barinas-Apure
Eastern
Carúpano
Natural gas in Bpe (3)
Maracaibo-Falcón
Barinas-Apure
Eastern (4)
Carúpano
Total Natural Gas in Bpe
Total Hydrocarbons in Bpe
(1) Developed and undeveloped
(2) Production recorded excluded 7 MBPD condensed from the plant and 8 MBPD of the production of Sinovensa for the
1st. four-month term.
(3) Net production of natural gas (gross production less re-injected natural gas). The conversion factor is 5.8 MPc/Bls
(4) Includes proved reserves of natural gas in the Orinoco Oil Belt, estimated at 3,532 MMBpe as of December 31,
2007.
Oil and natural gas represented 77% and 23%, respectively, of the total estimated proved
reserves of oil and natural gas over an equivalent base of oil at December 31, 2007.
The chart below shows the location, production volume, discovery year, proved reserves and
ratio of proved reserves with regards to annual production of each of the largest oil wells of
PDVSA, as of December 31, 2007.
44
Proved reserves and production of main fields for the year ended December 31, 2007:
Field Name
Cerro Negro
Cerro Negro
Zuata Principal
Tía Juana Lago
Huyapari
Bare
BloqueVII Ceuta
El Furrial
Mulata
Bachaquero
Lago
Boscán
Urdaneta Oeste
Santa Bárbara
Lagunillas Lago
Tía Juana Tierra
Melones
Lagunillas Tierra
Location
(State)
2007
Production
(MBPD)
Discovery
Year
Ratio of
proved
Proved
reserves/
Reserves Production
(years)
(MMBls)
Monagas
Anzoátegui
Anzoátegui
Zulia
Anzoátegui
Anzoátegui
Zulia
Monagas
Monagas
41
100
164
155
157
93
138
388
240
1979
1979
1985
1925
1979
1950
1956
1986
1941
18,813
14,096
14,227
3,690
3,633
2,064
1,771
1,760
1,744
1,254
386
238
65
63
61
35
12
20
Zulia
Zulia
Zulia
Monagas
Zulia
Zulia
Anzoátegui
Zulia
107
105
93
142
77
33
35
56
1930
1946
1955
1941
1925
1925
1955
1925
1,679
1,452
1,420
1,359
1,300
1,206
1,071
1,055
43
38
42
26
45
101
84
52
Oil Reserves
The levels of proved reserves of crude oil at the end of 2007 amounted to 99,377 MMBls;
distribution of reserves per basin is the following: 20,574 MMBls Maracaibo-Falcón, 1,835
MMBls Barinas-Apure, 76,893 MMBls Eastern and 75 MMBls Carúpano. For the Orinoco Oil
Belt reserves amounted to 59,562 MMBls of oil and 3,077 MMBls correspond to heavy crude oil
and 56,485 MMBls to extra-heavy crude oil.
In 2007, 13,198 MMBls in proved reserves were added, from which 501 MMBls represented
discoveries, 20 MMBls extension and 12,677 MMBls reviews. In 2006, the rise in reserves was
8,504 MMBls, 623 MMBls in 2005, 4,601 MMBls in 2004 and 250 MMBls in 2003.
In 2007, 2006, 2005 and 2004, the replacements rate of crude oil reserve, which indicates the
barrels incorporated per each barrel produced, was 1,154%, 713%, 52% and 104%,
respectively. These variations resulted in reviews of the expected rates of recovery of oil on site
and the use of secondary recovery technology in oil reservoirs.
In accordance with production levels of the year 2007, proved oil reserves, including reserves of
heavy crude oil and extra-heavy crude oil have a remaining life of, approximately, 87 years;
therefore, a proper development plan is required including production costs and refining. This
lifespan does not include the addition of the Orinoco Magna Reserva Project.
Natural Gas Reserves
There are proved natural gas reserves amounting 170,920 MMMPCN (or 29,469 MMBpe) as of
December 31, 2007, from which 20,483 MMMPCN are associated with the Orinoco Oil Belt and
18,899 MMMPCN to extra-heavy crude oil. The natural gas reserves of PDVSA include
45
associated gas, which is an incidental element generated from developing oil reserves. A high
proportion of natural gas proved reserves are developed. In 2007, the sum of 1,060 MMMPCN
was re-injected to maintain the pressure of reservoirs, which represents approximately 44% of
the natural gas produced.
Reserves per basin are distributed as follows: 5,973 MMBpe Maracaibo-Falcón, 77 MMBpe
Barinas-Apure, 20,876 MMBpe Eastern and 2,543 MMBpe Carúpano. In the year 2007, 1,063
MMBpe were added, from which 305 MMBpe derive from discoveries, 6 MMBpe from extension
and 752 MMBpe from reviews.
The chart below shows proved oil and natural gas reserves, which include proved reserves and
proved developed reserves.
Proved reserves of Venezuela at December 31, 2007, stated in millions of barrels (MMBls),
unless otherwise stated.
2007
2006
2005
2004
2003
Proved reserves
Condensed
Light
Medium
Heavy
Extra-heavy (1)
Total Oil
Ration
(Years)
1,826
9,981
11,939
17,458
58,173
99,377
1,870
9,735
12,345
17,391
45,983
87,324
1,833
9,747
12,456
17,533
38,443
80,012
1,867
9,830
12,487
17,708
38,690
80,582
1,919
10,078
12,340
17,617
35,186
77,140
87
73
67
69
74
Reserves/Production
Natural gas (MMMPCN) (2)
Natural gas (Bpe) (2)
170,920 166,249 152,264
29,469 28,664 26,252
151,479 150,040
26,117 25,869
Total hydrocarbons in Bpe
128,846 115,988 106,264
106,699 103,009
Proved reserves developed
Condensed
Light
Medium
Heavy
Extra-heavy
Total Oil
Natural gas (MMMPC)
Natural gas (Bpe)
Total hydrocarbons in Bpe
381
2,404
3,747
5,024
3,981
15,537
407
2,760
4,812
5,333
6,308
19,620
321
2,359
5,026
5,406
3,826
16,938
105,154 110,108 106,726
18,130 18,985 18,401
387
2,772
5,471
4,569
4,076
17,275
416
2,760
5,419
4,683
3,010
16,288
106,035 105,030
18,282 18,109
33,667
38,605
35,339
35,557
34,397
16%
62%
22%
66%
21%
70%
21%
70%
21%
70%
Percentage of total reserves
developed vs. total proved
reserves (3)
Oil
Natural gas
(1) Proved reserves of extra-heavy oil located in the Orinoco Oil Belt have a low degree of
development and amount, as of the December 2007, to 56,485 MMBls approximately.
46
(2) Includes 18,899 MMMPCN, 16,447 MMMPCN, 13,819 MMMPCN, 13,649 MMMPCN and
12,427 MMMPCN in each of 2007, 2006, 2005, 2004 and 2003, respectively, associated with
extra-heavy crude oil.
(3) Developed proved reserves divided by total proved reserves.
New Hydrocarbon Discoveries
In 2007, a new discovery was made in the Eastern Basin of Venezuela of hydrocarbons in well
TRV 3 of 159.3 MMBls of oil and 686.6 MMMPCN of associated gas, as well as from the well
TRV 4 of 92,5 MMBls and 464.7 MMMPCN of gas.
With regards to the Maracaibo-Falcón basin, the most noticeable discoveries were made in wells
CEI 3 and CEI 4, which add reserves amounting to 85.5 MMBls and 11.1 MMMPCN of gas the
former and 51.4 MMBls and 15.1 MMMPCN the latter; in the Barinas-Apure basin there were
new reserves from discovery in well BOR 31, which added 10.2 MMBls in oil and 2.7 MMMPCN
in gas.
Operations
There is an active extraction and development program designed to increase our proved
reserves of oil and production capacity. The efforts of PDVSA have been successful in
increasing its proved reserves of oil and natural gas over recent years. Normally, extraction and
development activities are conducted in the basins Maracaibo-Falcón, Barinas-Apure, Eastern,
and now operating activities are being launched in the basin of Carúpano, which will have
production beginning in 2008. Furthermore, extensive extraction and development activities are
being carried out in the Orinoco Oil Belt of the Eastern Basin and other basins, independently or
jointly with foreign partners, through ”Empresas Mixtas”.
In 2007, extraction disbursements were used mainly for drilling 11 exploratory wells and
purchasing 762 square kilometers of 3D seismic lines, with an investment of 199 MMUS$,
distributed by budget categories into 37 MMUS$ in geophysics, 131 MMUS$ in exploratory
drilling and 31 MMUS$ in other Investments.
The following chart summarizes the drilling activities for the periods indicated below:
Drilling activities of PDVSA for the year ended December 31, 2007, (number of wells)
2007
2006
2005
2004
2003
5
1
-3
2
11
4
1
5
2
7
19
5
-2
8
1
16
1
-1
2
1
5
3
1
-3
-7
8
10
6
1
5
566
543
379
313
206
Exploratory wells
Completed
Suspended
Under evaluation
In progress
Dry or abandoned
Total
Of which are carry-overs
Development wells drilled (1)
(1) Includes wells in progress, even if activities had begun in previous years. These wells are divided
as follows: 467 wells of PDVSA Petróleo, 58 wells of PDVSA Gas, 41 wells of ”Empresas
Mixtas” and 459 wells of ”Empresas Mixtas” of the Oil Belt, for a total of 1,025 wells.
In 2007 the sum of 2,233 MMUS$ was invested in 566 development wells.
47
Drilling Rig Nationalization Plan
Considering that the Venezuelan oil business has been marked by technological dependence,
after 30 years of nationalization of the Oil Industry and that, for strategic reasons and domestic
security, Venezuela must have its own fleet of equipment and drilling rigs to decrease
vulnerability arising from hiring third parties, in 2007 a nationalization plan of drilling rigs was
launched as well as new PDVSA subsidiaries were created, namely, PDVSA Industrial and
PDVSA Servicios, whose conceptualization, development, governing bodies and staff began its
operations with the staff of PDVSA.
The main objective of these subsidiaries is to achieve full technological sovereignty to service
wells and manufacture goods, materials, components and equipment in the sectors of
hydrocarbons, electricity and home, which are required not only to perform, operate and
maintain projects from the Plan to Sow Petroleum, but also to boost domestic development.
The foregoing is based, on the one hand, on the accelerated growth of the drilling activity, with a
subsequent increase in demand of equipment and services (which implies a decrease in their
availability and increased associated costs), and on the other, on the fact that 75% of the drilling
rigs are outsourced mainly from transnational companies (65%). Of the drilling rigs owned by the
company, 45% were inactive at the beginning of the year because of repair requirements and
12% were in inoperable conditions.
These results led to a series of actions, including the following:
•
Nationalization of operations of 41 drilling rigs owned by PDVSA but managed by third
parties, thus achieving social justice by adding new workers to the payroll of PDVSA
new workers. Therefore, operational sovereignty is recovered, as well as with regards
to supervision and maintenance of assets owned by PDVSA; this step increases
operating reliability of equipment and reduces operating costs.
•
Creation of the ”Empresa Mixta” for assembly and manufacturing of drilling rigs in
Venezuela with the company CNPC, developed by the new subsidiary PDVSA
Industrial.
•
Creation and beginning of operations of ”Empresa Mixta”for the seismic purchases with
the company Belorusneft, developed by the new subsidiary PDVSA Servicios.
b. Production
The potential for crude oil production at a nation level at the end of 2007 reached a total of 3,561
MBPD, which includes 2,583 MBPD corresponding to direct management (1,409 MBPD in the
Eastern region, 101 MBPD at the South Central region and 1,073 MBPD Western Region), 352
MBPD ”Empresas Mixtas” (former operating agreements) and 626 MBPD companies from
operating agreements in the Orinoco Oil Belt.
48
Recorded Production of Crude Oil at a Domestic Level for the Years Ended December 31,
(in thousands of barrels per day):
2007
Own production of crude oil (1)
Operating agreements
"Empresas Mixtas"
Risk exploration agreements
PDVSA's interest in joint ventures of
the Orinoco Oil Belt (2)
° PDVSA Sincor
° PDVSA Cerro Negro
° Corpoguanipa
° Petrozuata
Extra-heavy crude oil (less than 8 API degrees API)
Total own production of PDVSA
Interest of third parties in joint ventures of the
Orinoco Oil Belt
° PDVSA Sincor
° PDVSA Cerro Negro
° Corpoguanipa
° Petrozuata
Domestic Production
2006
2005
2004
2003
2,292
316
-
2,315
116
241
1
2,109
497
5
2,066
518
1
1,864
465
-
62
61
81
63
267
29
65
48
47
59
219
15
73
51
50
60
234
61
66
50
32
62
210
38
60
42
20
52
174
59
2,904
2,907
2,906
2,833
2,562
101
34
75
36
246
107
67
109
60
343
118
71
118
61
368
108
70
75
62
315
98
59
46
52
255
3,150
3,250
3,274
3,148
2,817
(1)
Includes plant-condensed crude oil of 7 MBPD in 2007 and 5 MBPD in 2006 and in 2005. Includes 8 MBPD of
Sinovensa corresponding to the first four-month term.
(2)
Product of the migration process of theoperating agreements of the Orinoco Oil Belt to ”Empresas Mixtas”
beginning in July 2007, the interest of PDVSA Cerro Negro went from 41.67% to 83.33%; theequity participation
of Corpoguanipa went from 30% to 70% and since October 2007 the participation of Petrozuata went from
49.9% to 100%.
In 2007, the total recorded production of oil in Venezuela amounted to 3,150 MBPD, which
includes 2,904 MBPD of the own production of PDVSA and 246 MBPD of the interest of third
parties in the operating agreements of the Orinoco Oil Belt.
The average own production of oil attributable to PDVSA in 2007 was 2,904 MBPD, including
267 MBPD corresponding to the interest of PDVSA in the operating agreements of the Orinoco
Oil Belt. In 2007, our average cost of oil production amounted to approximately 4.93 $/Bl.
On average, at the end of December 2007, our production of natural gas was 6,958 MMPCD (or
1,199 over the base of thousands of barrels equivalent to oil, from which 2,903 MMPCD, were
re-injected for the purpose of preserving the pressure of reservoirs. The net production of
natural gas was 3,775 MMPCD.
The chart below summarizes the daily production of oil and natural gas of PDVSA, according to
type, basin, sales price and average production cost of the year specified.
49
The production of PDVSA, the sales price and the average production cost in the year
ended December 31, 2007 (in thousands of barrels per day, unless otherwise stated):
2007
2006
2005
2004
2003
Oil Production
Condensed
Light
Medium
Heavy + Extra Heavy (1)
Total Oil
Natural gas liquids
Total Oil and LGN
133
589
911
1,271
2,904
172
3,076
125
642
1,020
1,120
2,907
177
3,084
18
776
999
1,113
2,906
165
3,071
25
767
1,001
1,040
2,833
166
2,999
22
727
914
899
2,562
144
2,706
Natural gas (MMPCD)
Gross Production
6,958
7,072
7,008
6,566
5,938
Less: re-injected
Net natural gas (MMPCD)
Net natural gas (MBPDPE)
Total Hydrocarbons in Bpe
2,903
4,055
699
3,775
3,019
4,053
699
3,783
2,920
4,088
705
3,776
2,747
3,819
658
3,657
2,506
3,432
592
3,298
Production of Oil of PDVSA
according to Basin
Maracaibo-Falcón
Barinas-Apure
Eastern
Total Oil
1,130
82
1,692
2,904
1,180
87
1,640
2,907
1,187
88
1,631
2,906
1,238
85
1,510
2,833
1,121
86
1,355
2,562
Production of Natural Gas
according to Basin (MMPCD)
Maracaibo-Falcón
Barinas-Apure
Eastern
Total Gas
1,067
59
5,832
6,958
1,123
28
5,921
7,072
1,255
17
5,736
7,008
1,187
4
5,375
6,566
1,031
6
4,901
5,938
64.74
55.21
45.32
32.22
24.35
1.21
1.13
0.84
0.74
0.61
4.93
4.34
3.93
3.77
3.85
4.88
4.01
3.13
3.29
2.06
Average Export Price of Basket
($/Bl)
Sales Price of natural gas
($ per MPC)
Average
Production
cost
($/Bpe) (3)
Includes former Joint Ventures –
Empresas Mixtas
Excludes former Joint Ventures –
Empresas Mixtas
(1)
Includes aliquot of Petrozuata and 8° API crude oil.
(2)
Includes sales to subsidiaries and affiliates.
(3)
The production cost per barrel (for oil, natural gas and liquefied natural gas) is determined by dividing the sum of
direct and indirect production costs (excluding depreciation and depletion), by total production volumes of oil,
natural gas and liquefied natural gas.
50
Manufacturing of Orimulsión®
Under the policies of Full Petroleum Sovereignty and to enhance the value of natural resources,
the State decided in the year 2006 to eliminate manufacturing of Orimulsión® in Venezuela, to
use extra-heavy crude oil for mixes and obtain greater value for natural resources.
With this new direction, Bitor stopped producing Orimulsión® at its module located in Morichal
(Monagas State) in the first quarter of 2006 and Sinovensa stopped manufacturing Orimulsión®
at its module located in José (Anzoátegui State) on December 31, 2006.
Bitor entered into negotiations with customer who it had long-term Orimulsión® supply
agreements. In this connection, certain customers from the negotiations and clauses established
in existing contracts are being supplied a substitute fuel, Fuel Oil, instead of Orimulsión®. As of
December 31, 2007, this fuel is supplied only to Bitor América and Power Seraya.
Negotiations and agreements were executed with other customer to terminate existing
agreements. It is believed that subsidiary Bitor will be declared inactive in 2008.
c.
Third-Party Associations
In accordance with instructions by national government and the guidelines of MENPET and
PDVSA, the process of entering into agreements with the participants of Operating Agreements,
those at the Orinoco Oil Belt and those of Risk Exploration, to convert them into “Empresas
Mixtas”, and generate new business, which has been a historic step in reaffirming oil
sovereignty.
The purpose of all these “Empresas Mixtas” is to carry out primary exploration activities in
search of hydrocarbon wells, extraction in natural state, recovery, transportation and initial
storage.
It should be noted that the 21 “Empresas Mixtas” replacing the Operating Agreements and the
new “Empresas Mixtas” of the Orinoco Oil Belt produce over 800 MBPD of crude oil in
association with third-parties. This evidences PDVSA's willingness not continue to work with
national and international private investment, maintaining national sovereignty and majority
control by state, as set forth by the Organic Hydrocarbons Law .
Migration of Operating Agreements to “Empresas Mixtas”
In 2005, the Ministry of Popular Power for Energy and Petroleum (MENPET) performed legal
and technical analyses on the position of the existing 32 Operating Agreements and concluded
that these had, among other elements, fee clauses based on the volume and price of
hydrocarbons produced in those areas, which infringed upon the nature of a simple service
agreement and was incoherent with the provisions of the Organic Hydrocarbons Law.
Within the policies of the Full Petroleum Sovereignty, on April 12, 2005, MENPET issued
instructions to the Board of Directors of PDVSA so that the omissions or errors of each and
every Operating Agreements may be fixed, and the legal means to terminate them within a term
not greater than one year were analyzed. In the last quarter of 2005, all of the companies
involved in these Operating Agreements entered into transitory agreements for the purpose of
reviewing the original agreements and incorporating the new “Empresas Mixtas”.
On March 31, 2006, the National Assembly approved and published in Official Gazette number
38,410 the “Terms and Conditions for Incorporation and Operation of “Empresas Mixtas”; as well
as the template for the “Agreement for Conversion into a “Empresa Mixta”” to be entered into
with the interested private entities, pursuant to Official Gazette number 38,430. On that same
date, the respective “Memoranda of Agreement” were executed with operators for migration of
51
Operating Agreements to “Empresas Mixtas”, except for two operators who voluntarily abstained
from signing said memoranda.
The aforementioned “Agreement for Conversion into “Empresas Mixta” accorded the automatic
termination of the operator on Operating Agreements as of March 31, 2006, without having any
right to compensation, except for payments corresponding to the first quarter of 2006 or rights to
any claim relating to such termination. In addition, it was accorded that the assets operated as
of said date by these Operating Agreements were to be immediately made available to the
“Empresas Mixtas” for development of its activities, and their ownership would be transferred
subsequently.
Background of Operating Agreements
In the last decade of the past century, a process named Open Oil-Related Activities was
launched, and its purpose was aimed at allowing private multinational companies to perform oilrelated activities in detriment of national interest. In this connection, the first, second and third
round of Operating Agreements were signed by PDVSA in the years 1992, 1993 and 1997,
respectively. These Operating Agreements were aimed at reactivating and operating 32 oil
fields for a maximum term of 20 years.
Under the conditions regulating these Operating Agreements, PDVSA had to pay operating and
capital fees, capital interest and production incentives to operators of these Operating
Agreements, which made them the extremely onerous.
As a result of its high costs, this business structure adversely affected PDVSA, since it was
structured and performed openly in favor of Operators. In certain cases the amounts paid to
Operators were much higher than the costs invested for production purposes, which generated
significant earnings for private partners, who were mainly multinational companies. In certain
agreements, the earnings obtained by operators were greater than the earnings of PDVSA for
the sale of crude oil, a disproportionate situation in detriment of PDVSA and the Venezuelan
state.
Furthermore, the agreements contained clauses that could be construed differently, especially
with regards to the recovery of the expense items of Operations, which were in several cases
recognized without sufficient justification or reasonableness of costs.
The following are some of the weaknesses in handling payments to Operating Agreements:
•
Operating Agreements, as conceived, were not a good business for the nation. In the
contracts of the 1st and 2nd round, payment of royalties was not accorded, so operators were
exonerated of this payment to the Treasury. Furthermore, companies avoided payment of
income tax, alleging that capital not recovered represented an expense that may be
deducted to determine said tax.
•
Most of the risk was undertaken by PDVSA. Because the contracts were signed under rates
and price formulas that involved international crude oil indicators, which in many cases were
higher than the sales price of PDVSA, any decrease in the index of domestic prices resulted
in a disadvantage over the resulting prices of the formulas applied in the agreements.
Furthermore, these agreements did not include any type of cutbacks in production and, in
the case of the 1st and 2nd round, not even those accorded by OPEC; in this connection,
these companies were not compelled to comply with the cutback guidelines and, therefore,
they had to be paid for all production previously committed. Likewise, PDVSA had to pay
royalties over the agreements of the 1st and 2nd round, so the operator ended up not paying
any sums to the state in spite of the large earnings from extraction at the fields. Likewise,
these contracts were not subject to Venezuelan laws relating to contracting, so they were
not subject to the Bidding Law, which allowed them to engage the services of related
52
parties or operating partners, through which payments recognized for services, work and
assets acquired returned once again to their capital stock.
•
The expenses and investment criteria used in the 1st and 2nd round were not compatible with
the accounting systems of PDVSA. Even if in PDVSA there is a classification of costs for
investments and another one for expenses, certain elements these contracts were deemed
as capital, even though they were recorded as expenses by PDVSA. This allowed the
operator to recover, through operating costs (Opfee) or through capital (Capfee), items
referring to operating expenses.
In summary, the Operating Agreements in the conditions they were originally executed
resembled a Trojan Horse, that is, an excellent business for Operators and a bad business for
PDVSA and the nation.
Migration Process to “Empresas Mixtas”
In accordance with instructions issued by MENPET, to comply with the provisions of the Organic
Hydrocarbons Law, under which PDVSA must have a majority interest in oil businesses with
third parties, “Empresas Mixtas” were established. Their main activities involve exploration,
extraction and development of fields migrated from Operating Agreements, and said production
will be sold to PDVSA and compensation will be made according to international indicators per
type of crude oil.
From the earnings obtained in those sales, “Empresas Mixtas” will issue their annual results so
that the earnings are distributed amongst the partners and PDVSA obtains a majority share of
an average 61.85%.
Under the “Terms and Conditions for Incorporation of “Empresas Mixtas”, approved by the
National Assembly, said companies operated in a transition period from April 1, 2006 to the date
in which they were formally incorporated. Once incorporated, the contractual terms were applied
retroactively since April 1, 2006. Nowadays, the following 21 “Empresas Mixtas” have been
created, which have earned the respective official rights to perform primary activities, in
accordance with the Organic Hydrocarbons Law
53
In this new option of the oil business, PDVSA participates with private national and international
partners and holds a majority interest; therefore, the Board of Directors, Operating
Managements and Administration in most of the companies are controlled by PDVSA. The
number of members in the Boards of Directors is five, from which two (2) are directors of
PDVSA, two (2) are directors representing partner B and the President is a member of PDVSA.
This staff with management and administrative positions are subject to evaluation and approval
by Corporación Venezolana del Petróleo, S.A. (CVP). Consequently, all aspects relating to
preparation of budgets, approval of disbursements, investments, costs, etc. are controlled and
approved by PDVSA. Marketing is planned and controlled by PDVSA in its entirety.
The duration of “Empresas Mixtas” is established in accordance with the Transfer Decree. In
this connection, these may perform primary activities for a term of 20 years beginning on the
date of publication in Official Gazette of this decree. At the end of this term, if no extension is
granted, all assets will become property of the Venezuelan state.
54
“Empresas Mixtas” Vs. Operating Agreements
Vs
Operating Agreements
"Empresas Mixtas"
◄ Illegal, they were never approved by National
Congress.
◄ These were discussed and approved by the National
Assembly.
◄ Infringed upon article 1 of the Nationalization Law.
◄ Based on article 12 of theConstitution of The Bolivarian
Republic of Venezuela and article 22 of the Organic
Hydrocarbons Law, which establish ownership by the state
of hydrocarbon wells and allow participation of thrid parties
in " Empresas Mixtas" in which the state will hold an
interest greater than 50%.
◄ Favored the multinational company model,
maximizing the earnings of third parties in detriment of
the state, the Treasury, PDVSA and the Venezuelan
people.
◄ They are similar to public companies, maximizing
earnings for the state, the Treasury and the Venezuelan
people.
◄ Denied the sovereign right to regulate the extraction
rate of natural, non-renewable resources: royalties.
◄Secure the sovereign right to compensation for extraction
of non-renewable natural resources: fair royalties.
◄ Forced any contractual dispute to be resolved in the
courts of New York, United States. Therefore, they
infringed upon the national sovereignty.
◄ Authority of national courts is established.
◄ Recorded high operating Indexed cost added to oilbarrel prices.
◄ Decreased expenses, and increased royalties and
taxes.
◄ They were not aligned with national development
plans.
◄ Aligned with the Plan to Sow Petroleum
◄The Agreements of the 1st and 2nd round do not
contemplate production cutbacks, not even those set
forth by OPEC.
◄ Production is subject to corporate policies and
guidelines of MENPET.
◄ Represented privatization of 500 thousand oil
barrels per day.
◄ Rescue Full Petroleum Sovereignty.
Decreased Actual Cost of PDVSA in 2006 and 2007
Had the Operating Agreements still been active, in view of the high crude-oil prices in 2006 and
2007, payments required would have reached 7.85 billion dollars. In this same period, the costs
and expenses of “Empresas Mixtas”, including the interest of minority stockholders in their net
earnings, amounted to 5.13 billion dollars. As a result of the decision of migrating Operating
Agreements to “Empresas Mixtas”, PDVSA managed savings on expenses of 2.72 billion
dollars.
Increased Tax Collection
Under the Full Petroleum Sovereignty policies, in addition to the migration of all third-party
association structures to “Empresas Mixtas”, beginning in 2002, the Government of Venezuela
performed specific actions to regulate the primary activities of the oil sector, to maximize the
55
value of our resources and to increase tax collection on these activities, in benefit of the state
and the people of Venezuela.
These actions include an increase in the rate of royalties for all primary crude-oil extraction
activities, as well as the creation of the Extraction Tax, Export Registration Tax and Surface Tax,
which led to a fiscal collection, from 2002 to 2007, of over 40.41billion dollars, as indicated
below:
EFFECT MMUS$
CONCEPT
INCREASED ROYALTIES FROM 1% TO 16 2/3% PAID BY
OIL BELT ASSOCIATIONS (Oct 2004)
CREATION OF EXTRACTION TAX (June 2006)
CREATION OF EXPORT REGISTRATION TAX
(August 2006)
SURFACE TAX (2003)
5,278
4,420
49
483
INCREASED ROYALTIES FROM 16 2/3% TO 30% PAID
BY PDVSA (2002)
30,178
TOTAL EFFECT ON NATION
40,408
Involvement of “Empresas Mixtas” in Social Development
Another aspect differentiating “Empresas Mixtas” from old Operating Agreements is the social
investment policy toward communities located in the influential areas of oil fields.
It should be noted that responsibility of “Empresas Mixtas” includes leveraging the Core Areas
for Endogenous Development in the locations near the oil fields, as well as to support all of the
social programs through which the national government intends to raise the living standards of
the population with regards to education, health, roads and general services, and incorporate it
to the national strategy for sustainable development fully aligned with PDVSA and its
subsidiaries. At present, PDVSA and the “Empresas Mixtas” replacing the old Operating
Agreements work together with the national government, communities, mayor’s offices and state
governments in a clear strategy for social development.
In the years 2003, 2004 and 2005, the former Operating Agreements made contributions for
social development of 6, 11 and 12 million dollars, respectively, for a total of 29 million dollars
over that three (3) year term.
In 2007 alone, “Empresas Mixtas” performed a social development expense of 93 million dollars.
Taking into account the contributions of 2006, of 13 million dollars, the total contributions for
social development by “Empresas Mixtas” over the last two (2) years was 106 million dollars.
Overall, with the migration of Operating Agreements to “Empresas Mixtas”, under the policies of
Full Petroleum Sovereignty, PDVSA has regained control over those operations, lowered its
expenses and the state has increased its tax collection and benefited communities through
social-development programs.
Production of “Empresas Mixtas”
In 2007, the production of crude-oil of “Empresas Mixtas” was approximately 316 MBPD. In the
“Empresas Mixtas” of the east region, a production of crude oil of 95 MBPD was obtained and the
production of gas was 291.5 MMPCD. Also, in the “Empresas Mixtas” of the west region, the
production of crude-oil was 221 MBPD and gas was 172.5 MMPCD.
56
Process for Migration of Operating Agreements of the Orinoco Oil Belt and RiskExploration Agreements and Shared-Profit Agreements to “Empresas Mixtas”
Under the policies of “Full Petroleum Sovereignty” and for the purpose of putting an end to
privatization of the Venezuelan oil industry, launched in the 1990’s, on February 26, 2007, the
Government of the Bolivarian Republic of Venezuela issued Decree-Law 5,200, containing the e
Law of Migration to “Empresas Mixtas” of the Operating Agreements of the Orinoco Oil Belt; as
well as the Risk Exploration Agreements and Shared-Profits Agreements, under which
associations Petrolera Zuata, S.A. Sincrudos de Oriente, S.A. Petrolera Cerro Negro, S.A. and
Petrolera Hamaca, C.A. had to become “Empresas Mixtas” in which subsidiary CVP or any other
specified subsidiary must hold an interest of at least 60% in accordance with the provisions of
the Organic Hydrocarbons Law .
Likewise, the existing Risk-Exploration and Shared-Profit Agreements in the Gulf of Paria West,
Gulf of Paria East and the Lac Ceiba Block, as well as the company named Orifuels SINOVEN,
S.A. (SINOVENSA), must be transformed into “Empresas Mxtas” under the same structure
indicated above.
As a result, transitory commissions were created for each entity under the two aforementioned
modalities, which joined their board of directors to ensure the transfer of control of all their
activities to the new state companies. Likewise, this Decree-Law granted its participants and
partners of the agreements a term beginning on the date of its publication to agree on terms and
conditions for their possible participation in the new “Empresas Mixtas”. Also, an additional term
was granted to submit those terms and conditions to the National Assembly to obtain
authorization in accordance with the provisions of the Organic Hydrocarbons Law.
Once this term has elapsed, in cases in which no agreement was reached, PDVSA was
appointed to undertake directly all the activities performed by the aforementioned associations
for the purpose of preserving continuity by virtue of public and social interest.
On June 26, 2007, the corresponding memoranda of understanding were signed in which the
participants agreed to the terms of the migration.
The nationalization of the Orinoco Oil Belt was performed through a migration process
developed in accordance with a previously established time table that ended successfully, which
included the execution of the Memoranda of Understanding with 11 of the 13 foreign companies
operating in the Orinoco Oil Belt and the Risk-Exploration and Shared-Profit Agreements.
Finally, of the partners involved, only two did not accept the migration agreements and are
currently seeking arbitration.
Subsequently, in Official Gazette number 38,801, the incorporation of seven “Empresas Mixtas”
replacing former business in this segment was approved.
57
"Empresa Mixta"
Petromonagas, S.A.
Petrocedeño, S.A.
Petropiar, S.A.
PDVSA's
Interest (%)
83.33
60.00
Area or Agreement
Cerro Negro
CVP Partners
Veba Oil & Gas Cerro Negro GmbH
Sincor
Hamaca
Statoil Sincor AS - Total Fina
Chevron Orinoco Holdings B.V.
Sinopec International Petroleum Exploration and
Production Corporation - Ineparia Inc
ENI Venezuela B.V.
ENI Venezuela B.V. - Ineparia Inc
CNPC Venezuela B.V.
Petrolera Paria, S.A.
70.00
60.00
Golfo de Paria East
Petrosucre, S.A.
Petrolera Güiria, S.A.
Petrozumano, S.A.
74.00
64.25
60.00
Golfo de Paria West
Golfo de Paria Central
Zumano
Three of these companies, Petromonagas, Petrocedeño and Petropiar, correspond respectively
to former Operating Agreements of the Orinoco Oil Belt named Petrolera Cerro Negro, S.A.,
Sincrudos de Oriente, S.A. and Petrolera Hamaca, C.A. In these new “Empresas Mixtas”, CVP
holds a majority interest in representation of the state. In the case of Petrolera Zuata, S.A.,
PDVSA went from an interest of 49.9% to 100%, which resulted in total control of the business.
With regards to the results of 2007 of the four (4) companies operating in the Orinoco Oil Belt, a
production of extra-heavy crude oil average of 513 MBPD was reached, in which 456 MBPD was
upgraded crude oil. Likewise, a gross income from sales amounting to 12,854 MMUS$ was
obtained, in which 12,585 MMUS$ was upgraded crude oil and 269 MMUS$ was from sale of
byproducts.
The “Empresas Mixtas”, replacing the Risk-Exploration and Shared-Profit Agreements, are
Petrolera Paria, Petrosucre and Petrolera Güiria, respectively, which supply the extinct
agreements of called Golfo de Paria Este, Golfo de Paria Oeste and Golfo de Paria Central. In
the case of La Ceiba, PDVSA holds an interest of 100%.
This new association between PDVSA and its private partners is aimed at exploration, recovery,
transportation and storage of hydrocarbons in accordance with article 9 of the related current
Organic Law.
Petrolera Güiria, together with already incorporated companies Petrolera Paria and Petrosucre,
will determine through its gas and crude-oil exploration and production activities, the growth in
depressed zones of the Golfo de Paria and the boost of sustainable, economic and social
development of the east region of the country to improve the living standards of its population.
The “Empresas Mixtas” include Petrozumano, a company 60% owned by CVP and the
remaining 40% by China National Petroleum Corporation (CNPC). This decision stems from
previous bilateral agreements executed by both governments in which CPPC was directly
allocated directly the Zumano field in the east region of the country. PDVSA is in conversations
with CNPC to agree on a new structure to incorporate a “Empresa Mixta”.
d. Magna Reserva Project
The Magna Reserva Project was assigned by MENPET to CVP to quantify and certify the
reserves of the Orinoco Oil Belt. The strategic guidelines established are to turn the Belt into an
engine for the economic, social, industrial, technological and sustainable development of the
country, through valuation and optimal development of its hydrocarbon resources, within the
legal framework and the plan for the development of the nation.
The Orinoco Oil Belt has Original Oil on Site of 1,360 MMMBls. The estimated recoverable
reserves based on the recovery factor are 20% in accordance with MENPET guidelines, which is
approximately 272 MMMBls, of which 37 MMMBls have been certified. Reserves pending
certification are approximately 235 MMMBls prior to the beginning of the Quantification Project
58
halfway through 2005. By 2006, the project achieved, before MENPET, certification of a total of
7.6 MMMBls in the Carabobo area and in 2007, incorporated reserves were approximately 12.4
MMMBls in the same area. The total reserves certified for the Carabobo area are 25.9 MMMBls
including the approved reserves and those incorporated in 2006 and 2007.
Aditionally, in order to quantify and certify the reserves, the Belt was divided into four large
areas: Boyacá, Junín, Ayacucho and Carabobo, and these in turn into 28 blocks from which 16
blocks are quantified in a joint effort between CVP and the professionals from 18 companies
executing the memoranda of understanding with the national government (see chart below). The
remainder of the blocks will be quantified through efforts by CVP, INTEVEP and PDVSA
Petróleo.
In the Orinoco Oil Belt, there is a significant volume of Original Gas on Site, which denotes the
possibility of self-supply in future extraction strategies in said area, since large projects of steam
injection area planned requiring significant volumes of gas.
Qualification Agreements of the Magna Reserva Project
AREA
Boyacá
Junín
Ayacucho
Carabobo
COUNTRY
Cuba
Malaysia
Portugal
Belarus
Vietnam
Russia
China
Spain
China
India
Russia
Russia
Ecuador
Chile
Argentina
Uruguay
Iran
Brazil
59
COMPANY
Cupet
Petronas
Galp Energía
Belorusneft
Petrovietnam
Lukoil
Cnpc
Repsol YPF
Sinopec
Ongc
Gasprom
Tnk-Bp
Petroecuador
Enap
Ancap
Enarsa
Petropars
Petrobras
The following information on wells related to the year 2007:
With regards to seismic, work began in 2007 with plans of 2,700 Km of 2D seismic, which was
fully completed.
The chart below shows the incorporation plan of the Magna Reserva Project 2008-2009.
250
235
231
205
200
132 147
150
87
100
65
68
Incorporation Date
60
Oct-09
Aug-09
Jun-09
Apr-09
Feb-09
Dec-08
Oct-08
Aug-08
Jun-08
0
95
50
39 44
Apr-08
50
154
108
Jan-08
Incorporated Reserves (MMMB
MAGNA RESERVE PROJECT
2. Gas
PDVSA Gas is a subsidiary involved in the whole production chain of the natural gas industry,
ensuring maximum use of this resource to encourage industrial development and raise the living
standards of the Venezuelan people.
Rich natural gas is obtained from production in the operating areas of Anaco and San Tomé, as
well as the acquisition of the Exploration and Production Division of PDVSA Petróleo, S.A. and
“Empresas Mixtas”. Once the natural gas is processed in the plants, three products are
obtained: methane gas, ethane and natural gas liquids.
Methane is sold to household, commercial and industrial markets including the steel,
petrochemical, aluminum, cement, electricity, oil and other sectors. Ethane is sold to El Tablazo
Petrochemical Complex. Natural gas liquids are marketed in different sectors: petrochemical
industrial, national, oil and exports.
With regards to gas and crude-oil production activities, PDVSA Gas has 34 fields in the area of
Anaco and 22 in San Tomé for a total of 56 fields, 710 wells, 49 compression plants and 17
drilling rigs in operation.
Likewise, for extraction and processing of natural gas liquids, it has extraction plants in the East
area : Extracción Jusepín, San Joaquín, Santa Bárbara, Refrigeración San Joaquín and ACCRO
III, Santa Bárbara and ACCRO IV, San Joaquín and Fractioning Plant Jose. The following
extraction plants are operating In the west area: Extracción: El Tablazo I / II, Tía Juana I / II,
Lama Proceso, Lamar Líquido and GLP-5, whose facilities are operated from Exploration and
Production and Fractioning Plants Bajo Grande and Ulé, with a processing capacity of 4,895
MMPCD and 282 MBPD of fractioning. There is also 381 km of poly-duct available.
For transmission and distribution of methane gas, a network of gas pipelines is operated of
4,267 Km of pipelines with different diameters, with Anaco – Barquisimeto; Anaco – Jose /
Anaco - Puerto La Cruz; Anaco – Puerto Ordaz; Ulé – Amuay; Costa – Oeste and Gasoducto
Transoceánico being the main pipeline systems. These facilities serve a portfolio of 1,260
industrial customers at a national level and 220,219 household and commercial customers in the
Metropolitan area of Caracas.
Operating Results
•
Production of Gas and Crude Oil
The average production of natural gas was 1,512.9 MMCFD, which represents a light decrease
by 4% with regards to 2006, among other things resulting from the decrease in the requirements
of methane gas in the domestic market and unscheduled breaks in the Gas Injection System in
the North of Monagas States.
The average production of crude-oil associated to gas amounted to 46.9 MBPD, recorded a
growth by 43% with regards to 2006 as a result of the incorporation in the first state of 22 of the
58 gas fields in San Tomé allocated by MENPET to PDVSA Gas. The remaining fields in San
Tomé are expected to be fully transferred by the end of 2008.
With regards to drilling, recondition and completion activities (RA / RC) of wells, a total of 122
wells were serviced, from which 58 wells correspond to drilling activities and 64 to RA / RC. By
the end of 2007, a potential in the production of gas is reached of 2,380.7 MMPCD, which
61
represents an estimated increase by 5% compared with 2006. The potential for crude-oil
production reached 66.7 MBPD.
•
Production of Natural Gas Liquids
Production of natural gas liquids reached a volume of 171.9 MBPD, a slight decrease compared
with 2006.
•
Sale of Natural Gas Liquids
The sales of natural gas liquids (NGL) were 176.9 MBPD, from which 109.8 MBPD (62%) were
used in the local market and 67.1 (38%) in the export market. The petrochemical sector
significantly contributed with 42.2 MBPD, which represents 24% of overall sales. This level of
sales was similar to that of 2006.
It should be noted that throughout the term, production and delivery have been consistent,
without interruptions, of Liquefied Petroleum Gas (LPG) required by home and business sectors
of the domestic market. This volume reached a sum of 36.4 MBPD, which represents 21% of
sales and is 3% greater than the volume supplied in 2006.
In addition, efforts were made to mitigate the deficit in supply of LPG to communities by private
distributors. These actions include the following:
•
Delivery of LPG cylinders to distributors under loans for consumption to minimize supply
shortages caused by poor conditions and lack of maintenance.
•
Financial support to companies distributing LPG based in changes to current collection
policies. These new policies financing from May to December and collection scheduled
beginning for invoices after January 2008. These efforts contribute to the cash flows of
these companies so that they can meet their payroll and maintenance commitments.
With regards to exports of natural gas liquids, a decrease of 6% was recorded because of
increased delivery of LPG to the domestic market and less availability of products because of
decreased production. These exports were distributed as follows: propane and butane were
directed mainly to Central America, the Caribbean and South America, whereas natural gasoline
was exported mainly to North America. The trend is to increase presence in the Caribbean as
part of international policies of the state, instrumented through PETROCARIBE.
•
Sale of Methane Gas
To satisfy the demand of methane gas of the domestic market, as well as the consumption of the
oil sector, this year 2,209.2 MMPCD of methane gas was delivered to the sales system. This
volume shows a variation of 80.8 MMPCD under the volumes transported in 2006 because of
lower consumption in the steel, petrochemical and refining sectors.
Gasification of Cities
With regards to the Gasification of Cities Project, it should be noted that in the year 2007, a total
of 57 communities received gas in the states of Monagas, Yaracuy, Aragua, Falcón, Miranda,
Anzoátegui, Lara, Carabobo and Capital District, with Yaracuy being the state with the most
communities favored at 15 communities. 335 kilometers of network pipelines and 265.54
kilometers of internal pipelines have been installed to benefit 10,210 families, of which 4,740
have direct gas and 5,740 have installations and pending delivery of the service. The number of
direct and indirect jobs generated in the year was 2,163 and 6,489 respectively; additionally, in
developing the social inclusion policies in the employment area, 24 cooperatives ascribed to the
62
social production company program of PDVSA, from which 23 were in charge of installing
internal lines and 1 was in charge of installing networks.
Other achievements
2007 was a strategic year for PDVSA Gas, with the assignment of Gran Mariscal de Ayacucho
Industrial Complex and 58 fields in San Tomé, implementation of the Section ColombiaVenezuela of Trans-Caribbean Pipeline Gas Antonio Ricaurte, leverage of international business
such as bilateral agreements with Belarus, Russia, Argentina, Portugal, Cuba and Egypt, as well
as reinforcing the infrastructure by completing the engineering phase of 90% of the projects of
the portfolio of the Siembra Petrolera Plan, the volumetric and budget goals established for this
year were met and large constructions such as the Operating Center of San Joaquín were
completed, as evidenced in the Socialist Plan for Gas Revolution launched by the President of
the Republic, Hugo Chávez, on Aló Presidente number 294 in Anzoátegui State.
Also, with the acquisition of companies TROPIGAS and VENGAS, the company PDVSA GAS
COMUNAL was established as subsidiary of PDVSA, created for the purpose of supplying LPG
safety and timely to communities, thus meeting the demand of the domestic market by
approximately 80%.
3. Refining
The downstream strategy of PDVSA is aimed at the expansion and improvement of its refining
operations in Venezuela, the Caribbean, Central America and South America and maintenance
of refineries in the United States and Europa, which enables increased manufacturing of refined
products at a high commercial value. PDVSA has been investing in its domestic and foreign
refining system to increase its capacity and complexity and to adapt its facilities so that it can
improve the quality of its fuel around the world. An example of this is the increased deep
conversion capacity in its refineries in Venezuela, which has resulted in improved returns on
high-value products and, consequently, reinforced its export product portfolio. Evidence of these
improvements are the increase in gasoline and distillates from 35% in 1976 to 65% in 2007, and
the decrease of residual production from 60% to 13% in the same term.
a. Refining Capacity
PDVSA performs refining activities in Venezuela, the Caribbean, United States and Europe. Its
refining capacity at a global level has risen from 2,362 MBPD in 1991 to 3,098 MBPD by
December 31, 2007. The following chart shows a summary of the refining operations of PDVSA
in 2007.
63
64
The chart below shows the refining capacity and the share interest of PDVSA as of December
31, 2007.
Location
Venezuela:
CRP, Falcón
Puerto La Cruz, Anzoátegui
El Palito, Carabobo
Bajo Grande, Zulia
San Roque, Anzoátegui
Owner
PDVSA's
Interest
%
PDVSA
PDVSA
PDVSA
PDVSA
PDVSA
100
100
100
100
100
Total Venezuela
Netherlands Antilles (Curaçao):
Isla (1)
United States:
Lake Charles, Louisiana
Corpus Christi, Texas
Paulsboro, New Jersey
Savannah, Georgia
Lemont, Illinois
Chalmette, Louisiana
Saint Croix, U.S. Virgin Islands
940
203
140
15
5
940
203
140
15
5
1,303
1,303
PDVSA
100
335
335
CITGO
CITGO
CITGO
CITGO
CITGO
Chalmette
(2)
Hovensa (3)
100
100
100
100
100
425
157
84
28
167
425
157
84
28
167
50
50
184
495
92
248
1,540
1,201
230
240
260
312
29
11
9
18
115
45
33
37
15
5
4
5
1,109
4,287
259
3,098
Total United States
Europe:
Gelsenkirchen, Germany
Schwedt, Germany
Neustadt, Germany
Karlsruhe, Germany
Nynäshamn, Sweden
Gothenburg, Sweden
Dundee, Scotland
Eastham, England
Refinining Capacity
Total Rated
PDVSA's
Crude Oil Net Interest
mbpd
mbpd
Ruhr (4)
Ruhr (4)
Ruhr (4)
Ruhr (4)
Nynäs (5)
Nynäs (5)
Nynäs (5)
Nynäs (5)
50
19
13
12
50
50
50
25
Total Europe
Worldwide Total
(1) Leased in 1994. Leasing Agreement expires in 2019.
(2) A “Empresa Mixta” with ExxonMobil.
(3) A “Empresa Mixta” with Hess.
(4) A “Empresa Mixta” with Deutsche BP.
(5) A “Empresa Mixta” with Neste Oil.
65
A summary of the Refining Business of 2007 is shown below.
b. Domestic Refining
The volume of processed crude oil in the System of Domestic Refining including Refinería Isla
(209 MBPD) was 1,213 MBPD. In addition, 119 MBPD was used for processing and mixing.
With that level of crude oil and supplies processed, a total 1,332 MBPD of products was
obtained, from which 400 MBPD correspond to gasoline and naphtha, 97 MBPD to jet, 317
MBPD to distillates, 283 MBPD to residuals, 50 MBPD to desalted crude oil and 185 MBPD to
other products, including lubricants, asphalt, internal consumption and specialty products. These
volumes have allowed to supply the domestic market and to export 673 MBPD.
The gross refining margin in 2007 was 4.81 US$/barrel of crude plus processed supplies and the
cost of processing of the refining system, excluding depreciation and internal consumption, for
the same term was 2.51 US$/ barrel of crude plus processed supplies. The net resulting margin
was 2.30 US$/ barrel of crude plus processed supplies.
c. Foreign Refining
PDVSA, through its international business (excluding Refinería Isla), managed to process a total
volume of crude oil of 1,308 MBPD (569 MBPD supplied by PDVSA) and 161 MBPD of supplies
for processes and mixes. The volume of products was 1,469 MBPD, from which 524 MBPD
correspond to gasoline and naphtha, 477 MBPD to distillates, 67 MBPD to residuals and 401
MBPD to other products, including lubricants, asphalt, petrochemicals, internal consumption and
specialty products.
North America
Through CITGO, a wholly owned subsidiary of PDV América (the latter a subsidiary of PDV
Holding), PDVSA produces light fuels and p0etrochemical bases, mainly through refineries Lake
Charles in Louisiana; Corpus Christi in Texas and Lemont in Illinois. Refining operations for
production of asphalt are performed in the refineries Paulsboro, in New Jersey and Savannah, in
Georgia.
The largest supplier of CITGO is PDVSA. CITGO has entered into long-term crude oil supply
agreements with PDVSA related to its crude-oil requirements of its refineries Lake Charles,
Corpus Christi, Paulsboro and Savannah. These agreements establish that PDVSA must supply
CITGO with certain minimum volumes of crude oil and other raw materials, generally for a term
ranging from 20 to 25 years.
The Lake Charles refinery is capable of processing large volumes of heavy crude oil and
transforms it into a variety of refined products, including significant quantities of unleaded
gasoline with high octane rating and reformulated gasoline. In 2004, the refining capacity was
320 MBPD. In February 2005, a project was completed to increase the distilling capacity of
crude oil by 105 MBPD, turning this refinery into the fourth largest in the U.S.A., with a total
refining capacity of 425 MBPD. The most important petrochemicals of the Lake Charles refinery
are propylene, benzene and a mix of xilenes. Its industrial products include sulfur, residual fuels
and petroleum coke. This refinery holds one of the highest capacity levels of production of high
value-added products even though one or more units are not in operation. This refinery has a
Solomon Process Complexity Index of 18.2 (compared with an average of 14.0 for refineries in
U.S.A. according to the most recent survey by Solomon Associates, Inc.). The Solomon
Process Complexity Index is an industrial measure quantifying the refining capacity to
manufacture high-value products.
CITGO’s Corpus Christi refinery in Texas has a capacity of 157 MBPD and a processing
technology enabling it to produce gasoline at grades higher than most of its competitors in the
66
U.S.A. and lower the levels of sulfur in refined oil products. This refinery has a Solomon Process
Complexity Index of 16.5. The main petrochemical products of the Corpus Christi refinery
include cumeno, cyclohexane and aromatics (including benzene, toluene and xilene).
Lemont transforms heavy crude oil into a wide variety of refined products. It has a refining
capacity of 167 MBPD and a Solomon Process Complexity Index of 11.7. It also has highflexibility facilities for deep conversion which mainly produces gasoline, diesel, AV fuel and
petrochemicals.
The refineries of Paulsboro, in New Jersey and Savannah, in Georgia, specialize in the
production of asphalt, and have facilities to process light crude oil with low sulfur content if
conditions are favorable.
On 16 August 2006, CITGO sold 41.25% of its interest in LYONDELL-CITGO, effective as of 31
July 2006. Nowadays, PDVSA and Lyondell have executed a new crude-oil supply agreement
with an initial term from August 2006 to July 2017.
In 2007, investments made by CITGO were largely aimed at complying with new environmental
regulations. In this connection, the design phase of programs for Ultra Low Sulfur Diesel at the
refineries of Corpus Christi and Lemont was launched, while at Lake Charles refinery the NOx
Reduction Systems are under construction.
Through Chalmette Refinery, a “Empresa Mixta” with equal share of PDVSA and ExxonMobil,
PDVSA has a refining capacity of 92 MBPD in a refinery located in Chalmette, Louisiana. This
refinery processes upgraded extra-heavy crude oil produced by the “Empresa Mixta” Cerro
Negro. PDVSA (through PDV Chalmette) has the option of purchasing up to 50% of the refined
products produced in Chalmette Refinery. In 2007, the investments were made for the purpose
of complying with current environmental regulations. This includes the program for Low Sulfur
Content to produce Ultra Low Sulfur Diesel (scheduled to begin in April 2008) Low Sulfur
Content Gasoline (currently operating). The refinery was affected in 2005 by Hurricane Katrina
and its recovery has been exceptional (only 2 months and a half were lost). In 2007 several
goals were reached regarding the environmental area, which resulted in better performance of
the gas-handling project, permits for water disposal and secure closing of former water treatment
lagoons.
PDV Holding and ConocoPhillips own a crude oil vacuum distilling unit of 110 MBPD and a
delayed coking unit of 58 MBPD, integrated into an existing refinery owned by ConocoPhillips in
Sweeny, Texas. In these facilities, each partner owns a 50% share. ConocoPhillips has
entered into long-term crude-oil supply agreements with PDVSA to supply Sweeny refinery with
acidic heavy crude oil. The income of the “Empresa Mixta” Sweeny is comprised of fees paid by
ConocoPhillips to the “Empresa Mixta” under a processing agreement plus any income from
coke sales to third parties. A significant aspect of this business in 2007 is the income from coke
sales, which has been greater than planned for the year because of high sales prices in the
North America market.
PDVSA owns 50% of Refinería Hovensa L.L.C in U.S. Virgin Islands, which was formerly owned
by Hess Oil Virgin Islands Corporation, with a current refining capacity of approximately 495
MBPD. The “Empresa Mixta” has entered into long-term supply agreements with PDVSA of up
to 60% of its crude oil requirements. In 2002, Hovensa completed construction of a delayed
coking unit and related facilities, which had been built for the purpose of creating a “Empresa
Mixta”. Hovensa has also invested in a Low Sulfur Content Program to comply with existing
environmental regulations. This program includes an Ultra Low Sulfur Content Diesel (currently
operating) and Low Sulfur Content Gasoline, which is expected to launch operations in January
2008. Other major projects in 2008 include the Expansion of Engine GT-13 by the end of March
and Water Treatment II by the mid June.
Europe
67
Through Rühr Oel GmbH (ROG), a “Empresa Mixta” 50% owned by PDVSA and 50% by de
Deutsche BP, the company holds a share an equity partipation on non-consolidated investees in
four refineries in Germany Gelsenkirchen, Neustadt, Karlsruhe and Schwedt), with crude-oil
refining capacities as of December 31, 2007 of 230 MBPD, 260 MBPD, 312 MBPD and 240
MBPD, respectively. ROG also owns two petrochemical complexes (Gelsenkirchen and
Münchmünster.) The Gelsenkirchen complex includes large-scale modern unites integrated with
local refineries in the same complex and produces mainly, olefins, aromatics and methanol. The
Münchmünster complex integrated with the nearby refinery Bayernoil (Neustadt) produces
mainly olefins. The petrochemical complexes of ROG have an average production capacity of
approximately 3.8 million metric tons of olefins, aromatics, methanol, ammonia and several other
petrochemical products per year. In 2007, great advances were reported in the ISAR adaptation
project of refinery Bayernoil (Neustadt), which is expected to be operating by the end of June
2008. Likewise, to comply with environmental regulations set forth by the European Union, the
refineries of ROG are making considerable investments in this area, including in 2007
completion of the adaptation project of the Reformed Separation Unit of refinery Gelsenkirchen,
rebuilding of the On Site Sulfur Recovery System of Horst and increased sulfur recovery
capacity and rebuilding of on-site gas treatment units of Sholven.
Through AB Nynäs Petroleum, a “Empresa Mixta” 50.001% owned by PDV Europa and
49.999% by Neste Oil, PDVSA has a share interest in three specialized refineries: Nynäshamn
and Gothenburg, in Sweden and Dundee in Scotland. The refining capacity of these facilities as
of December 31, 2007 was 29 MBPD, 11 MBPD and 9 MBPD, respectively. Nynäs’ refineries
are designed specifically to process acidic heavy crude oil. Nynäs also owns an interest of 25%
in a refinery in Eastham, England, specializing in asphalt production, which has a refining
capacity of 18 MBPD.
The Nynäs refinery in Nynäshamn produces asphalt and special naphtha-based oils.
Furthermore, Dundee, Gothenberg and Eastham specialize in asphalt. Nynäs purchases crude
oil from PDVSA and produces asphalt and naphtha based special oils. It should be noted that
the proportions of naphtha, paraffin and aromatic components of Venezuelan acidic heavy crude
oil, turns it into a raw material appropriate for both products. The asphalt products are used for
construction of roads and several industrial purposes. Special naphtha-based oils are used
mainly in electricity transformers as oils for mechanical processes and in the rubber and printing
ink industries. The most relevant aspects for Nynäs in 2007 were the execution of a new crudeoil supply agreement with PDVSA and a new materials supply agreement with Lyondell refinery
in Houston, as well as very good margins in the naphtha business.
The chart below shows the consolidated balance of domestic and foreign refining, specifying
refining capacity, crude-oil contributions from internal production / third parties, purchase of
materials and production rate.
68
2007
mbpd
4,287
3,098
Total Refining Capacity
PDVSA´s net interest in refining capacity
Refinery input (1)
Crude Oil - Sourced by PDVSA
(2)
Light
Medium
Heavy
Sub-total
Crude Oil - Sourced by Others
Light
Medium
Heavy
Sub-total
Other Feedstocks
Sourced by PDVSA
Sourced by Others
Sub-total
Total Refining input (3)
Sourced by PDVSA
Sourced by Others
Total refinery input
2005
mbpd
4,552
3,207
446
858
478
1,782
16%
31%
17%
64%
466
607
776
1,849
16%
21%
27%
64%
456
595
782
1,833
16%
21%
27%
64%
387
116
236
739
14%
4%
8%
26%
449
108
242
798
15%
4%
8%
28%
396
151
230
777
14%
5%
8%
27%
182
98
280
6%
3%
10%
164
88
253
6%
3%
9%
155
84
239
5%
3%
8%
1,964
837
2,801
70%
30%
100%
2,013
887
2,900
69%
31%
100%
1,988
860
2,848
70%
30%
100%
Crude Utilization (4)
Product Yiled (5)
Gasoline / Naptha
Distillate
Low Sulfur Residual
High Sulfur Residual
Asphalt / Coke
Naphthenic Specialty Oil
Petrochemicals
Others
Net
Output
Comsumption, net (gain)/loss
Total yield
2006
mbpd
4,287
3,098
81%
85%
82%
937
892
75
274
130
13
107
434
33%
32%
3%
10%
5%
0%
4%
15%
960
985
69
246
132
18
87
449
33%
34%
2%
8%
5%
1%
3%
15%
955
934
62
247
118
17
85
497
34%
33%
2%
9%
4%
1%
3%
17%
2,862
-61
2,801
102%
-2%
100%
2,947
-47
2,900
102%
-2%
100%
2,916
-68
2,848
102%
-2%
100%
(1) The crude oil produced by PDVSA represented 70%, 69% and 70% of the total crude-oil requirements and materials
of refineries in which it has a share interest for the years 2007, 2006 and 2005, respectively.
(2) Includes materials of companies not subject to our control.
(3) Takes into account PDVSA’s share in crude-oil and other materials.
(4) Quotient between the crude-oil total for refining and the interest of PDVSA in refining capacity.
(5) The interest of PDVSA in the range of products.
69
New Refining Projects
The refining strategy of the Plan to Sow Petroleum, as indicated above, focuses on the
expansion of capacity and the improvement of efficiency of downstream operations. Crude
reserves of the Republic of Venezuela are mainly comprised of crude oil and extra-heavy crude
oil (approximately 69% of proved reserves); therefore, the Plan to Sow Petroleum on Refining is
aimed at increasing the processing capacity of these crude oils, through implementation of the
following projects in Venezuela:
•
•
•
•
•
•
Upgraders of Extra-Heavy Crude Oil of the Orinoco Oil Belt, in trains of 200
MBPD.
Cabruta Refinery = 400 MBPD, two phases of 200 MBPD each.
Batalla de Santa Inés Refinery = 50 MBPD.
Zulia Refinery = 200 MBPD (pre-visualization).
Caripito Refinery = 50 MBPD, in development process of analyses of product
market opportunities (asphalt).
Adaptation of existing plants (Paraguaná Refining Complex, Puerto La Cruz
Refinery and El Palito Refinery), which would change current refining patterns and
increase processing of Venezuelan heavy crude oil.
In refineries located in USA, Europe and the Caribbean, investments are made to comply with
the quality standards required by those markets. In addition, an investment will be made for
expansion of refineries in Kingston-Jamaica (from 36 to 50 MBPD) and Cienfuegos-Cuba (from
65 to 150 MBPD). Likewise, the engineering of a new refinery is being advanced with Petrobrás
in the northeast of Brazil, with a capacity of 200 MBPD and analyses have been made regarding
new refineries in Manabí, Ecuador (300 MBPD), “El Supremo Sueño de Bolívar” in Nicaragua
(150 MBPD, in two phases of 75 MBPD each), “Caribe Oriental” in Dominica (10 MBPD), Belize
(10 MBPD), China (three refineries of 400 MBPD, 200 MBPD and 200 MBPD, respectively),
Syria (140 MBPD) and Vietnam (200 MBPD).
4. Trade and Supply
a. Exports
Trade and Supply operations performed in 2007 in the context of a global crude oil market
characterized by high refining margins, continuation of production issues in Nigeria, an offer of
crude oil that does not grow at the same pace as demand and the perception that the economy
of the United States is beginning to deteriorate, which may affect the world economy.
In this environment, the general trading strategies of PDVSA continued to materialize:
•
To supply first and foremost the domestic market through reliable and timely supply of
crude oil and products.
•
To achieve the best prices in the international market of commercialization and sale of
hydrocarbons.
•
To lower costs associated with transportation, storage and infrastructure.
•
To diversify markets for our crude oil and products with a view toward the Asian market
(China) and provide support to energy integration with countries of South America,
Central America and the Caribbean.
•
To honor government agreements at an international level entered into for supply,
exchange and financing.
70
The exports of crude oil and products by the nation to the market in 2007 amounted to 2,789
MBPD, which represents a decrease by 186 MBPD with regards to 2006 (2,975 MBPD) basically
due to lower production of crude oil. From this total, crude-oil exports amounted to 2,116 MBPD
and 673 MBPD of refined products in Venezuela and natural gas liquids (NGL).
Chart Exports by the nation (MBPD)
Exports
Years 2003 - 2007
in MBD
EXPORTS OF LIQUID
HYDROCARBONS
Detail by company and hydrocarbons
(MBD)
-
Total (oil and products)
Pdvsa Petróleo
Pdvsa Gas
Bitor
Commerchamp
Third Parties in the Orinoco Oil Belt
Oil
Subsidiaries
Pdvsa Petróleo
Light
Medium
Heavy and extra-heavy
Third Parties in the Orinoco Oil Belt
Products (refined and Orimulsión)
Subsidiaries
Pdvsa Petróleo
Gasoline and naphta
Distillates
Residual fuel ("fuel oil")
Asphalt
Kerosene/Turbo Fuels/Jet
Other
Pdvsa Gas
Bitor
Orimulsión
Residual fuel ("fuel oil")
Commerchamp
Residual fuel ("fuel oil")
Kerosene/Turbo Fuels/Jet
Third Parties in the Orinoco Oil Belt (coke, sulfur)
-
-
-
2,615
2,612
2,527
2,275
2007
2,789
2,496
2,390
67
26
13
293
2006
2,975
2,615
2,482
74
43
16
360
2005
3,023
2,612
2,454
56
86
16
411
2004
2,839
2,527
2,407
49
53
18
312
2003
2,518
2,275
2,125
51
89
10
243
2,116
2,210
2,206
2,135
2,016
1,874
567
290
1,017
242
1,917
634
255
1,028
293
1,876
689
248
939
330
1,867
624
298
945
268
1,773
657
299
817
243
673
622
516
80
133
160
10
59
74
67
26
0
26
13
4
9
51
765
698
565
95
140
174
16
58
82
74
43
25
18
16
8
8
67
817
736
578
87
162
189
20
60
60
56
86
86
0
16
8
8
81
757
660
593
103
178
174
20
61
57
49
53
53
0
18
11
7
44
591
502
441
108
110
124
10
57
32
51
89
89
0
10
5
5
0
Notes:
(*) Year 2007 includes exports of 21.19 MBD of products to Ecuador.
Year 2006: Excludes exports of 5.4 and 13 MBPD of Orimulsión corresponding to aliquot of Bitor and Third Parties in Sinovensa
Bitor for the years 2003 and 2004 was included under Crude Oil; as of 2005, it is listed under products.
With regards to the destination of total oil exports in 2007, 1461 MBPD (69%) was exported to
North American countries (including the US island of Saint Croix in the Caribbean); 316 MBPD
(15%) to the Caribbean (not including US island Saint Croix); 16 MBPD (1%) to Central America;
24 MBPD (1%) to South America; 176 MBPD (8%) to Europe; 112 MBPD (5%) to Asia, 9 MBPD
(0.4%) to Africa and 2 MBPD of exports of the Belt.
71
From the total of refined products and liquefied natural gas generated in Venezuela,
approximately 673 MBPD (53%) were exported. From those barrels, 230 MBPD (34%) were
sold to North American countries; 169 MBPD (25%) to the Caribbean (not including US island
Saint Croix); 17 MBPD to Central America (3%); 50 MBPD (7%) to South America, 97 MBPD
(14%) to Europe, 87 MBPD (13%) to Asia; 8 MBPD (1%) to Africa and 15 MBPD (2%) to
unrecorded locations as such sales were mainly to ships in transit.
Chart: Export by destination (MBPD)
EXPORT OF LIQUID HYDROCARBONS FROM VENEZUELA List of destination countries and type of hydrocarbon
(MBPD)
Oil (3)
Destination
Total (1)
NorthAmerica
Continental USA
USA.: Saint Croix (2)
Canada
Mexico
Caribbean islands
Curazao
CCaribbean islands (2)
Antigua and Barbuda
Aruba
Bahamas
Bonaire
Cuba
Jamaica
Puerto Rico
Dominican Republic
San Eustaquio
St. Lucia
Trinidad
Central America
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua
Panama
South America
Argentina
Bolivia
Brazil
Chile
Colombia
Ecuador (*)
Paraguay
Peru
Uruguay
Total
Products
2007 (*)
2006
2,116
1,461
1,145
295
21
0
316
201
115
0
20
1
2
45
22
0
12
0
5
8
16
13
2
0
0
1
0
24
0
0
0
0
0
0
1
23
2,210
1,449
1,158
280
11
0
363
226
137
0
29
4
9
41
19
0
15
2
7
11
22
13
4
0
0
5
0
42
0
0
0
0
0
13
29
2007
673
230
218
1
8
3
169
8
161
0
1
90
0
42
3
7
16
2
0
0
17
9
1
2
3
0
2
50
0
2
13
2
1
30
1
1
-
Oil (3)
2006
2007
2006
765
255
242
2
8
3
152
15
137
0
0
64
2,789
1,691
1,363
296
29
3
485
209
276
0
21
91
2
87
25
7
28
2
5
8
33
22
3
2
3
1
2
74
0
2
13
2
1
30
1
2
23
2,975
1,704
1,400
282
19
3
515
241
274
0
29
68
9
79
23
1
43
4
7
11
36
21
5
0
2
5
3
80
1
2
20
3
2
8
1
14
29
38
4
1
28
2
0
0
14
8
1
0
2
0
3
38
1
2
20
3
2
8
1
1
-
Destination
Europe
Germany
Belgium
Bulgaria
Croatia
Spain
France
Greece
Netherlands
Italy
Malta
Portugal
United Kingdom
Sweden
Others
Asia
China
India
Japan
Lebanon
Malaysia
Singapore
Turkey
Africa
Angola
Ivory Coast
Morrocco
Nigeria
Senegal
Togo
Tunesia
Tot
Products
2007
2006
2007
2006
2007
176
27
15
0
0
41
2
0
27
16
0
0
26
20
2
112
85
22
5
0
0
0
0
9
0
9
0
0
0
0
0
2
230
20
16
0
0
78
12
0
31
9
0
11
36
15
2
93
46
44
0
0
1
2
0
11
0
97
0
0
3
2
20
11
10
10
18
0
1
20
0
2
87
10
0
0
0
0
52
25
8
0
0
7
0
0
0
1
15
114
0
2
2
3
29
18
9
17
13
1
1
18
0
1
137
51
1
0
1
1
70
13
11
1
0
7
1
1
0
1
44
273
27
15
3
2
61
13
10
37
34
0
1
46
20
4
199
95
22
5
0
0
52
25
17
0
9
7
0
0
0
1
17
2
0
0
0
2
13
27
17
4
13
11
Others (4)
Orinoco Oil Belt
Commerchamp
1.- Excluding Pdvsa Petróleo, Orinoco Oil Belt companies, Bitor and liquids of Pdvsa Gas
2.- Exports to the US Caribbean island Saint Croix are included under North America and not the Caribbean
3.- Oil: Includes crude oil and upgraded oil
4.- Undetermined: In the Orinoco Oil Belt: Destination not supplied by partners of the Oil Belt. Commerchamp: Sales of
fuel to ships in transit, airports and international ports of the country.
(*) The amounts for the year 2007 include 21.19 MBPD of products exported to Ecuador
The level of exports of Commerchamp, subsidiary of PDVSA dedicated to the sale of fuel to
ships in transit at international ports and airports of the country were 4.2 MBPD of fuel oil for
boats and 8.3 MBPD of fuel for aircrafts, amounting to 12.5 MBPD.
With regards to international marketing of retail products, Commercit managed to export 618
thousand gallons through international subsidiaries PDV Ecuador, PDV Brasil and PDV
Guatemala; the latter serves the market of that country, El Salvador and Belize.
International trade in 2007 gave rise to results associated with several strategies. In the chart
below, the sale of products in which, in addition to exports, the sales of Isla Refinery, operated
72
by PDVSA in Curacao, and foreign buy-sale transactions carried out for small sums to comply
with international agreements are shown below.
Chart: Summary of product sales to new markets (MBPD)
Sale of products
Destination
2007
2006
Caribbean Islands
195
173
Central America
27
14
South America
82
63
Asia
209
183
Variation
13%
90%
29%
14%
The specific vision toward the Asian market set forth in the diversification strategy of markets,
resulted in increased trade of products by 209 MBPD and, if we include crude oil sales, amounts
to 324 MBPD, compared with 287 in the previous year.
The chart above also shows the implementation of the energy integration strategy strengthened
within the scope of energy cooperation agreements, including new supply agreements of crude
oil and products entered into with Ecuador for exchange of crude oil for products; with Nicaragua
for the initial supply of up to 10 MBPD. On April, 29, as a result of the Alba Energy Agreement,
the amounts rose as follows: Nicaragua from 10 to 27 MBPD, Haiti from 7 MBPD to 14 MBPD,
and Bolivia from 200 MBPD to 250 MBPD.
Overall, the international trade operations of PDVSA show a satisfactory balance of sales at
market prices, support to the union of Latin America, expansion of markets toward the eastern
hemisphere and compliance with all international agreements.
b.
Domestic Market
The wholesale supply of oil-derived products throughout the country will be responsibility of
Organización de Comercialización y Distribución Venezuela of PDVSA Petróleo, whose
customer include Deltaven, a PDVSA subsidiary. Both supply the local market as shown below.
73
Chart: Sales of Liquid and Gas by PDVSA to the local market
2007
2006
2005
2004
2003
564
82
548
83
506
78
485
69
432
58
482
464
428
416
374
274
257
240
232
209
137
41
11
6
6
4
2
1
132
45
11
5
7
5
1
1
121
40
8
6
7
5
1
1
115
42
6
5
7
5
2
2
98
45
5
5
5
5
1
1
512
431
392
354
302
1,077
979
898
839
734
Natural Gas (MMPCD)
2,973
2,632
2,394
2,055
1,751
Methane gas ($/MPC)
0.77
0.54
0.54
0.55
0.61
Liquids ($/B)
7.29
7.07
6.97
7.44
6.61
Liquids (MBPD)
Liquefied natural gas (MBPD)
Refined products (MBPD)
Gasoline for vehicles
Diesel and distillates
Residual
Asphalts
Kerosene and turbo fuels
(2)
Other
Oils, lubricants and grease
Naphtas
Sulfur and other chemicals
Methane gas (MBPD equivalents)
Total Hydrocarbons (MBPD equivalents)
Notes
(2) Other: propylene, black smoke, solvents, parafines, aviation gasoline, white gasoline and coke.
In 2007, the consumption of gasoline for vehicles rose by 17 MBPD (6.7%) with regards to the
previous year; other products maintain consumption levels similar to those of previous years. An
interesting aspect that may be noted from the chart is the significant subsidy for local
consumption.
Operations were aimed at consistently supplying the domestic market and significantly improving
the operating reliability, strengthening its distribution network to meet growth in demand resulting
from national development, supporting widely small companies and cooperative associations by
hiring their services and training, increasing border transactions, performing numerous civil
projects for society and creating new employment opportunities.
With regards to the reliability of supply, the inventory levels of white massive consumption
products remained at 95.5 % of the national average goal, of 65% of the storage capacity.
Maintenance was performed to several storage tanks (Bajo Grande, Guatire, El Guamache,
Maturín, Yagua), certification ISO 9,000 was obtained for Central District, and no
“unconformities” arose from maintenance audits to the quality system of West District.
Resources were carefully arranged to increase the reliability of core processes of reception,
storage and supply, by updating instrumentation and control, and implementing leading edge
technology for feeding with uninterrupted energy for an administration of emergency stops more
efficient as well as of the increase in the shipment rate and protection of pumping engines. The
Logistics Management was added to the organizational structure of Central District to support
the Plan for National Road, the supply to ports and airports, and social development, specifically
through promotion of Social Production Companies.
74
Also for the purpose of increasing the reliability of supply to the local market, PDVSA Petróleo
carried out an extraordinary maintenance plan for its distribution plants through 389 agreements.
It should be noted that this plan resulted in a significant foster for domestic suppliers since the
associated cash flows of 37.67 MUS$ less than 1% was awarded to traditional companies, thus
practically the entire plan was performed through Social Production Companies and small and
medium-sized companies.
With regards to future operations to meet the sustained growth of demand, multiple projects
were advanced. In relation to projects at design stages, the conceptual engineering for
relocation of the distribution plant of Catia La Mar was completed, visualization of the distribution
plant of Táchira, as well as a preliminary study of the increase in capacity of El Palito –
Barquisimeto multiple pipeline. Physical advances were recorded in several large projects
including the supply to Falcón and Zulia states (Sufaz), which is at the pipeline manufacturing
stage, and the expansion of the Red Sumandes sector Zulia (“SLZ”), which is a third of the way
completed.
Natural Gas Vehicles (NGV)
Simultaneously with the future expansion of traditional fuel distribution, work was carried out for
massive substitution of gasoline as automotive fuel by “natural gas vehicles” (NGV), which is a
cleaner, less expensive fuel, which will release large quantities of liquids from the internal market
for export purposes. The first steps in this direction were made by initiating construction of the
industrial park for containers, compressors and suppliers, a relevant inventory of equipment for
conversion was purchased from Argentina, 77 supply points were created and approximately
400 vehicles were converted for dual use of NGV and gasoline. This process experienced
delays resulting from exogenous and domestic factors: on the one hand, the procurement for
implementation of 100 thousand conversion equipment in 2007 was not as effective as
expected, due in part to a global increase in demand of this equipment and, on the other, the
high level of state-owned vehicles significantly decreased the possibility of users allowing tests
and conversions to be performed on said vehicles.
Because of the above, in 2008 it is expected the construction and operating agreements of the
industrial park to increase, as well as encouraging policies for government entities so that these
become involved with the conversion program.
c. Deltaven, S.A
Deltaven, S.A. as supplier of refined petroleum products provided consumers with fuels and
lubricants comprised mainly of three large categories:
• Service stations.
• Ports and airports.
• Industrial sectors, mainly electricity and steel mining.
Its operations showed a reliable supply throughout the year, with a moderate expansion in a
market with slow growth. It marketed 278 MBPD products, 2% more than in the previous years,
which are specified as follows: automotive fuel for retail: 134 MBPD; industrial fuel: 93 MBPD;
75
residual fuel: 41 MBPD; aviation fuel: 5 MBPD and specialties: 5 MBPD which include asphalt
(4,3 MBPD), of which Deltaven is the main supplier in the country.
For its activities, Deltaven supplied 987 service stations, which represent 53% of the 1,860
stations in the country, thus PDV was the brand with the greatest presence over all other
brands: Trébol, BP, Texaco, etc. In 2007, 11 new stations were added: Puerto Vivas, in Barinas;
Puerto Viejo and Palmarito, in Mérida; La Vela and Puerto Cumarebo, in Falcón; Robledal,
Pampatar and Boca del Río, in Nueva Esparta; Cata, in Aragua; Playa Blanca, in Carabobo, and
La Zorra in Vargas.
In addition to meeting all of its operating and social responsibilities, Deltavén made efforts to
improve the characteristics and conditions of a series of progresses: it completed the
construction of a supply module at the airport of Valencia; it completed remodeling of several
service stations (E/S), and is currently remodeling others: E/S El Río, E/S Veitia, E/S Carabobo,
E/S Santa Elena de Uairén and E/S Río Catatumbo; at the packaging plant of Cardón a new
lubricant “Ultradiesel MT” is being developed for electric plants; the “Registry of Activities that
May Be Harmful to the Environment” (R.A.S.D.A.) was completed for the service stations and
automotive fleet for fuel transportation was completed; the process to obtain certification ISO
9001:2000, was launched and 38% has been achieved; the image change was applied in 64
EE/SS generating 1884 direct and indirect jobs (to date 533 EE/SS out of 739 have been
completed); promotional campaigns were carried out to reinforce the PDV brand in the domestic
market.
The vision toward the future is optimistic with the following new service stations (E/S) being
opened: E/S José Gregorio Hernández, in Portuguesa and E/S Ojo de Agua, in Miranda; E/S
Parador Turístico Yagua in Carabobo; E/S Mirador in Portuguesa; Internacional Santa Elena de
Uairén, in Bolívar, and those fostering the development of fishing activities in Cata, El Baúl,
Manzanillo, Boquerones, Arismendi, El Samán, El Hatillo, San Rafael de Atamaica, El Yagual,
Las Bonitas and La Urbana.
76
5. Transportation/Vessels and Tankers
The naval organizations of PDVSA carried out their business in 2007 in a highly competitive
international freight market, with a trend of low availability of ships resulting from the global
operating demand, derived from unprecedented safety measures, which also originated high
insurance premiums.
a. Supply and Logistics
The Supply and Logistics Organization of PDVSA developed an intense marine activity for
hydrocarbon supply logistics in the domestic and foreign environment. This activity is evidenced
by the logistics coordination of ships directly owned by PDV Marina plus ships chartered
occasionally or for specific terms, which amounts to a charter of approximately sixty ships
simultaneously for each month of the year. It also carried out fruitful efforts to lower storage and
transportation costs and to improve the composition of chartered fleet.
Hydrocarbon storage costs in foreign countries fell as a result of tankage selection, rate
negotiation efforts, financial and operating control. Transportation costs were also lowered as a
result of a decrease by half in shipment delays from the warehouse to foreign countries,
especially fuel oil shipments suffered no delays.
The controlled fleet (time chartered vessels) was renewed by incorporating ships adapted to new
environmental and maritime safety standards (double hull, Marpol4 control systems) and is more
versatile for new market requirements. Seven of these foreign-flag ships were incorporated to
the coastal-navigation service to reinforce operations in the domestic market, including the
supply of propane gas to El Tablazo, and liquefied petroleum gas (LPG) to the Carenero-Guatire
system, for manufacturing petrochemical products and ensuring supply of cooking fuel,
respectively. Furthermore, the term of ship charter agreement was improved with regards to
termination clauses, delay claims, lay times and operations.
Special mention is made of the supply and logistics activities inherent to the takeover and
control of shipment and receipt scheduling, relating to companies processing extra-heavy crude
oil from the Orinoco Oil Belt, and PDVSA took over operating control thereof (in the
transformation to ”Empresa Mixta” in which the state has a majority interest participation).
b. PDV Marina
PDV Marina is a company wholly owned by PDVSA 100%, which owns 21 vessels, thirteen of
which are directly owned by it and eight are owned by its subsidiary Venfleet, with a
Panamanian flag.
The thirteen vessels directly owned, with sizes varying from handy size to aframax, enable
management of the diversity of hydrocarbons: liquefied petroleum gas (two), asphalts (two),
lubricants and chemical products (two), white refined product (four) and oil (three). In 2007, the
process to replace two of the oil ships directly owned was launched as the useful lives of those
ships had expired for transportation purposes; therefore, they are used for storage purposes.
4
Marpol (abbrevation for marine polution) is an international agreement (resulting from a group of international provisions) to
prevent pollution caused by vessela, which was developer by the International Maritime Organization, specialized organization of
UNO.
77
Furthermore, the eight ships of the fleet of Venfleet, all of the lakemax size are used exclusively
for oil transportation.
In 2007, PDV Marine efficiently supplied hydrocarbon transportation services and complied with
the strategic purpose of fostering the endogenous development of the domestic shipping sector.
The company transported an average of 830 million barrels per day of crude oil and products,
from which 413 MBPD related to the household market. This intense activity, evidenced by
volume transported, was associated to proper precautions, relating to the conditions for fleet
operations, which were combined with strategies of the state. Likewise, for maintenance of the
fleet, two new policies were implemented: one aimed at international diversification of ship
maintenance, which began by dry-docking vessel Proteo in Vietnam, and another one for
support to the domestic industry through special general repairs for ships with 20 years of
service in the national shipyard Dianca. Support was granted to this company in the
technological improvement of its employees. PDVSA reaches an expansion of its repair and
maintenance of large vessels.
With regards to the quality of operations, PDV Marina once again received “ISM Code”
international certification from “Instituto Nacional de los Espacios Acuáticos e Insulares (INEA)”,
as national maritime authority, with emphasis by said authority on the progress in safety indexes.
The Venezuelan crew aboard on the lakemax vessels, which have high transit in the Maracaibo
Lake, increased by 74%. In the past, this crew was comprised mainly by foreign crew.
In the near future, the actions taken in 2007 gave rise to significant advances in quality and
expansion of business. In the employment area, a new collective agreement for sea staff is
being discussed, and progress has been made in implementing the standards of the Organic
Law for Protection of Workplace Conditions and Environment.
In relation to future maintenance of vessels, the upgrading of workshops will be implemented,
which includes officially launching of workshops and the Maintenance Module of the SAP-PM
information-technology tool. These measures increase the efficiency of maintenance and
transparency in handling resources.
Safety of operations will continue to increase. Single-hull vessels (Paria, Caura, Morichal,
Leander and Moruy) will be replaced by continuing with the work launched in 2007. Likewise,
large progress (up to 95%) was made in the implementation of the Integral Risk System of
PDVSA.
Finally, with great optimism, special emphasis is made in the agreement entered into between
PDV Marina and Petrochina International Company Limited for the purchase, operation,
administration and management of a new fleet of ships for the transport of hydrocarbons to Asia,
including large-capacity tankers, VLCC (“very large crude carrier”). This fleet will bear the
national flag and will have Venezuelan staff. This will increase national employment, decrease
the charter of foreign ships and support commercially the operations of PDVSA.
78
Naval Development
Also regarding the maritime environment, the operations of PDV Naval, in its evolution as a
company, emphasize development of naval fleet and the heavy naval industry of the country in
2007, construction work began in Brazil and Argentina of 2 of the 12 ships to be built in those
countries, and at the same time engineering began in Poland of 4 aframax ships to be
manufactured in the Islamic Republic of Iran. Simultaneously with the acquisition of these new
ships, technology transfers with suppliers were performed in that same year.
With regards to shipyards, agreements are being negotiated with a Korean company to
reactivate Astinave, a process set to begin in the first quarter of 2008. Also, the agreement
signed in 2006 with Brazilian company Andrade Gutiérrez was updated for construction of North
Eastern Shipyard, which will be located in Sucre state. Both projects will allow for the
construction and maintenance of ships and platforms in Venezuela, which will increase the
autonomy of oil transportation and production of offshore crude oil and will help consolidate
Venezuelan naval sovereignty.
Finally, another important achievement was the incorporation of Alba Naviera Venezolana
(Albanave), which will be announced in the beginning of 2008, aimed at reinforcing sea and river
transportation in Venezuela and the Caribbean, Central America and South America. This
company will be in charge of carrying dry cargo, such as carbon from Guasare and goods from
CVG, Pequiven, Bariven, Mercal, etc. The project includes the river arm for the Orinoco-Apure
axis, which enables future visualization of export of agricultural products supported by Petróleos
de Venezuela.
6. Research and Development
The activities of INTEVEP in 2007 were encompassed within the commitments of the Plan To
Sow Petroleum, in support of the corporation in high priority areas of exploration and production,
refining and industrialization, offshore and traditional areas of light and medium crude oil. Social
investment, endogenous development and social production companies were reinforced.
A total of 319 technical documents, 12 articles for arbitrated magazines and 7 technical bulletins
were generated to disclose new technologies associated with the processes of generating and
enhancing extraction of hydrocarbon wells. 37 trade licenses, 250 trademarks and 4 copyrights
were submitted. 25 trade licenses, 335 trademark certificates and 4 copyright registrations were
obtained. Likewise, in 2007, 111 cases were obtained: 35 trade licenses, 73 trademarks from
which 39 and 3 copyrights were processed. To support PSP projects, 36 PDVSA standards
were approved in the areas of design engineering, industrial safety and occupational health. The
corporate technical standardization process of CIT-INTEVEP obtained quality certification from
Fondonorma.
INTEVEP submitted 83 projects to national congresses and 118 to international events. In
addition, 102,249 analytical tests and 320 technical assistances were made; these efforts are
aimed at leveraging the development of the PSP axis. Likewise, general laboratories received
SENCAMER accreditation.
In 2007, 563,812 man-hours were invested in Specialized Technical Services, 456,528 in
Research and Development and 50,824 in Basic Research. Likewise, 156,051 hours were
dedicated to staff training. 29 persons were assigned to training plans in Venezuela and 36 in
foreign countries in order to bridge technical gaps and reinforce the necessary competencies for
development of the different projects of INTEVEP.
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As support of protection of INTEVEP’s intellectually property and technological assets, 42
license agreements were signed for the following technologies: SOLSURF®, INTEFLOW ®
FOAMDRILL®, INTOIL®, ORIMATITA ®, INTEBIOS®, THIXOGAS ®, GREENOIL®,
PERMAVISC ™ and SANTP®. In addition, two technological cooperation agreements were
executed: FUNVISIS and Universidad de Carabobo.
In continuing with the development plans and implementation of HDHPLUS®/SHP technology to
the deep conversion processes, experimental testing of the RELP project was performed, and
21 days of stability were reached with conversion of 80%, reaffirming the reliability of this
technology. Likewise, the respective basic design books, prepared by INTEVEP and AXENS
S.A., for HDHPLUS®/SHP units were delivered to Refinería Puerto La Cruz.
Visualization of the Caripito refinery was completed to process 50 MBPD of Cerro Negro crude
oil: (i) tests were performed in pilot plants for evaluation of crude oil behavior at scale, (ii) the
final destination of byproducts (different from asphalt) that the refinery would obtain was defined,
(iii) a specific socio-environmental analysis was developed and completed for location of the
refinery in Monagas State, (iv) all of the documents associated to contracts were developed and
(v) confidentiality agreements were established with the companies selected to carried out the
conceptual, basic and FEED engineering of the project.
Together with the CRP’s planning group, the availability of 170 MBPD of currents with potential
for development of the petrochemical pole Paraguaná was identified, and a global structure of
processes comprised of thermal and catalytic cracking and reforming of light and heavy naphtha
was proposed.
Supporting the energy integration processes, visualizations and business options of refineries
were performed: (i) Vietnam, processing 200 MBPD of 16º Venezuelan synthetic API crude oil,
estimated investment of 5,900 MM$, with a VPN of 2,304 MM$ and TIR of 14%, (ii) Syria, with
PDVSA’s interest of 30%, processing 140 MBPD from which 42 MBPD are Venezuelan synthetic
16° API crude oil, with a VPN of 981 MM$ and a TIR of 16.4%, (iii) Refinery Bolívar y Sandino in
Nicaragua with a capacity of 150 MBPD, (iv) a mini refinery in Argentina, processing 10 MBPD
of Chañares crude oil to meet fuel commitments of PDV-Argentina. Within the scope of
technical assistance in refining, a specialized technical assistance proposal was presented to
PetroEcuador.
As part of market assurance and compliance with environmental requirements, technical
assistance was provided relating to ultra low sulfur diesel (ULSD) to the refineries Lemont, Lake
Charles and Corpus Christi, which also received evaluation of the performance of the gas hydro
treatment unit (SelectFining™), with the result being stable catalyzing selectivity and an
estimated useful life of 4 years. Likewise, the first phase of the development of the gasoline
quality prediction for the PLC and CRP Amuay refineries was completed. The proposal of
reactors in parallel of Shell Global Solutions for production of ULSD using DHDV™ (revamp of
the HDT 2 unit of Cardón) was reviewed.
Gasoline corrosiveness analyses with ethanol at 10% v/v were presented to the Ethanol
Committee. These results are important in decision-making for the adaptation plan of facilities to
be built for the introduction of gasoline with ethanol in September 2008.
In support of the hydrocarbon optimization process, efficient use of hydrocarbons was approved
by Comité Mayor de Suministro (COMSUM) through the technical proposal to lower MON
octane rating from 87 to 85. This change will give rise to economic savings in preparing the new
fuel and will not affect the performance of vehicles using 95 RON.
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By support provided in the application of INTEVEP technologies for building and maintaining
wells, the corporation obtained savings of 800 M$, and 10 wells were successfully drilled at the
Borburata field (using PERMAVISC® technology).
Seven conceptual engineering plans were delivered for implementation of 26 units of CYCINT™
equipment at the West (Tomoporo), East (Anaco, Norte, San Tomé and Morichal) and South
Central (Barinas) divisions which process an average of 910 MMPCD with manufacturing cost
savings of 1.3 MMUS$. Installation of 2 VORTEX equipment units at the Mara field raised gas
production by 800 MPCD.
Support was provided to ensure the operating continuity of the projects of Magna Reserva,
Exploration and Production and INTEVEP, Cretáceo Lago, Mara La Paz, EFAI and Delta
Platform, by handling and administrating data, technological platform, specialized support,
generation of maps, monitoring and optimization of the use of licenses and processes to obtain
licenses, training and external specialized consulting.
In support of the increased productivity of reservoirs, water shortages in production processes
(MULTIGEL®) were controlled, which represented 745 BNPD and diagnoses and
recommendations to boost 28 wells with potential of 10,200 BNPD and 3 MMPCD were
delivered; together with the above, visualization and engineering of facilities for the pilot test on
site at Campo Bare were completed. As part of the support of activities relating to the increase of
the recovery factor, conceptual engineering of technology was completed for upgrading of CP
and XP at surface (INT-MECS), and formulation of oil in water emulsions for transportation of CP
and XP in San Diego Norte and Carabobo was developed, thus enhancing the processing and
consumption of chemical additives.
With regards to activities relating to the growth of traditional areas, advances of 80% in GPS
surveying and gravimetry were achieved in the subsidence of the new coastal dock: using highresolution seismic and surveying the seismic refraction to determine surface properties. Through
the Integral Program for Extraction in Reservoirs of the West Region, Phase I of the Cretáceo
project was completed and Phase II of the La Paz project was launched. Detailed engineering
for the new plant design of Guara (Integral Fluid Management System) was completed.
With regards to technological exchange with Cuba Petróleo (CUPET), five VRS pumps were
installed in wells of Varadero, which resulted in increased production ranging from 11 to 200%.
Likewise, the structural seismic interpretation of the Tarara and Vía Blanca (North of Cuba)
areas and the palinologic analysis of the San Galletano formation were completed. In addition, a
technical exchange program for accelerated training of CUPET and INTEVEP staff in the area of
Well Construction was established.
Contributions were made of over 129 MMMBls of POES as well as certification of 20.1 MMMBls
of petroleum and 5.7 MMMMPCN of gas from proved reserves of the Carabobo block through
creation of base, isotopic and structural maps and administration of computer platforms,
specialized support and external consulting.
As support to ensure the necessary volumes of gas established in PSP, the conceptual design,
performed together with PDVSA EyP, of the service platform of Dragón and with PDVSA Gas
the assurance analysis of the flow of the gas pipeline of Dragón-CIGMA.
With regards to internal services and infrastructure, necessary for the development of different
activities, adaptation work in Rodomar building were completed, in addition to the engineering of
graphic arts details, north 4; expansion of the training rooms in CREA (6 rooms, 2 points, 66
persons), conceptual, basic and detailed engineering of the INTEVEP auditorium, general
bidding processes for construction of urbanism in new land and construction of the elementary
school center and, finally, engineering for the edification of the data bank.
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In the environment area, 5 hydrocarbon-spill-scenario simulations were performed to plan
strategies against incidents such as those in Güiria, Sucre State.
A successful field test was performed of the Aloe Vera-based scale inhibitor in the Barinas well.
In addition, the assembling of a pilot PALS plat for conditioning of natural gas was completed.
7. Environmental and Safety
a. Occupational Health and Environmental
Most of the subsidiaries of PDVSA, in both Venezuela and foreign countries, are subject to
environmental laws and regulations requiring significant expenses to modify its facilities and
prevent or remedy the environmental effects in handling waste and spills of polluting agents.
PDVSA is implementing measures to prevent environmental risks, protect the health of persons
and preserve the integrity of its facilities. In the year 2007, an Investment Plan was performed at
the level of the areas with Investment Expenses relating to handling and disposition of effluents
of approximately 5.58 MMUS$ in related projects, including the following: construction of
concrete channels for effluents, erection of walls, construction of cooling towers and other. With
regards to compliance with environmental laws, the sum of 17.1 MMUS$ has been invested in
areas related to projects for basin conservation, monitoring of air quality and environmental
impact analyses and other. In addition, Occupational Health and Environmental (AHO) has
invested 1.9 MMUS$ in projects relating to baseline studies and environmental diagnoses.
Investments in businesses and subsidiaries were made in the purchase of equipment for
prevention of occupational risks, analyses of effluents, measurement of air quality and materials
and supplies for laboratories, amounting to 125.8 MMUS$.
As part of its environmental responsibility, PDVSA maintains a sanitation and restoration plan for
the environmental liabilities of PDVSA and its subsidiaries generated until 2004. This plan
addresses pits, sludge and off-spec crude-oil, materials and hazardous waste, facilities,
abandoned equipment pending dismantling, areas impacted by oil activities and radioactive
sources. As of December 31, 2007, a total of 2,554 hydrocarbon pits received sanitation of the
existing 13,460 pits, and a total of 10,906 pits are pending. A reserve for sanitation in 2007
amounts to 809.9 MMUS$.
CITGO has received several notices of violation from the Environmental Protection Agency of
the United States of America and other regulating agencies, which include notices under the
Federal Clean Air Act and may be deemed a potentially liable party, together with other
companies, with regards to locations under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA). These notices are being reviewed and, in certain
cases, recovery actions are being implemented. CITGO is negotiating agreements with the
aforementioned organizations.
In 2007, the Corporate Management of Occupational Health and Environmental coordinated
performance of projects and activities as the core of its work. Its most significant achievements
include the following:
•
In 2007 the biggest achievement of Petróleos de Venezuela in relation to workplace risks
and hazards, an extremely important issue since this industry contains high risk for the
health and wellbeing of its working population, has been the creation of a large group of men
and women, over than 1,500 persons, who have become Prevention Delegates, whose
activities throughout the year have led to improvement in working conditions of a large
number of workers, secure a decrease in environmental pollution from bad operating
practices and ensure the integrity of its many facilities.
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These efforts of the employees of the new PDVSA is in accordance with the important role
established in our Constitution and will allow employees to take control of their working
conditions, and the people of the communities will be empowered to change their living
conditions.
•
A Pilot Test Program was established to evaluate treatment technologies (recovery) for offspec crude-oil in petroleum pits for integral sanitation of such pits. This program has turned
this liability into a financial asset for the Corporation since the quality of the product is raised
to a standard that may be included in the crude oil production quota of the country, thus
generating additional income. For supervision, monitoring and control of sanitation and,
specifically, for these tests, seven (7) Social Production Companies comprised of
professionals graduated from national universities were incorporated.
•
Development of Social Production Companies was encouraged in the area of sanitation of
pits as well as leveraging of cooperatives aimed at collection of used oils (incorporation,
permits and collection strategies). In conjunction with the Functional Management of
Technical Support to Social Production Companies of INTEVEP, seven (7) cooperatives
were created comprised of university professionals in the environmental areas for
supervision services of recovery of crude oil and sanitation of pits.
•
Two National Conferences of Prevention Delegates were held, with an attendance of 700
persons, which evidence their commitment to their duties accorded under the Organic
Workplace Prevention Condition and Enviromental Law (LOPCYMAT) for prevention of
occupational accidents and illnesses, damages to the environment and facilities; with a clear
knowledge of their joint liability, thus assuming their right to take an active part in
improvement of working conditions, and becoming guardians of the deviations in the
facilities and employee attitudes.
•
Six (6) standards on Occupational Health were prepared, from which three (3) were
approved by the Technical Committee on Occupational Health and three (3) pending
approval. These standards are in line with the regulations and aimed at unifying criteria and
establishing clear and accurate technical guidelines for the purpose of obtaining reliable
results that may evidence the strategies and actions to follow in preventing damages to the
working population and to be applied in each of the internal and external projects of PDVSA.
•
In July, a Postgraduate Program of Occupational Health was launched with Universidad
Bolivariana de Venezuela, under the name of Special Training Program, with 27 recently
graduated engineers who will receive the fundamental tools to have the necessary skills to
meet the challenges in relation to prevention will arise in building this new production model
associated with the Plan To Sow Petroleum and in all stages of the projects, in accordance
with the requirements of the Corporation. This program follows the guidelines of the Human
Resources Committee and Alma Máter Mission.
•
Studies at a generalized scale (1:250.000) of the ecology of the Orinoco Oil Belt (55,000
km2) and a semi-detailed (1:100.000) study of the Junín area (10,000 Km2) were
performed, including reports of wildlife, flora, climate, vocation of soil, use of land, existence
of communities, surface watercourses, fragility of systems, environmental impacts and
interrelations conditioning eco-social and environmental processes, ensuring the base for
planning the sustaining social and environmental development of 200 thousand persons
who currently influence the Oil Belt, as well as the sustainability of future developments in
the area.
83
•
Through coordination of Technical Tables between PDVSA and the Ministry of Popular
Power for the Environmental, a total of 110 Authorizations for Affectation of Natural
Resources, 04 Authorizations for Occupation of the Territory in four areas of the Orinoco Oil
Belt, 252 inspections in conjunction with the Ministry of Popular Power for the
Environmental, delivery of 65 environmental supervision reports and reviews in process of
the studies for expansion of el Palito and Puerto la Cruz refineries.
•
Analysis and design of the Integral System for Environmental Permits and Management of
the Corporation together with the Ministry of Popular Power for the Environmental and the
Businesses and Subsidiaries of PDVSA is already finished. This system will enable to
monitor the internal administrative procedures for processing environmental permits.
Likewise, it will be used to manage and control the distribution and allocation of the Global
Environmental Bond of PDVSA.
•
Through the project “Agrodiverse Systems and Alternative Renewable Energy in Rural
Nuclei as an Alternative for Integral Development of the Orinoco Oil Belt”, the quality of living
was improved by supply of electric energy and production of food for consumption by the
four communities, thus impacting 321 Venezuelans, who were incorporated to the
agrodiverse production systems and use of alternate renewable energy, as well as recycling
practices to encourage sustainable development of the FPO.
•
The five (5) environmental standards of the Corporation were established: Handling of
Debris and Drilling Fluids (approved), Handling of Used Oils (approved), Sociocultural and
Environmental Surveys, Handling of Production Waters, Handling of Worn-Out Catalysts.
The last three are pending approval.
•
The Integral Environmental Index was performed to evaluate the environmental condition
and to assess the environmental management in the oil industry in a uniform, systematic
and comparative.
•
Six (6) main environmental audits and five (5) follow up audits were performed in nine (9)
operating areas of Exploration and Production, Refining and Trade and Distribution
Venezuela, thus generating action plans. As a result of the follow up audits, it was verified
that from a total of 105 actions, 32 have been complied with and 44 are in processes, to take
advantage of the improvement opportunities detected.
•
In the area of Environmental Education, activities were performed at a national level with
communities neighboring facilities including reforestation, conservation, recovery and
mitigation conferences, appointment of members of environmental brigades, recovery of
areas and prevention training for communities and emergency management, with a total of
11,333 persons including children, adolescents and adults. Planting programs with the
communities were performed with a total of 10,000 araguaney trees being planted, and 621
industry workers received training in four (04) modules of environmental education. Two
Environmental Education conferences (Caracas, Puerto La Cruz) were held with five
hundred participants and were defined Environmental Education Guidelines.
b. Industrial Safety
The mission of PDVSA is based on shared responsibility, participation and authority principles to
ensure that all processes and operations performed by the Corporation are carried out safely
through planning, management and incorporation of administrative, educational and engineering
tools to protect the physical integrity of employees, business assets, subsidiaries and the
environment.
84
Within the scope of our mission, in 2007 the following strategic objectives were achieved:
•
•
•
•
•
•
•
•
Establishment of the principle of shared responsibility in workplace safety at all
levels of the Corporation and its social environment.
Implementation of means for participation and commitment of employees in control
of Industrial Safety risks.
Consolidation of the workplace risk prevention and control at all levels of the
Corporation and its environment.
Implementation, management and assurance of maintenance and efficiency of the
Integral Risk Management System (SIR-PDVSA).
Alignment of Industrial Safety efforts of the Corporation with the Strategic Plans of
the Nation and Regulating Entities of the State.
Implementation of strategies, plans and controls for adaptation of the facilities and
processes of the Corporation to current laws (LOPCYMAT), incorporating innovative
practices and technologies.
Preparation and implementation of Industrial Safety Programs aimed at Social
Districts.
Implementation of the Quality Management System.
Based on the above Strategic Objectives, the following achievements were made:
With regards to the accident index in the term January – December 2007 compared with 2006, a
decrease by 52.37 % was reached, as specified below:
Days Missed Due to Injury January - December 2007: 57,810
Days Missed Due to Injury January - December 2006: 121,363
These results derive from the following achievements:
•
Through an agreement with “Universidad Bolivariana de Venezuela”, a specialization
program in Industrial Safety corresponding to the 1st Cohort was imparted to 30
professionals from different areas of PDVSA to strengthen operations, operating processes
and development of the staff’s careers.
•
5 audits were performed to reinforce the elements of the Integrated Risk-Control System, in
compliance with the procedures, standards and effective laws to decrease accidents,
occupational illnesses and economic loss and to increase operating continuity.
•
With the active participation of the employees of PDVSA, 7 Technical Standards on
Industrial Safety were updated and developed, thus reinforcing the preventive culture and
decrease in accidents: Guidelines of the Integral Risk-Management System; Notice,
Registration and Statistic Classification of Accidents; Notice of Accidents, Preparation and
Presentation of Reports for PDVSA Parent Company; Management and Control of
Deviations; Pre-Booting Review; Investigation of Accidents and Incidents; and Mechanical
Integrity.
•
With the implementation of the Deviation and Control Standard, a positive impact on the
risk-control management was experienced, and deviations in operating processes were
preventively determined.
•
Diagnosis for certification and activation of Response Plans and Emergency Control was
performed for all businesses and subsidiaries in accordance with the guidelines and policies
of PDVSA and current laws of Venezuela.
85
•
Work training increased, as well as disclosure of guidelines and use of information
technology tools, in line with the new projects of the Plan To Sow Petroleum for
implementation of the Risk Analysis Element.
•
In conjunction with Mixed Companies, policies, guidelines and technical standards in
Industrial Safety of PDVSA are being established.
•
Progress is being made in the update of the Integral Risk-Management System enabling
PDVSA organizations to perform systematic and effective management of the plans and
programs required to prevent and control security risks and health of employees, integrity of
facilities and equipment, environment and social surroundings.
•
“Instituto Nacional de los Espacios Acuáticos e Insulares (INEA)” recognized the Aquatic
Safety Management of PDVSA as focal point for management of inter-institutional relations
relating to Maritime Safety in the aquatic sector where the industry carries out its business.
•
A master agreement for Certification of People of Sea in the aquatic sector was prepared in
conjunction with “Universidad Marítima del Caribe” in the aquatic sector of PDVSA.
•
Participation of the aquatic sector of PDVSA with the National Armed Forces in projects
such as the Maritime Traffic Control System; and the National System of Protection and
Fight against Hydrocarbon Spills.
•
The work of Industrial Safety was integrated with the Presidential Commission on Chemical
Security and Technical Support Group of the Ballast Water Management Program, to
consolidate prevention efforts with regards to Aquatic Safety.
•
12 participants received training and certification in open-water search and rescue as a pilot
plan for Coast Guard staff, Firefighters of PDVSA and community volunteers with the
participation of the national company YMCA. This pilot plan will be expanded in 2008.
•
Diagnosis of aquatic operations was performed for certification of 421 boats operating in
Lago de Maracaibo to ensure operating continuity and compliance with current laws.
Under the plan, support was provided in training 119 professionals from the areas of Industrial
Safety, Infrastructure and Projects in Studies on Risk-Control Engineering and Cost Benefits to
ensure reliability and feasibility of the projects of the Plan To Sow Petroleum.
8. Social Development
Based on the social responsibility of PDVSA, established in articles 302 and 211 of the
Venezuelan Constitution and article 5 of the Organic Hydrocarbons Law, referring to the
involvement of PDVSA in the social and integral development of the country, and for the
purpose of supporting work or services aimed at the Development of Infrastructure and Roads,
agriculture, health and education, and any other productive investment in Venezuela, PDVSA
takes part in different programs established by National Government.
Contributions for social development made by PDVSA are divided into expenses incurred in
missions, contributions to communities and other, contributions to FONDEN and expenses for
social development incurred through trust funds with government financial entities.
Expenses incurred in missions, contributions to communities and other are directly recorded as
expenses for social development at the time disbursements are made. Contributions to
FONDEN correspond to disbursement to be transferred to said entity in accordance with the law
governing its creation dated September 8, 2005 and expenses for social development incurred
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through trust funds, except for those corresponding to FONDESPA, are directly recognized as
expenses for social development at the time the disbursements are made, thus the trustors and
beneficiaries are administratively responsible of the funds. Contributions to FONDESPA are
recognized as restricted cash, long-term accounts receivable from performing entities or as
expenses for social development in accordance with conditions set forth in the respective
agreements, and the same are controlled and reinforced in the Consolidated Financial
Statements through the subsidiary CVP.
In 2007, PDVSA made contributions for social development of the country of $13,897 million as
summarized below:
•
5,693 million dollars to Social Programs: Misión Ribas, Misión Sucre, Misión
Milagro, Misión Vuelvan Caras, Misión Guaicaipuro, Misión Barrio Adentro (phases
I, II and III), Misión Identidad, Misión Mercal, Misión Ciencia, Plan de Vialidad,
Aportes a Comunidades, Centers for Endogenous Development.
•
1,443 million dollars for Special Investment Plans: Vivienda y Hábitat (524 MMUS$)
and Fondo para Financiamiento de Proyectos Agriculturales (919 MMUS$).
•
6,761 million dollars for “Fondo de Desarrollo Nacional (FONDEN)”, entity created
by the Venezuelan Government for the purpose of completing infrastructure work,
which include Hospital Cardiológico Infantil “Dr. Gilberto Rodríguez Ochoa”, subway
lines 3 and 4 of “Metro de Caracas”, Los Teques, Maracaibo and Valencia, Trolebús
Mérida, railway Caracas – Tuy Medio, as well as diverse plants and centers for
generation of electricity being built in different regions of the country.
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A summary of contributions for social development of the country, made by PDVSA from 2001 to
2007 is shown below:
(1)
Accrued disbursement of US$ 38,090 million, contributed by PDVSA for the seven years from 2001 to 2007
correspond to sums actually paid each year. These amounts slightly differ from those shown in the Consolidated
Financial Statements of PDVSA and its Subsidiaries, since in accordance with generally accepted accounting
principles, certain disbursements are recognized as expenses in years different from those in which payments were
made.
The objects and impacts of contributions by PDVSA to Missions carried out by the Bolivarian
Government of Venezuela are summarized below:
•
Misión Ribas
This mission is aimed at all individuals who have not completed high school. Resources
allocated from 2003 to 2007 have amounted to $1,136 millions, which have translated into an
average of 150,000 per month, conditioning of 30,618 education spaces, as well as
incorporation of 30,340 facilitators. As of 2007, a total of 1,207,076 students have taken part in
this program, and 947,131 participants at a national level have received High School
Certificates.
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•
Misión Mercal
The fundamental purpose of this mission is marketing and trading first-necessity food products
to maintain supply for the Venezuelan population, especially those with limited economic
resources. Through this mission, PDSA supports the Seguridad Alimentaria Plan at a national
level by making contributions to “Fundación Programa de Alimentos Estratégicos
(FUNDAPROAL)”, “Mercado de Alimentos, C.A. (MERCAL)” and “Corporación de
Abastecimiento y Servicios Agrícolas (LA CASA)”. From 2004 to 2007, the sum of $1,690
million has been allocated for the conditioning of 15,744 locations at a nationwide level,
purchasing of 60 trucks, 3 packaging plants and 6,004 food houses have begun operations. The
population benefiting from these contributions is approximately 15,913,000 Venezuelans
throughout the national territory. Approximately 1,314,000 MT of food was traded. In 2007,
support was provided to carry out 305 “megamercales”.
•
Misión Barrio Adentro I, II and III
Misión Barrio Adentro I ensures access to health services through primary care. Misión Barrio
Adentro II contemplates recovery of outpatient centers and construction of popular clinics and
integral diagnosis centers. Misión Barrio Adentro III focuses on reformulation of modules for
assistance, management and upgrading of infrastructure and technological equipment of public
hospitals. Contributions made from 2003 to 2007 have been $5,569 million, which has enabled
construction of 1,000 assistance modules, 21 popular medical offices, 48 medical offices, 183
centers for integral rehabilitation and 6 high-technology centers, among others, in addition to
financial resources provided for operating expenses of Hospital Cardiológico Infantil “Dr. Gilberto
Rodríguez Ochoa”. The population receiving these medical services amounts to approximately
18,366,000 persons.
•
Misión Vuelvan Caras
The resources allocated to this mission are aimed at training youths and adults (lancers) in
common-interest trades and the creation of cooperatives to ensure the creative participation of
the population in the production of goods and services, as well as to grant scholarships to
lancers, instructors and supervisors, and to supply materials and machinery. From 2004 to 2007
the sum of $661 million has been allocated. There are 264,720 certified lancers, who have
created 6,814 cooperatives, 130 nuclei for endogenous development, 2,567 facilitators and
1,546 consultants; likewise, 202,452 scholarships have been granted to breadwinners and
147,548 scholarships have been granted to persons who are not breadwinners. In 2007, the
purchase of a Building for Informal Economy was made to transform informal economy to
popular economy in the Libertador Municipality and benefiting over 4,000 thousand families.
•
Misión Milagro
The contribution to this mission from 2005 to 2007 has been $150 million. Its main purpose is to
perform surgical operations on eye pathologies (cataracts, pterygium and palpebral ptosis) free
of charge. To support this mission, Ramp 4 at airport “Simón Bolívar” has been conditioned as
well as the General “José Antonio Anzoátegui” airport, in addition to all the necessary logistics to
facilitate transfer of patients to the Republic of Cuba. This mission has solved sight problems of
over 57 thousand Venezuelan patients.
•
Misión Guaicaipuro
Its purpose is to restore all of the rights of the indigenous peoples and communities of
Venezuela in accordance with the Venezuelan Constitution by restoring constitutional rights,
economic development, and delimitation of land, strengthening their identities, tongues,
education, habitat and other aspects. In the 2005 – 2007 period, PDVSA has contributed $11
million to this mission.
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•
Misión Sucre
This mission ensures access to university education to all high school graduates who have been
unable to enroll in a university and provides infrastructure for higher education, including,
Universidad Bolivariana de Venezuela, Maturín Campus. Contributions to date have been $784
million, and 330,346 have benefited from this mission. In addition to these contributions,
PDVSA has assigned its own infrastructure in the Metropolitan Area of Caracas to be used as
campus for Universidad Bolivariana de Venezuela – UBV (Edificio Chaguaramos), Universidad
Nacional Experimental de la Fuerza Armada – UNEFA (Edificio Chuao) and Colegio
Universitario de Caracas – CUC (Edificio Sucre).
•
Misión Identidad
From 2003 to 2007, the contribution allocated has been $45 million for registration, control and
issuance of identity cards to more than five million persons.
•
Misiones Robinson I and II
These missions are aimed, in the first phase, at fighting illiteracy in the Venezuelan population
and, in the second phase, at completing of elementary education (6th grade level) to achieve a
“Territory Free of Illiteracy”, for which $72 million have been used.
•
Misión Revolución Energética
Launched on November 17, 2006 by the President of The Bolivarian Republic of Venezuela, this
mission is being carried out by the Ministry of Popular Power for Energy and Petroleum, with its
purpose being to create awareness on the importance of energy by replacing incandescent light
bulbs with 82 million energy-saving bulbs to lower the consumption of electric energy at a
nationwide level. From these energy-saving bulbs, 15 million were for the Mercal network. It
should be noted that this substitution was free of charge; in addition, the lighting system for Av.
Bolívar in Caracas was installed. From 2006 to 2007, a total of $429 million has been allocated.
•
Misión Árbol
Misión Árbol was launched on June 4, 2006 to build awareness amongst the population of
forests, ecological balance and recovery of degraded spaces. In 2007 PDVSA contributed $12
million. The resources allocated have enabled performance of 583 educational and community
projects for production of plants and 25,780 seeds were collected.
•
Other Missions
PDVSA has allocated resources to Misión Ciencia ($319 million) y a la Misión Vivienda ($197
million), Misión Música ($43 million), Obras Hidráulicas ($50 million), supporting other state
organisms in to meet their goals and purposes.
•
Centers for Endogenous Development
From 2005 to 2007, PDVSA has allocated $232 million to create and consolidate the following
Centers for Endogenous Development, which have facilitated social, cultural and economic
transformation so that organized communities can develop their agricultural, industrial, tourist
and other potentials through sustainable projects:
90
Center for Endogenous Development Fabricio Ojeda
PDVSA made contributions and donated its facilities to the Center for Endogenous Development
Fabricio Ojeda, the former “Nueva Caracas” Filling Plant, in the west of Caracas. For 12 years,
this plant was Idle because of the increased population in its surroundings. To date, 10 projects
have been performed in this Centers: Popular Clinic Fabricio Ojeda, Popular Drugstore, Textile
Production, Shoe Wear Production, Agricultural Sector, Súper Mercal, Cooperative Pharmacy,
Sports Facilities, Community Square and Information Stand.
Endogenous Development of the Boconoíto – Puerto Nutrias, Barinas State Axis
Performance of ten (10) Centers for Endogenous Development was launched to reinforce
sustainable production areas, housing and habitat, food, education, community organizations,
health, culture and sports, services and science / technology, elements that make the project
feasible and sustainable.
Some of the advances and benefits obtained in 2007 are the following: Construction of 1,116
Homes, Expansion and Construction of 34 schools, Creation and Inauguration of three (3)
Community Radio Stations, Reinforcement of Agricultural and Production Activities in the
different Nuclei for Endogenous Development of the Axis, Construction and Re-adaptation of
twelve (12) Multiple-Use Sports Facilities, Construction of two (2) Sports Fields and one (1)
Softball Stadium, Re-adaptation of two Feeding Houses, Construction of the first phase of the
Mercal Storage Center, purchase of ten (10) Motorized Units for the Municipal Police of Barinas,
Construction of the Passenger Terminal of the City of Barinas and Construction of 20 bus stops.
Center for Endogenous Petrochemical Development
From 2006 to 2007, PDVSA made contributions to endogenous development projects
associated with industrial activities in the area of petrochemicals, located at Complejo
Petroquímico de El Tablazo, Miranda Municipality, Zulia State, as well as the Industrial Zone of
Guacara, Carabobo State. The following projects have been carried out: Construction of
Industrial Field Ana María - CIAMCA Field (manufacturing of syringes), Manufacturing of Plastic
Houses (Petrocasa) and Polymer School.
Center for Endogenous Development Santa Inés
PDVSA encourages in this Center for Endogenous Development, located in Barinas State, land
of Zamora, the following actions in benefit of the community:
In this center, health and education committees were created, as well as urban land (ownership
of land was regulated) and technical water tables. Organization workshops were imparted to
Communal Councils and cooperatives from different areas.
With regards to education, productive farms at schools were implemented. Education units were
reconditioned and received supplies to become Bolivarian Schools. Construction of the
University Village took place, as well as implementation of an information center and
conditioning of Multihogar.
Health has been benefited through re-adaptation and stocking of the Rural Outpatient Center of
Santa Inés and construction of the Integral Medical Assistance Office of Misión Barrio Adentro I,
in the Gallegos Pagüey Sector. Likewise, medical and eye programs were performed through
Misión Milagro.
The productive system is fostered by Integral Farm Ezequiel Zamora, comprised of several
components, including the following: poultry warehouse, planting of vegetables, grass and
”cachamas”. The pig farming component has a bio-digestion unit for production of biogas;
91
lombriculture for production of organic fertilizer; artificial insemination for increase and
improvement of dual-purpose herd, as well as implementation of an artisan cheese factory.
The presence of “Mercal” helps local producers market their excess production.
Sports have been reinforced as well as culture through creation of spaces for both, including
revamping of facilities and provision of supplies and implements, as well as a journal, “Santa
Inés Avanza”, for internal distribution.
Habitat is also being addressed as shanty houses are being replaced with dignified homes. In
the case of urban area Ezequiel Zamora, assistance was provided in relation to electricity and
pavement.
With regard to public services, a PDV module was installed to provide distribution of fuel and
lubricants, as well as light mechanical services and supply of automotive and agricultural spare
parts. In the aqueduct of this zone, a water chlorination system was installed; containers and
waste collection trucks were allocated and a system for waste water collection was installed; an
agreement was executed with the rural police and Mayor’s Office of Zamora for security and
support. In addition, an office of Banfoandes was opened, through which loans have been
granted to small and medium-sized producers of the zone.
Public roads were readapted through an agreement with the 6th Group of Army Engineers, from
Santa Inés to the Santa Lucía crossroads. This effort includes leveling of the driving road,
recovery and improvement of rain water drainage and placement of a network of bus stops.
Center for Endogenous Development Campo de Carabobo
The purpose of this center is the landscaping recovery of the Monumental Zone of the Carabobo
Battlefield.
The main activities include the following: Building 3,500 linear meters of sand walkways and one
(1) warehouse (direct beneficiaries: 33 partners of construction cooperatives).
Center for Endogenous Development Madre Vieja
Promotes socio-productive activities of Sabaneta Parish, Alberto Arvelo Torrealba Municipality of
Barinas State, fostering agricultural harvesting.
•
Ethanol Project
As of 2007, financial resources were delivered to “Corporación Venezolana Agraria (CVA)” of
$160 million to be used in the project for production of alcohol for fuel purposes, based on sugar
cane, to meet the demand of ethanol of PDVSA until 2010, estimated at 20 thousand barrels per
day.
•
Public Roads Plan
From 2005 to 2007, PDVSA contributed resources of $218 million for Infrastructure and Roads
through several Agreements with Governor’s and Mayor’s Offices for performance of the
following work:
• Re-adaptation of the main road San Silvestre, San Rafael de Canagua, El Toreño Santa
Lucía and road Santa Inés, in Barinas State.
• Construction of sidewalks in Operations Theaters 1 and 2 in the Sectorial Service Office
and the Engineering Division of the Ministry of Defense.
• Re-adaptation, surfacing and repair of roads and bridges in the states of Cojedes and
Barinas.
92
•
•
•
•
•
•
•
•
Repair and improvement in roads of Bolivar State.
Expansion of the air terminal of Maiquetía Airport for support of missions.
Re-adaptation of 42 kilometers of roads Dos Caminos-Boro-Las Veritas-Iracurarigua,
Torres Municipality to Morán Municipality of Lara State.
Francisco Fajardo Highway, Prados del Este Highway.
Re-adaptation of main road 17 Lara – Zulia.
Maintenance and re-adaptation work of 301kilometers of TO19 in Apure State.
Contribution to Public Roads Plan of 2005 in relation to work in different states and
municipalities throughout the national territory. Resources delivered to Fundación
Propatria, MINFRA.
Contributions for José Antonio Páez Highway.
Contribution to Communities
From 2001 to 2007, PDVSA has allocated $1,293 million, used for different cases, as specified
below:
Health: 5,734 cases treated
•
•
•
•
•
•
•
Chemotherapy and Radiotherapy.
Medical Treatments.
Heart Surgeries.
Trauma-Related Surgical Interventions.
Craniotomy.
Bone Marrow Transplants.
Cochlear Implants.
Supply of Materials and Equipment: 217 cases attended
•
•
•
Supply of medical surgical material.
Supply of medical equipment for daily use: crutches, wheelchairs, antieschar
mattresses, splints, etc.
Supply of implants and hearing aids.
Institutional Support: 76 cases treated
•
•
•
Equinotherapy scholarships for children with cerebral palsy.
Donations to Government and Non-Government Entities such as Non-Profit Foundations
and Civil Associations, Hospitals Luis Razetti, José Gregorio Hernández, Pérez de
León, Domingo Luciani, Magallanes de Catia, José María Vargas, Hospital Militar Carlos
Arvelo, Manuel Núñez Tovar, José Ignacio Baldó del Algodonal, etc. and Bolivarian
Schools.
Programs for the supplying of eyeglasses, medicine and toys.
In addition, as of 2007, PDVSA has allocated financial resources and support with human
resources and logistics for community support:
•
•
•
•
•
•
Conditioning of Hospital Modelo de Mariara, Carabobo State.
Electricity services for communities of rural zones in Barinas and Apure States.
Completion of Guasdualito Market, Apure State.
Contribution to the Fishing Association of Amuay, Falcón State.
Project for Recreational and Tourism Area Generalísimo Francisco de Miranda, Colina
Municipality Colina, Falcón State.
Improvement to infrastructure of Fundación del Niño of Anzoátegui State.
93
•
•
•
•
•
•
•
•
•
•
Pavement Plan, Falcón State.
Support to Nucleus for Endogenous Development Fabricio Ojeda, Libertador
Municipality, Metropolitan Area.
Construction of 2 Gabion Dams for Control of Sediments of the Micro basin of Hospital
El Algodonal.
Conditioning of Círculo Militar de Caracas, Proyecto Adecuación Eléctrica, Aire
Acondicionado, Infrastructure work of Salón Venezuela.
Community Program Moral y Luces in schools of the Metropolitan Area, improvement
and reconditioning and provision of school supplies.
Performance of 40 mega – programs performed in the Central, Metropolitan and West
regions, in which approximately 123,000 persons were treated.
Donation of 4.62 million liters of fuel and lubricants.
Adaptation of schools and sports complexes that generated 78 direct and 162 indirect
jobs.
Adaptation of the Module for Aviation Supply in Caicara del Orinoco, for the purpose of
providing basic aeromedical transportation and logistics in Indigenous Communities and
the Armed Forces in Border Areas. This action is established in the Strategic Plan for
Development and Consolidation of the South of the Country.
FONDEN
The Reform of the Central Bank of Venezuela Law (BCV), effective since July 20, 2005,
established a new process for foreign currency transactions of PDVSA. Under this new
provision, PDVSA is under the obligation of selling to BCV only income in foreign currency
necessary to meet its obligations in local currency. The remaining sums in foreign currency may
be held by PDVSA to meet its obligations and investments in foreign currency. Any excess must
be transferred by PDVSA to “Fondo de Desarrollo Nacional (FONDEN)”, an entity created by
National Government on September 8, 2005, to support the social projects with productive
investments, education, health, attention to special situations and improvement of the profile and
balance of the foreign public debt.
From the creation of FONDEN, PDVSA has allocated $15,141 million, as follows:
YEARS
Contributions to FONDEN (MMUS$)
2005
2006
2007
1,525
6,855
6,761
TOTAL CONTRIBUTIONS PDVSA
15,141
Likewise, Fonden receives resources from BCV in accordance with current laws and foreign
currency agreements.
The total resources contributed to Fonden, have been allocated by National Government, to the
following projects and other:
Main Projects Funded by FONDEN (MMUS$). Information supplied by FONDEN
Allocated
Performed
2005 -.
2007
%
Completed
Line III section El Valle - La Rinconada
439
376
86
Line IV Section Capuchinos - Plaza Venezuela
335
244
73
94
Maracaibo Subway
255
235
92
Valencia Subway
194
146
75
Los Teques Subway
328
251
77
Road System of Third Bridge over the Orinoco River
285
251
88
364
339
93
733
672
92
Acarigua – Barquisimeto Highway
55
43
78
Readap. of Central Western System "Simón Bolívar",
section: Puerto Cabello - Barquisimeto and Yaritagua –
Acarigua
211
50
24
Metro Cable System San Agustín del Sur
57
10
18
Metro Light System Caracas Guarenas Guatire
250
196
78
Line V Caracas Subway Bello Monte Parque del Este
157
119
76
Line II Los Teques Subway
235
120
51
Termozulia Thermoelectric Plant
282
201
71
Thermoelectric Plants Ezequiel Zamora and Alberto Lovera
15
12
80
Consolidation of Distribution Networks of Monagas and
Delta Amacuro States
90
76
84
Electricity Service of Apure State
126
126
100
Expansion Project of Pequiven Plant in Morón
441
303
69
Energy Revolution
767
766
100
Expansion of Polyethylene Plant
73
72
99
Road System of Mixed Bridge over Orinoco River
631
574
91
Hydroelectric Central Macagua I
126
74
59
Steel Concentration Plant
125
64
51
National Steel Company
124
-
-
Seamless Tube Plant
25
-
1
Inst. Plant for Production of Rails
4
-
-
Const. Aluminum Lamination Center
130
2
2
National Telecommunications Network
144
41
28
382
-
-
Cons. of Central Railway System "Ezequiel Zamora"
Section: Caracas - Tuy Medio
Central Ezequiel Zamora section: Puerto Cabello – La
Encrucijada
Barrio Adentro IV
95
Capitalization of Banco Agrícola de Venezuela
326
326
100
327
327
100
90
36
40
3,252
3,251
99
First phase of Construction of Homes and Urbanism of
Housing Development of Ciudad Zamora, Cúa, Miranda
State.
45
25
56
8,822 houses for completion of Work of Cycle Closing
Program
137
117
85
158
113
72
Compensation to Families for Subsidence in Lake of
Valencia.
115
96
83
Emergency Axis
87
87
100
INAVI work for construction and completion of 7,292 houses
(end of cycle).
193
143
74
Barrio Adentro II
191
127
66
Continuation of Program VENESAT I (Implementation of
Simón Bolívar Satellite System)
137
120
88
3,677
2,086
57
Capitalization of Fondo de Desarrollo Agropecuario,
Pesquero, Forestal y Afines
Completion of Phase I of Sanitation Project of Guaire River
Basin
Beginning of Process to Restructure Public Debt
Construction of new development and purchase of houses
in primary market to assist and relocate the inhabitants of
Nueva Tacagua, Barrio Nueva Esparta, Ojo de Agua, etc,
because of the emergency in Jan. 2006.
Projects of the Ministry of Popular Power for Defense
•
FONDESPA
“Fondo para el Desarrollo Económico y Social del País (FONDESPA)” was created in 2004 to
comply with the proper use of income from hydrocarbons in the national economy, placing oil
resources at the service of the country to build a new economic model eliminating situations of
disparity.
A summary of the contributions of PDVSA to FONDESPA, in the years 2004, 2005, 2006 and
2007 follows:
MMUS$
Years
Contributions
Made
Allocated by National
Government
Accumulated
Performance as of 2007
%
Completed
2004
2,000
2,000
1,874
94
2005
2,000
2,000
1,847
92
2006
229
229
4,229
4,229
96

3,721

88
These resources have been allocated to projects in the following areas:
Project Area
Roads and Infrastructure
Public Transportation
Allocated
Nat. Gov.
763
Performed
2004 - 2007
644
% Completed
1,107
1,027
93
806
793
98
586
559
95
104
92
88
Electric Energy
Endogenous Development, Agro industry
and Medium-Sized Companies
Communications, Studies and
Environmental
Domestic Agricultural Development
84
304
303
99
Basic Industries
32
7
22
Public Banking
50
50
100
231
-
-
50
50
100
196
196
100
4,229
3,721
88
National Defense
Regional Integration & Unity
Fondo de Inversión y Desarrollo Garantía
Nacional
A detail of projects being performed with contributions of FONDESPA by area is shown below:
Public Roads and Infrastructure
Amount
Allocated
Gran Mariscal de Ayacucho, AragüitaHiguerote Highway
Roads limiting Cojedes: Dos CaminosS.J. de los Morros
San Cristóbal-La Fría Highway
Antonio José de Sucre Cumaná-PLC
Highway
Gran Mariscal de Ayacucho Highway
(Section T8)
Machinery and/or Equipment MINFRA
José Antonio Páez Highway
Main Agricultural Roads of Barinas
State
Expressway San Cristóbal-Ureña
Financial
Performance
%
Compl Performing Entity
eted
225
192
85
INVITRAMI
100
81
81
FONTUR
73
59
81
IVT
58
41
71
SAVES
52
52
100
COVINEA
99
49
87
43
88
88
FONTUR
FUND-PROPAT.
37
34
92
INTRAVIAL
27
15
56
IVT
97
Road Morón-Boca de Aroa-Tucacas
11
10
91
INVIALFA
Navigation Channel of Orinoco River
(Central and Eastern)
Road Encontrados - El Cruce
29
29
100
INC
3
1
33
FONTUR
763
644
84
Public Transportation Projects
CONVIASA airline
Maracaibo subway
Mass Transportation of
Barquisimeto
Los Teques subway
Continuation of Linear System
work of TROLEBUS Mérida
Continuation of Railroad
Caracas Tuy Medio stage I-II
Railroad system section Pto.
Cabello – La Encrucijada
Re-adaptation of Railroad
System C.O. Simón Bolívar
Railroad Project section of
Section Chaguaramas – Las
Mercedes
Railroad Project section Turén –
El Baúl
Railroad Project section La
Encrucijada – S.F. de Apure
Changes and Update of
Guayana Dragging
Amount
Allocated
Financial
Performance
59
50
59
49
%
Compl
eted
100
98
257
257
100
TRANSBARCA
50
50
100
M. LOS TEQUES
36
32
89
TROLMERIDA
273
272
99
IAFE
50
50
100
IAFE
80
80
100
IAFE
85
75
88
IAFE
40
-
-
IAFE
120
100
83
IAFE
7
3
43
INC
1.107
1.027
93
Performing Entity
CONVIASA
METRO MCBO
Electric Energy Projects
Combines cycle plant Termozulia
Thermoelectric Plant Ezequiel
Zamora
Thermoelectric Plant Pedro
Camejo
Electricity Generation Plant
Palavecino
Hydroelectric Central Fabricio
Ojeda ( La Vueltosa)
Work in the areas of energy
transmission and distribution
Communal Projects for Energy
Tables
Hydroelectric Central Masparro
Amount
Allocated
Financial
Performance
195
195
%
Compl
eted
100
140
129
92
CADAFE
107
107
100
CADAFE
55
55
100
ENELBAR
40
40
100
CADAFE
245
243
99
CADAFE
19
19
100
5
5
100
98
Performing
Entity
ENELVEN
CADAFEENELBAR
CADAFE
806
793
98
Projects for Endogenous, Agro industrial and Medium-Sized Company Development
Endogenous development
Patria Bolivariana
Fondo de Desarrollo
Metalmecánico y
Agroindustrial
Construction of Cement Plant
Additional Resources Misión
Vuelvan Caras
Recovery of Facilities of
Fuerte Mara
Purchase of Iran Machinery
Irrigation System Diluvio – El
Palmar
Agroindustrial and Sugar
Complex Ezequiel Zamora
Sugar Complex Río Cojedes
Resources for Cereal and Oil
Seed Companies
Resources for Milk
Companies
Reactivation of Productive
Apparatus of the Zulia Region
Industrial Conditioning and
Exploitation of Products for
Endogenous Development
Amount
Allocated
Financial
Performance
%
Compl
eted
Performing Entity
6
6
100,00
CORPOZULIA
22
20
91
CORPOCENTRO
85
85
100
CVG
188
184
98
MINEP-FONCREI
10
10
100
CORPOZULIA
52
48
92
FONCREI
58
58
100
INDER
87
84
97
CAAEZ
18
6
33
CVA
6
6
100
CVA
2
2
100
CVA
50
48
96
CVA
2
2
100
FONCREI
586
559
95
Communication, Analyses and Environmental Projects
Sanitation of Río Guaire
Resources for VIVE TV project
Geological Exploration and
National Database
Additional Resources Tele Sur
Amount
Allocated
Financial
Performance
60
19
58
19
%
Compl
eted
97
100
14
4
29
INGEOMIN
11
104
11
92
100
88
TELESUR
99
Performing
Entity
SAMARN
COVETEL
V. Energy Cooperation Agreements
The energy integration of the people of Latin America and the Caribbean is fostered by the
Venezuelan Government through Petroamérica, an initiative part of Alternativa Bolivariana para
los Pueblos de Nuestra América (ALBA).
ALBA is an initiative to blend the countries of Latin America and the Caribbean into a single
economic, political and social block, based on justice, solidarity, equity, cooperation,
complementarity, common will to advance, equal development and respect of the sovereignty
and self-determination of the people, with emphasis on human, social, political and economic
development.
Petroamérica is a geopolitical enabler aimed at the establishment of methods for cooperation
and integration, using energy resources of the regions of the Caribbean, Central America and
South America. The sub-regional initiatives merge into Petroamérica: Petrocaribe, Petroandina
and Petrosur.
Petrocaribe:
The purpose of Petrocaribe is to solve asymmetries in the access to energy resources, through
a new favorable exchange structure based on fairness among the countries of the Caribbean
region, most of which are consumers of energy and without state control on the supply of
hydrocarbons. This group is comprises by 16 countries: Antigua and Barbuda, Bahamas,
Belize, Cuba, Dominica, Granada, Guyana, Nicaragua, Jamaica, Dominican Republic, Saint
Vincent and the Grenadines, Saint Lucia, Saint Christopher and Nevis, Surinam, Haiti and
Venezuela.
Petrosur:
The purpose of Petrosur is to establish methods of cooperation and integration between Brazil,
Argentina, Uruguay and Venezuela, based on complementarity, making fair and democratic use
of energy resources. Likewise, the negative effects on countries of the region from energy costs
are minimized by decreasing cost of transactions (eliminating intermediation), access to
preferential financing and use of commercial synergies to solve economic and social
asymmetries of the region.
Petroandina:
The purpose of Petroandina is to foster energy interconnection and joint investment in
economic, social and energy programs among Bolivia, Ecuador, Colombia and Venezuela,
leveraging joint economic and social development, under the principles of solidarity,
complementarity and mutual support.
Supply Agreements:
The main hydrocarbon supply agreements under the Energy Cooperation Agreements entered
into by Venezuela and countries of the Caribbean, Central America and South America are
shown below:
100
ENERGY COOPERATION AGREEMENT WITH PETROCARIBE:
Executed on June 29, 2005 between the National Government and countries of the Caribbean,
this agreement establishes the creation of the ALBA-CARIBE Fund, aimed at financing social
and economic programs with contributions from financial and non-financial instruments,
contributions that may be accorded from the funded portion of oil invoices and savings from
direct trade.
Furthermore, Petrocaribe improves the benefits established in the San José Agreement and the
Energy Cooperation Agreement of Caracas. Likewise, it grants preferential credit terms to
countries of the Caribbean with lesser relative development based on bilaterally agreed
installments.
In addition, financing terms are offered with percentages determined in accordance with the
price of barrel of the Venezuelan basket for a period term from 17 to 25 years, which include two
years of grace and application of an interest rate of 1%.
101
Likewise, this agreement establishes a system to offset debts in which Venezuela may accept
trade of goods and services at preferential prices as payments. Some of the products that
Venezuela may acquire include sugar and bananas.
CARACAS ENERGY COOPERATION AGREEMENT (ACEC):
Executed on October 19, 2000 by National Government and countries of Central America and
the Caribbean, it has been performed in several stages because of the willingness of the
Venezuelan state to expand coverage of the agreement to any countries requesting it and
meeting the requirements and conditions to become beneficiaries.
In the first phase, the agreement was executed by Dominican Republic, Guatemala, Costa Rica,
Panama, El Salvador, Jamaica, Haiti, Honduras, Nicaragua, Barbados and Belize. In
subsequent phases, it was signed by Bolivia, Paraguay and Uruguay.
These agreements vary in supply volumes, with regards to energy structures, characteristics and
internal consumption of each country. It establishes the sale of crude oil or refined products
payable in a term of up to 15 years, a grace period of one and a half years and an average
annual interest rate of 2%. This agreement works in parallel manner with the San José
Agreement and complements it.
Furthermore, this agreement establishes that its application will be exclusively for the public
entities supported by the Venezuelan state and the country executing it. Invoicing of sales will be
made based on the international market reference price. Likewise, payment of interest and
principal may be made through commercial channels to offset balances, provided that such are
requested by the state.
INTEGRAL COOPERATION AGREEEMENT (CIC):
On October 30, 2000, the presidents of Cuba and Venezuela entered into an agreement in
which they undertake to prepare and develop, under mutual agreement, cooperation projects
and programs. This mechanism establishes the sale of crude oil by Venezuela of up to 92
MBPD, under a mixed short-term and long-term structure.
Under the Integral Cooperation Agreement executed between Argentina and Venezuela, on
April 6, 2004, the general framework was established to carry out energy cooperation through
annual fuel supply of up to 8 MBPD of fuel oil and 1 MMB of gas oil.
SAN JOSÉ AGREEMENT (ASJ):
Executed on August 03, 1980, this agreement is aimed at ensuring the supply of hydrocarbons
to countries of Central America and the Caribbean to encourage social and economic
development. This program is valid for one year.
Under this agreement, Mexico and Venezuela, both on the list of main exporters of crude oil,
jointly supply 160,000 barrels per day of crude oil or refined products, 80 MBPD each, to
participating countries under special financing conditions and a plan to facilitate the development
of energy projects. The financing structure ranges from 20% to 25% of the petroleum invoicing
of each beneficiary country.
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ENERGY TREATY OF ALBA (ALBA):
On December 14, 2004 Venezuela and the Republic of Cuba issued a joint statement and
announced the first agreement for application of the “Alternativa Bolivariana para la América
(ALBA)”. Pursuant to article 3 of this agreement, on April 27 and 28, 2005, both nations
prepared and approved the Strategic Plan for Application of ALBA, thus the initiative was
formally established.
One year later, in April 2006, the Republic of Bolivia executed this treaty. The Republic of
Nicaragua adheres to in January 2007, and in January 2008 the Commonwealth of Dominica
becomes a party thereto.
In April 2007, during the V Summit of ALBA, Cuba, Bolivia, Nicaragua and Haiti, joined the
Energy Treaty of ALBA, which establishes supply of 100% of the hydrocarbon demand of those
countries from Venezuela and financing of 50% of the invoice generated. With the 50%
financed, it was proposed to create a fund to encourage agricultural projects, production of food
and small and medium-sized industry.
The main purpose of this treaty is to ensure the balance of the current energy matrix of
signatories based on the construction of an energy matrix of ALBA, based on rational use of
energy, maximum savings and efficiency and development of alternative sources through the
following fundamental axes:
•
Petroleum: Establishment of the Block of ALBA, in the Orinoco Oil Belt located in
Venezuela, to obtain oil reserves to ensure the energy supply to member countries for the
next 25 years.
•
Gas: Initiatives to facilitate gas supply to member countries as a source of economic energy
that is less polluting, as well as development of projects to substitute liquid fuels,
encouragement of household use, substitution of liquids currently used to produce electricity
and development of a vehicle sector with use of vehicle gas.
•
Electric Energy: Encourage use of sources of primary energy at its disposal, and
maximization of use of hydroelectric and thermoelectric energy, based on gas and combined
cycles; replacement of liquid fuels with gas or other more economic fuels.
•
Alternative Energy: Foster development of joint projects and lines of research to promote
use of all alternative energy available in territories such as geothermics, mini hydroelectric
centrals, wind energy, solar energy, etc.
•
Energy Savings: Development of programs for substitution of devices with high energy
consumption with other more efficient equipment; incandescent bulbs with energy-saving
bulbs; high-consumption electricity generators with gas systems and combined cycles.
Likewise, programs for industrial reconversion will be performed to complement the
economies of member countries and take optimal advantage of the disposition of energy
resources existing in its territory.
PDVSA América S.A.
On June 13, 2006, the Board of Directors of PDVSA approved the creation of PDVSA América
S.A., to materialize and monitor the regional energy cooperation initiatives described above
together with National Government in accordance with the guidelines issued by the Ministry of
Popular Power for Energy and Petroleum.
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The activities planned for the region, corresponding to all levels of the value chain of
hydrocarbons, in addition to including projects as diverse as those associated with the electricity,
agricenergy sectors, creation of trust funds for strengthening local economies and investment in
social work, development of energy infrastructure, transfer of technology, training of human
resources to strengthen the independence and sovereignty in terms of energy of each nation.
Therefore, in addition to promoting energy cooperation, efforts are aimed at increasing the
dynamics of the economic, political and social sectors of nations of Latin America and the
Caribbean; fostering the establishment of a new global energy map, as part of the diversification
of markets strategy encouraged by Venezuela.
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VI. New Business
a. Oil Service Companies
Aligned with the strategies of National Government, PDVSA develops projects and methods to
encourage the industrial development of the country, with sovereign and humanistic criteria and
in harmony with the environment, respecting the vocations of the different locations of our
country and supporting the construction of a new, socially inclusive economic structure.
As part of the policies for recovery of National Oil Sovereignty and based on national
complementary strategies, interdependence and international solidarity, PDVSA will incorporate
companies to supply goods and provide services to leverage the strategic projects envisioned in
the Plan To Sow Petroleum, through manufacturing, assembly, production and supply of goods,
equipment, spare parts and necessary strategic materials for development of the oil industry,
furthermore, it will provide strategic services to achieve full productive and technological
sovereignty in those activities.
In this connection, projects are launched to create long-term associations with domestic and
foreign associations, under public and private “Empresas de Capital Mixto” manufacturing goods
and rendering services in strategic sectors for performance of projects envisions in the Plan To
Sow Petroleum.
In addition, as part of the geopolitical strategy established by the state, since March 2006 energy
cooperation agreements have been executed between Venezuela and the Republics of
Argentina, Belarus, Mali, Angola, Malaysia, the Russian Federation, the Islamic Republic of Iran,
the Arabian Republic of Syria, the People’s Republic of China and the Socialist Republic of
Vietnam, and others, where there are opportunities to access technology and know-how in areas
such as assembly and manufacturing of drilling rigs, offshore platforms, ships for servicing
platforms, pipelines and others, and in the service sector: operation and maintenance of drilling
rigs, well and seismic services.
Under this approach, PDVSA created the Corporate Management of Oil-Service Companies to
coordinate the creation of “Empresas de Capital Mixto”, with the mission of guiding and
supporting the different businesses and subsidiaries in complying with strategic premises and
fundamental factors for the creation of these associations:
•
•
•
•
•
•
Constant and extended demand of goods and services of a strategic nature for
the country, mainly in areas in which there is a high dependency on foreign
companies.
Goods and services not produced in Venezuela or under production shortages.
Creation of capital-intensive companies.
Transfer of technology and know-how by foreign partners.
Use of capacities available in the domestic productive sector.
Diversification of production with incorporation and development of organized
communities.
The objectives established by this entity include the following:
•
•
Identify opportunities for creation of “Empresas de Capital Mixto” based on
demand of goods and services required in the projects of the Plan To Sow
Petroleum.
Encourage through businesses and subsidiaries the creation of “Empresas de
Capital Mixto” for manufacturing and assembly of goods and services with a
socialist approach.
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•
•
•
•
Generate synergies with brotherly countries and the domestic productive
sector and environment to encourage transfer and development of new
technologies.
Leverage development of the supply chain of “Empresas de Capital Mixto”,
ensuring spaces for participation and development of the domestic productive
sector.
Maximize the supply of goods and services of the oil industry through efficient
operation of the “Empresas de Capital Mixto” created.
Insert “Empresas de Capital Mixto” in the foreign market through export of
goods and services of the oil industry to brotherly countries.
Main achievements:
•
Coordination of the integral process for the creation of “Empresas de Capital Mixto” for
the assembly and manufacturing of goods and provision of services associated with the
operations of the business lines of Exploration and Production, Trade and Supply and
subsidiaries CVP and Bariven, taking part in the phases of visualization and
conceptualization of “Empresas de Capital Mixto”. “Empresas de Capital Social”
assigned to the Hydrocarbons Division of PDVSA Industrial will assemble and
manufacture drilling rigs, offshore platforms and ships for servicing platforms;
manufacturing of large and small diameter pipelines, engines and parts,
electrosubmersible pumps; and equipment for GNV (compressors and dispensers,
cylinders, conversion devices, vehicles and gas engines). In addition, “Empresas de
Capital Mixto” ascribing to the Electricity Division of PDVSA Industrial will manufacture
energy-saving light bulbs and transformers. Furthermore, “Empresas de Capital Mixto”
assigned to PDVSA Servicios will perform operations and maintenance of drills, seismic
services and well services: cementation and stimulation, electricity registers and drilling
fluids.
•
The visualization and conceptualization of projects for creation of “Empresas de Capital
Mixto” were completed. These new companies will be ascribed to the home division of
PDVSA Industrial for assemblying and manufacturing of furniture, household appliances
and manufacturing of textiles and shoes, identifying opportunities for development of
organized opportunities.
•
Different negotiations were made by businesses and subsidiaries where it provided
advisory in the preparation of legal document templates (by laws and joint ventures) for
the creation of “Empresas de Capital Mixto” based on current laws and fundamental
aspects of economic and financial feasibility, which facilitated negotiation for association
with foreign companies owners of technology in the strategic areas identified.
•
The Invitation Procedure for the incorporation into the Domestic Productive Sector was
prepared for potential partners of the “Empresas de Capital Mixto” to be created; in
addition, opportunities were identified for development of associations and small and
medium-sized companies in the chain supply of “Empresas de Capital Mixto” to be
created.
•
“Expo Feria Belarus 2007” was coordinated and the brotherhood bond and commercial
relations between Venezuela and Belarus were reinforced. Approximately 1,200
products manufactured in that country were on display, and opportunities for new
businesses and/or alliances for the technological development of Venezuela were
identified.
•
Diagnosis of the situation of “La Petrolia” Park, located in Tachira State, was performed
as part of the proposal for the creation of the Petroleum Museum in Venezuela.
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By the end of 2007, Petróleos de Venezuela, S.A. had created subsidiaries PDVSA Industrial
and PDVSA Servicios, to which “Empresas de Capital Mixto” manufacturing goods and
rendering services will be ascribed. These subsidiaries will ensure efficient and effective
operation of each of the companies as well as compliance with the purposes for which these are
being created.
PDVSA Industrial:
This subsidiary incorporated in the fourth quarter of 2007 will be directed at developing the
industrial capacity of the Hydrocarbons, Electricity, Home and other sectors, domestically
manufactured goods with high quality, safety and environmental culture standards. These
efforts ensure innovation and sustainability with the highest percentage of domestic value
added, applying the principles of efficiency, efficacy and transparency. In addition, technological
sovereignty is reinforced to contribute to the elimination of poverty and support the oil and nonoil productive activities, as well as subsequent exports to encourage and foster integration under
a new international geopolitical model.
Its scope includes promotion and involvement in and development of a national industrial web
through creation of “Empresas de Capital Mixto” and Industrial sectors to support the activities of
the value chain of PDVSA and its Subsidiaries, reducing dependency on external or monopolic
supply sources for critical equipment.
The following are defined as organizational principles:
•
•
•
•
•
•
•
•
Foster technological sovereignty as a fundamental core of national policies.
Development of industries supplying materials and equipment necessary for the country
and reinforcing the Venezuelan industry.
Structural enhancement, which translates into efficiency and productivity.
Promote development of high-quality products, improving existing products under the
highest worldwide levels.
Transparency in use of resources and presentation of accounts.
Development of businesses in accordance with the new legal framework governing
“Empresas de Capital Mixto”.
Reinforcement of agreements executed, and sponsorship of potential agreements,
through maintenance of policies aimed at the development of industries and increase of
value added and innovation of products between member countries of said agreements
and conventions.
Ensure integral development of employees, their family groups and neighboring
communities referring to education, housing, health and entertainment under solidarity
and cooperation principles.
Impact:
• Creation of 24 “Empresas de Capital Mixto” of the state for manufacturing critical goods
in the operations of the Hydrocarbon, Electricity and Household sectors.
• Generation of 9,870 direct jobs.
• Creation and consolidation of the new productive model aligned with the socialist vision
of production and supply of local and foreign markets.
• Industrialization process incorporating the environmental factor as a first-order variable.
• Decrease of imports of equipment and components that can be manufactured in the
country.
• Leverage of urban development of impact zones of PDVSA Industrial and its “Empresas
de Capital Mixto” throughout the Venezuelan territory.
• Reinforcement of the production capacity according to the potential demand of supplies
caused by demographic growth.
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•
•
•
•
Redirection of financial resources and human capital toward the industrial and
productive sectors.
Training of employees with high ethical and moral values, as well as, social
responsibility in the different areas required, ,so that they can integrate with and commit
to communities as actors for social changes.
Satisfy the needs of the Venezuelan people by preparing products that comply with
standards, procedures, methodologies, designs, programs and plans to aid in fulfilling
the programs and plans of the country.
Greater control over product and equipment quality control, generating their own
innovative product technology.
Main projects:
PDVSA Servicios:
This subsidiary was created in the fourth quarter of 2007, and its main purpose is to provide
services specializing in the oil business areas of Exploration and Production, such as operation
and maintenance of drills, electricity records, seismic services, drilling fluids, cementation and
encouragement of other related services aimed at domestic and foreign sector, with high
standards of quality, security, environmental culture, competitiveness and innovation to promote
consolidation of technological sovereignty, increasing national value-added, applying ethical and
moral principles to support the human needs of our people and supporting the National Plan for
Economic and Social Development of the Nation.
The following are its organizational principles:
•
•
•
Governance and participation.
Transparency in use of resources and presentation of accounts.
Structural optimization, which translated into efficiency and productivity.
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•
•
•
•
•
•
Operation under the premises of operational reliability, environmental culture, security,
high quality standards and certification of staff, equipment and tools.
Alignments of strategies with the national development plan to ensure that the
“Empresas de Capital Mixto” incorporated are efficiently distributed in a fair manner and
in benefit of society as a whole.
Development of businesses in accordance with new laws governing “Empresas de
Capital Mixto”.
Strengthening of agreements and sponsorship of potential through maintenance of
policies aimed at providing of specialized drilling services to increase added value and
innovation of products among the members of such conventions and agreements.
High awareness of production sovereignty and encouragement of investment of national
capital.
Commitment with the people.
This plan, structured in 2007, brought about creation, in association with the Republic of
Belarus, of the Mixed Capital Company “Sísmica Bielovenezolana S.A.”, which will provide
seismic services.
b. Social Production Companies
The Social Production Companies program of PDVSA was approved by its Board of Directors in
October 2005. The Social Production Companies program in the Plan To Sow Petroleum is the
core of the new economic and social model of the country to be applied in hiring all goods, work
and services. This program is based on six guidelines:
1. Registry of Social Production Companies
2. Social Offer
3. Social Fund
4. Financing of Social Production Companies
5. Promotion, development and support of Social Production Companies
6. Projects to stimulate Development of National Capacities
1- The Registry of Social Production Companies receives, organizes and centralizes information
on companies deciding to ascribe to the Social Production Company program, with the
commitment of social responsibility through which these opt to become suppliers of PDVSA.
From the beginning of the Social Production Company program and until the end of 2006, a total
of 2,073 productive companies were accounted for. By the end of 2007, 4,593 productive
companies were reported which are part of an overall total comprised of Social Production
Companies and Companies Promoting Social Production Companies of 6,666 companies
qualified and formally registered to take part in the bidding processes of PDVSA. From this
number of Companies, from this number 54% (3,606) correspond to Companies Promoting
Social Production Companies in charge of leveraging and transferring technological processes
of the core activities of the industry, through support to Social Production Companies, a
requirement for taking part in the bidding processes. The remaining 46% (3,060) correspond to
Social Production Companies, characterized by their social character; in these companies, there
is no social discrimination relating to employment or privileges associated with the top positions;
instead, they maintain equality among its employees, based on planning grounded on
participation under the regime of state and/or collective property.
The geographic distribution of the 3,060 Social Production Companies recorded in the 20062007 term is represented by 1,310 Social Production Companies in the western region
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integrated by the states of Apure, Barinas, Cojedes, Falcón, Mérida, Portuguesa, Táchira,
Trujillo and Zulia. 658 Social Production Companies are in the Central Region comprised of the
sates of Aragua, Carabobo, Capital District, Lara, Miranda, Vargas, Guárico, Yaracuy and
Federal Dependencies; and 1,092 Social Production Companies are in the east region with the
states of Amazonas, Anzoátegui, Bolívar, Delta Amacuro, Monagas, Nueva Esparta and Sucre.
With regards to 3,606 Companies Promoting Social Production Companies, the distribution is as
follows: 1,461 in the western region, 1,211 in the central region and 934 in the eastern region.
- DISTRIBUCIÓN GEOGRAFICA
2- The contribution on Social Officer of the Social Production Companies has been averaged in
accordance with the amount of the contract and located in a scale which has been allocated a
percentage ranging from 2% to 5%. In 2007, the allocation of the Social Offer amounted to 213
MMM Bs. distributed into five (5) representative items and social impacts: Education 94 MMM
Bs., Infrastructure 38 MMM Bs., Health 34 MMM Bs., Household 46 MMM Bs. and Public Roads
1 MMM Bs., in which over 90% of the social offer is aimed at Goods and the rest corresponds to
projects and services.
3- The Social Fund is built from contributions of the Social Production Companies who are
granted approval for a specified bidding process. These contributions are aimed at developing
projects in communities and are calculated based on a percentage of the contractual amount
accorded in the bid.
The Social Fund was implemented in September 2006, with a sum at the end of that year of 5
MMMBs. of Social Production Companies and 15 MMMBs. of Companies Promoting Social
Production Companies. By the end of 2007, the accumulated contributions of this fund were 24
MMMBs. for Social Production Companies and 174 MMMBs. for Companies Promoting Social
Production Companies, resulting in an accumulated total from 2006 to 2007 of 222 MMMBs.
In 2007, it was approved for the Social Fund to be managed under the trust fund in Banco del
Tesoro, distributed as follows: 60% for endogenous development, 20% for Misión Ribas
Productiva and 20% for construction of houses.
4.- The Financing Fund is a tool for the development of Social Production Companies through
loans under special conditions to support its economic activity through the purchase of
infrastructure, goods, technological support, working capital and training of human resources to
improve its operating efficiency, thus resulting in an effective funding and support mechanism.
As of the end of 2007, funding of 10 Social Production Companies project was approved for a
sum of 3 MMMBs. for activities such as manufacturing metal mechanical parts, manufacturing
mandrels used in artificial gas lift, repair services and maintenance of powered and nonpowered units, maintenance of barges and floating units.
5- From the beginning of the Social Production Companies program, it has been understood that
the key element to support this new type of company is the promotion, development and support
of Social Production Companies to facilitate transfer of know-how and technology from highly
complex companies to companies with low complexity levels.
In 2007 efforts concentrated on technical and economic, as well as social and organizational,
activities of Social Production Companies. Related to the support process, PDVSA has invested
12,409 Man Hours in 617 Social Production Companies.
6.- Projects to stimulate Development of National Capacities. Its purpose is to carry out a plan
for sustainable Productive Development by creating companies of “medium” and “high”
complexity” which, in turn, promote transfer of know-how to create a solid, competitive and
functional network that may be linked to other industrial sectors of the country.
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•
Naval Industry. Specifications were prepared for the construction in the country of
vessels for supply and support to offshore platforms; early storage of gas and
compression of liquefied gas; proposals were made for construction of new vessels in
the country to satisfy the demand of construction and maintenance of vessels required
for the projects of the Plan To Sow Petroleum; preparation of training plans for the staff
of shipyards, technical and traditional education institutes, national naval workshops and
crew of vessels, which will boost the creation and training of new Social Production
Companies. The survey performed identified the following demand in the naval industry:
construction of twenty-five (25) support vessels, two (2) operation and maintenance
shipyards, nine (9) floating dams and eight (8) vessels for anchor management.
•
Chemical materials for Exploration and Production. Opportunities were defined in
three projects: asphaltene plugging, embeddings and corrosions and formation of
emulsions. Promotion and support of 5 Social Production Companies and 4 Promoters
of Social Production Companies for the transfer of 8 technological products of Intevep
(Inteflow® Endrill®, Intebios®, Biorize®, Intav®, Greenoil®, Intecarb® and Multigel®)
•
Venezuelan Platform. Memoranda of Understanding were executed for discussion and
subsequent creation of joint ventures of mixed capital with PDVSA to manufacture and
build steel and concrete platforms and to include of cooperatives and Social Production
Companies in surveys to evaluate and quantify domestic capacities and national
participation of Gas Projects in Venezuela.
•
Regarding to Venezuelan Well Project. Technical workshop was established between
PDVSA and business representatives of the sector of oil goods and services for
identification of priority development areas. In the Apure Social District, substitution of
flotation equipment is in casings was made.
•
Industrialization Initiatives of Hydrocarbons in the plastic sector. Integration work
was continued with representatives of Asociación Venezolana de Industrias Plásticas
(AVIPLA), Asociación Venezolana de la Industria Química y Petroquímica (ASOQUIM),
Petroquímica de Venezuela, S.A. (PEQUIVEN), Corporación Americana de Resinas
C.A. (CORAMER), Ministry of Light Industries and Trade (MILCO), Ministry of Science
and Technology (MCT) and PDVSA, to define the strategic plans and course of action to
activate the National Plastics and Rubber Sector as a platform for development of the
National Plastics Plan. Likewise, support and advisory was provided to companies
interested in developing transformation of polymers in finished goods.
•
Recovery Plant of Used Lubricant Oil: Completion of the process to choose
technologies to recover lubricant bases API Groups I and II and completion of Phase I of
the pilot study on generation sources of used oils in Guaicaipuro Municipality.
Other activities fostered within the Social Production Program include the following:
•
Business Rounds which consist of informing on the demand of goods, projects and
services of the public sector, which is part of the Exceptional Purchase Plans of the
State, providing small and medium-sized companies, cooperatives, cooperatives
adhered to the Social Production Companies program and alternative companies
adhered to the Social Production Companies program with an opportunity to express
their interest in taking part in contractual processes.
From the Business Rounds held in Caracas, Puerto Ordaz, Puerto La Cruz and Ciudad
Ojeda, 294 processes to be hired by PDVSA were recorded, an equivalent of 391
MMM$., which represents 69% of the total demand of the country.
111
Misión Ribas Productiva has a merging point with the Social Production Companies
program of PDVSA. In 2007, macro and mini projects have been launched to expand the
participation levels in the short and long term. The objectives for Misión Ribas Productiva
are the following:
•
•
•
Strengthen and improve Misión Ribas so that it is an instrument of political,
economic and social transition, toward Socialism of the XXI Century.
Reinforce the consolidation of Community Production Networks.
Incorporation of program contents of the Work Orientation structure with the study
plan of Misión Ribas.
To promote social and productive projects with participants in accordance with the needs,
potentials and vocations of communities, six (6) macro projects were launched according to
geographic blocks, which contribute to integral endogenous development:
1. Construction of houses, completion and implementation of a processing plant of solid
waste and recovery of 500 hectares for sowing in cocoa in Miranda State.
2. Construction of houses, agricultural development and handicraft development in Zulia
State.
3. Nautical and Fishing Project, La Guaira Shipyard in Vargas State.
4. Production of buffalo cattle and construction of homes in the Orinoco Delta.
5. Production of buffalo cattle and construction of homes in Mata de los Indios, Monagas
State.
6. Multiple Agricultural Developments: Apure, Guárico, Barinas, Anzoátegui, Sucre,
Monagas.
From these macro-projects, a total of 136 projects are contemplated for an estimated sum of
6 MMM$., corresponding to 136 cooperatives with the capacity of generating 1,384 and
1,484 direct and indirect jobs, respectively, in which 50% were graduates of Misión Ribas.
The operation of Misión Ribas Productiva for the year 2007 amounted to 123 cooperatives
to carry out commercial activities of different types, which have generated a total of 1,084
direct jobs, from which 65% (706) are held by graduates inserted into positions of interest.
It should be noted that 37% of these projects are aimed at improving the links in the value
chain of agrifood and agrienergetic items indispensable for Venezuela; therefore, they are
aligned with the purposes of the new subsidiary PDVSA Agrícola. This articulation enables
the possibility of insertion of graduates from this program in sustainable projects for
production of raw materials such as Development of Sugar Cane, Oil Palm, Soy, Corn,
Legumes and other.
Misión Ribas Técnica is aimed at identifying and promoting training and employment
opportunities for graduates of Misión Ribas to improve social and economic conditions of
their families. In August 2007, Misión Ribas Técnica was launched to create technical
means in oil and gas activities; this preparation is mainly directed to graduates of Misión
Ribas and will have last four (04) semesters. Participants will receive a qualifications
equivalent to a medium technical degree in activities such as Drilling, Production of Crude
Oil and Gas, Welding, Mechanical Maintenance, Electro-instrumentation and Refining, in its
initial phase beginning on April 21, 2008. In its second phase, the specialties of
Transportation and Gas Distribution, and LPG Operations, Petrochemicals, Civil
Construction, Agricultural Operations, Naval Construction and Automotive Mechanics will be
developed. The curriculum includes Socio Productive Technological Training, General
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Training and Socio Political Training. This activity is being coordinated by GCEPS, GREPS,
RRHH and Misión Ribas.
c. Agricultural Sector Companies
PDVSA Agrícola, S.A.
Beginning in the third quarter of 2007, Petróleos de Venezuela is authorized to create the
new subsidiary PDVSA Agrícola, with the mission of fostering endogenous and territorial
development of the country through agrifood and agrienergetic production by 25% of
domestic requirements, as well as supporting to the performance of the “Plan To Sow
Petroleum” in the Agricultural area. PDVSA Agrícola is expected to perform strategic and
structural projects, in complete harmony with the environment and developed in a network of
productive chains integrating primary production and industrial processing and even the end
consumer. The main projects are the production of beef, milk, cooking oil, balanced food,
legumes, certified seeds, alcohol and the projects of PDVSA in the agro-industrial area.
As main activities of PDVSA Agrícola, it has established primary production, agro-industrial
processing and trade of agrifood and agrienergetic items, using organizational culture for
preparation, implementation and operation of projects under a Business Plan structured for
the progressive development of Agro-Industrial Complexes interconnected in productive
chains from the primary production up to finished products.
The following are the organization principles established:
•
Development of domestic agricultural production (animal and vegetable) of 25% of
strategic commodities of the country (beef, milk, fat, oil seeds and other) contributing
2,257,439 tons of food per year.
•
Implementation of 14 Agro-Industrial Complexes of derivatives and 59 Service Centers
supporting the domestic agricultural industry, located in the North Flatlands, ApureOrinoco and Orinoco Oil Belt axis.
•
Incorporation of 10,000 Agricultural Medium Technical graduates from Misión Ribas
Productiva in direct and integrated jobs in Cooperatives or Social Production Companies
of communities aimed at reinforcing rural agro-industrial development as a source to
generate goods and services for the new agriculture of the country.
•
Satisfaction of the food requirements of the population by introducing 25% of the
domestic production into the commercialization network of PDVAL.
•
Purchase of all technological, industrial, agricultural, rural-infrastructure and research
equipment required for the Business Plan 2007-2012.
•
Consolidation of the subsidiary by recruiting, choosing and developing human resources
highly committed to the country, with ethical and moral values for performance of the
activities set forth.
Impact to date reached
•
During the sowing cycle 2006-2007, a total of 1,250 hectares of seed plots were sown in
the states of Trujillo, Barinas, Portuguesa, Cojedes and Monagas.
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•
1,089 hectares of land were purchased for the construction of Agro-Industrial
Complexes and derivatives of sugar cane and agricultural development of first-level
polygons.
•
2,500 small and medium-sized producers were chosen and the organization process
was launched.
•
The equipment of the first four commercial plants for production of alcohol is being
manufactured, through agreements with Brazil and Cuba.
•
Construction of the first four Agro-Industrial Complexes of sugar cane derivatives by the
Construction Company of Alba.
•
Beginning of work on land of first-level polygons located in Barinas, Portuguesa,
Cojedes and Trujillo.
•
Continued construction of the two Central Sugar Mills in Cojedes and Monagas.
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VII. Electricity Sector Companies
In 2007 the reorganization of the Domestic Electricity Sector was launched to improve the quality
of service throughout the country, maximize efficiency in the use of primary energy production
sources and system operation and redistribute current operating loads and functions of the
sector.
Corporación Eléctrica Nacional S.A, assined to the Ministry of Popular Power for Energy and
Petroleum is incorporated as a state-operated company in charge of generation, transmission,
distribution and commercialization activities of electric power and energy. Its capital stock will be
determined and subscribed as follows: 75% by Venezuela, through the Ministry of Popular
Power for Energy and Petroleum and 25% by PDVSA.
Decree-Law 5,330 dated July 31, 2007 orders the Republic, PDVSA and Corporación
Venezolana de Guayana to transfer the shares each owns in public electricity companies to
Corporación Eléctrica Nacional, S.A. and those public electricity companies will become
subsidiaries and will be ascribed to the aforementioned Ministry.
Within a period of 3 years from publication of the aforementioned decree, the following
companies must merge into a single legal entity: Energía Eléctrica de Venezuela, S.A.
(ENELVEN), Empresa Nacional de Generación, C.A. (ENAGEN), Compañía de Administración y
Fomento Eléctrico, S.A. (CADAFE), CVG Electrificación del Caroní, C.A. (CVG, EDELCA),
Energía Eléctrica de la Costa Oriental del Lago, C.A. (ENELCO), Energía Eléctrica de
Barquisimeto, S.A.(ENELBAR), Sistema Eléctrico del Estado Nueva Esparta, C.A. (SENECA),
as well as subsidiaries of Corporación Eléctrica Nacional, S.A.
Any private companies in the area of generation, transmission, distribution and
commercialization of power and electric energy, as well as their subsidiaries and affiliates as of
the effective date of the decree are under the acquisition process by the state, intervened
administratively or legally, or any other action that the state may pursue to comply with the
above paragraphs.
The Corporation may create, through the Stockholder’s Meeting, new companies to transfer one
or all of the activities allocated to these companies through the decree, thus transforming it into
a parent company for the operators.
Given the importance of the electricity service for development of the country and social
wellbeing, and, since its regulation and provision surpasses the municipal and state scope, the
generation, transmission, distribution and commercialization activities of power and electric
energy will not be subject to state or municipal taxes.
All sales of goods and provision of services between the different electricity companies will not
be subject to taxes, according to the Value-Added Tax Law.
A summary of the adquisition transactions is shown below:
(a)
C. A. La Electricidad de Caracas
On February 15, 2007, PDVSA entered into an agreement with The AES
Corporation (AES) and its subsidiary AES Shannon Holding, B.V., for the purchase
of its interest in C.A. La Electricidad de Caracas (EDC), equivalent to 82.14% of
shares. In accordance with Venezuelan law, to purchase the remaining outstanding
shares, PDVSA made a public offer.
115
From April 8 to May 8, 2007, PDVSA made a public offer to purchase up to 17.86%
of the remaining outstanding shares of EDC, for the equivalent in bolivars of
$0.2734 per share (determined at the official exchange rate for the sale of dollars
effective as of said date). This included, in parallel, a public offer in Venezuelan and
an offer in the United States of America for the purchase of each and every
American Depositary Share (ADS’s) in circulation, each representing 50 shares of
EDC at a price of $13.6675 per ADS.
As a result of the public offer and the agreement with AES, PDVSA purchased
93.61% of the total outstanding shares of EDC for a total of $844 million.
(b)
Sistema Eléctrico del Estado Nueva Esparta, C.A.(SENECA)
On February 8, 2007, PDVSA signed a Memorandum of Understanding with CMS
Energy Corporation, to purchase its shares in the company Sistema Eléctrico del
Estado Nueva Esparta, C.A. (SENECA), for $106 million, which represent 88% of
the capital stock of that company. On March 7, 2007, the Stockholder’s Meeting of
PDVSA approved the purchase under the terms accorded, which was completed on
March 30, 2007.
(c)
Other Electricity Sector Companies
On July 6, 2007, PDVSA purchased all of the shares in C.A. Electricidad de
Valencia (ELEVAL) for $190 million and on November 16, 2007 it purchased all of
the shares of C.A. Luz y Fuerza Eléctrica (CALIFE) for $55 million.
116
VIII. Litigation and Other Claims
On June 25, 2007, the Constitutional Chamber of the Supreme Tribunal of Justice (TSJ) denied
the appeal for revision filed by the legal counsel of PDVSA Petróleo, S.A. against a decision
dated February 16, 2006 of the Political Administrative Chamber of the Supreme Tribunal of
Justice, which denied the appeal filed by PDVSA Petróleo, S.A. against resolution of the
National Integrated Customs and Tax Administration (SENIAT), dated November 17, 1999,
related to tax obligations corresponding to the years 1994, 1995 and 1996 of $839 million. At
December 31, 2007, the reserve for litigation and other claims includes $839 million in this
connection.
On July 30, 2007, the 9th Superior Court on Contentious Tax Matters issued a ruling regarding
this appeal lodged by PDVSA Petróleo, S.A. against assessments made by the Tax
Administration which object to the deductibility of the contribution made in accordance with
article 6 of the Organic Law Reserving Hydrocarbon Industry and Trade for the State. Such
ruling concludes that only “oil” exports will be subject to deductions and not other products or
byproducts of hydrocarbons; and that it must be construed in a restrictive manner since it
pertains to a tax benefit (deduction). PDVSA management and its legal consultants have stated
that the aforementioned ruling initially seems to be consistent with the legal text; however, the
deductibility criteria will be maintained in an appeal against the Political Administrative Chamber
of the Supreme Tribunal of Justice. At December 31, 2007, the reserve for Litigation and Other
Claims includes $338 million in relation to this process.
On July 25, 2007, the Company paid $110 million to New Brunswick Power Corporation ("NB
Power") with regards to an out-of-court settlement between the parties, thus ending the claim
filed in September 2005 by New Brunswick Power Corporation ("NB Power") before a Canadian
court and an arbitration request before the International Council for Dispute Resolution of the
American Arbitration Association in New York, against PDVSA, Bitúmenes Orinoco, SA
(BITOR) and the Bolivarian Republic of Venezuela, based on, among other aspects,
infringement of an alleged supply agreement of Orimulsión®. These procedures were
suspended until the Federal Court of New York makes a pronouncement on the request by
PDVSA and BITOR relating to the existence of the Agreement. NB Power seeks compensation
of damages of CAD 2,000 million (Canadian dollars).
In February 2002, LYONDELL-CITGO filed a claim against PDVSA and PDVSA Petróleo
before a district court in the United States of America, located in the South District of Nueva
York. LYONDELL-CITGO claimed that PDVSA and PDVSA Petróleo erroneously claimed
Force Majeure and reduced shipments of extra heavy crude oil to LYONDELL-CITGO.
LYONDELL-CITGO requested compensation for damages for alleged infringement of the
crude-oil supply agreement between LYONDELL-CITGO and Lagoven (subsequently merged
into PDVSA Petróleo), and the supplementary supply agreement between LYONDELL-CITGO
and PDVSA; both agreements dated May 5, 1993. In July 2006, LYONDELL-CITGO and
PDVSA announced the end of litigation relating to the Supply Agreement. In March 2006
CITGO paid Lyondell Chemical Company (majority stockholder of LYONDELLCITGO) $80
million for the settlement of existing claims.
The Company is involved in other claims and actions of a legal nature in the normal course of its
operations of $3,500 million. In the opinion of management and its legal counsel, the outcome
of these claims would not have a materially adverse effect on the financial position of the
Company, the results of its operations or its liquidity.
Based on analysis of information available, accrued and other liabilities include a provision, at
December 31, 2007 and 2006, of $1,810 million and $860 million, respectively. If the lawsuits
and claims known are solved in a manner that is materially adverse to the Company for sums
greater than those accrued, then these results may have a materially adverse effect on the
results of these operations. Even if it is not possible to predict the outcome, management, based
in part on the recommendation of its legal counsel, does not believe that it is probable for loss
associated with the aforementioned legal procedure to be in excess of said estimates, generate
amounts important to the financial position of the Company or results of its operations.
117
IX.Operating and Financial Analysis
1. Executive Summary
The consolidated financial results of PDVSA depend basically on the production volumes of
crude oil and the price level of hydrocarbons. The level of crude oil production and the capital
expenditures required to reach production levels have been the main factors in determining the
financial and operating results.
Historically, the members of the Organization of Petroleum Exporting Countries (OPEC) have
entered into agreements to reduce the production of crude oil. These agreements have
increased the global prices of crude oil by reducing the global production supply. From July 2005
to October 2006, the OPEC production quota allocated to Venezuela was 3,223 MBPD. In
November 2006, OPEC accorded a strategic cutback of 138 MBPD, thus Venezuela has a new
OPEC production quota of 3,085 MBPD.
Regarding crude-oil prices, a tendency to rise persists in spite of efforts by OPEC to stabilize the
market. In 2007, the OPEC basket rose to 68.95 $/Bl, representing an increase of 7.88 $/Bl
compared to the increase of 2006. This increase in oil prices was fundamentally due to
sustained growth of demand in Asian countries, production cutbacks accorded by OPEC,
persistence of geopolitical tensions in the Middle East and Africa, production issues in Africa and
future speculation in markets. The average price of the Venezuelan export basket for the year
2007 was 64.74 $/Bl, an increase of 9.53 $/Bl over the previous year (55.21 $/Bl).
As reported by the Statutory Auditor of PDVSA in his report of 1999, the financial statements of
PDVSA at the end of 1998 showed a deficit of 14,626 million dollars. The leaders of the Fourth
Republic, in alliance with the “meritocratic” management of the old PDVSA, had our main
industry facing bankruptcy, as a result of unwise operating and financial decisions.
Finally, at the end of the fiscal year 2007, PDVSA shows in its stockholder’s equity a surplus in
the retained earnings of 4,150 million dollars, as shown below:
Composition / Detail of Stockholder's Equity of PDVSA
MMUS$
Capital Stock
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
39.094
39.094
39.094
39.094
39.094
39.094
39.094
39.094
39.094
39.094
6.952
8.860
8.825
8.046
8.843
8.133
7.557
7.567
Retained Earnings
Legal Reserves and Others
Retained Earnings (Losses)
Total Retained Profit
Additional Contribution
Total Stockholder's Equity
Minority Interests
Total Stockholder's Equity
4.150
11.102
(471)
8.389
(905)
7.920
8.662
8.706
(5.894)
(9.798)
(9.821) (11.407)
(9.171) (13.931) (14.626)
2.768
(1.092)
(1.775)
(1.038)
(2.564)
(6.374)
(7.059)
3.010
3.233
-
-
-
-
-
-
-
-
53.206
50.716
47.014
41.862
38.002
37.319
36.530
38.056
32.720
32.035
2.856
2.387
81
67
-
-
-
-
-
-
56.062
53.103
47.095
41.929
38.002
37.319
36.530
38.056
32.720
32.035
118
Retained Earnings (Losses)
8.000
4.150
3.000
(2.000)
(471)
2005
2006
(5.894)
(7.000)
(9.171)
(12.000)
(17.000)
(905)
(11.407)
(14.626)
1998
(9.821) (9.798)
(13.931)
1999
2000
2001
2002
2003
2004
2007
2. Inflation and Devaluation
The sales revenues of PDVSA as well as most operational costs are caused mainly in US
dollars (dollar or $), whereas taxes in Venezuela are incurred in Bolivars (Bs). As a result, the
financial conditions and results of the operations of PDVSA are affected by the inflation and
exchange rate (Bs./US$) in Venezuela.
Financial indicators:
December 31
2007
2006
Exchange rate of U.S. Dollar on close of period (Bs/$1)
Exchange rate of U.S. Dollar, annual average (Bs/$1)
Inter-annual increase of *CPI (%)
2,150
2,150
22
2,150
2,150
17
*CPI consumer price index
3. Contributions Paid to the Nation
The total contribution paid to the nation in 2007 amounted to 29,776 million dollars, 2,563 million
dollars, an increase of 9% over the previous year, which was 27.213 million dollars. This
contribution includes 8,334 million dollars for Income Tax, 17,161 million dollars for Royalties,
1,659 million dollars for Extraction Tax, 49 million dollars for Export Registration Tax and 2,573
million dollars for dividends.
a. Income Tax
The Venezuelan Income Tax Law establishes a 50% rate for companies in the area of extraction
of hydrocarbons and related activities, establishing certain exceptions for the development and
execution of activities related to extra-heavy crude oil and non-associated gas, for which the
rate is 34%. The applicable Income Tax for foreign subsidiaries is 35%.
The Venezuelan Income Tax Law establishes the fiscal adjustment for inflation to determine
taxes. The initially adjusted values of property, plant and equipment are depreciated or
amortized for fiscal purposes in their remaining useful lives. The Law also establishes a regular
119
adjustment for annual inflation to be included in the reconciliation of income as a taxable or
deductible item.
b. Royalty
Royalties are paid based on crude oil produced and natural gas processed in Venezuela. A 30%
rate is established on volumes of hydrocarbons and natural gas produced in traditional areas
(applicable to PDVSA Petróleo, PDVSA Gas and “Empresas MIxtas”).
In the case of deposits related to the projects of the Orinoco Oil Belt, a rate of 16 2/3% was
established to be applied in the first production phase based on certain parameters set by
National Government. Agreements established that when commercial production of upgraded
crude oil began, the rate would be reduced to 1% and that level would be maintained for the
following nine years or, until revenues from sale of crude oil triplicates the value of the initial
investment, if it takes place before the specified term. After the nine-year period, the rate of 16
2/3% would be applied again. In October 2004, the Ministry of Popular Power for Energy and
Petroleum established a new rate of Royalties, effective since October 11, 2004 and applicable
to the extraction of extra-heavy crude oil of the Orinoco Oil Belt, performed by Third-Party
Associations, of 16 2/3%. In May 2006, the Partial Amendment to the Organic Hidrocarbons
Law was enacted. This amendment established that operators must pay the state royalties and
additional taxes of 33.33% of the value of each barrel at the wellhead.
On November 14, 2006, a new calculation of royalties was established for companies performing
primary oil-related activities in the country, establishing that the content of sulfur and API gravity
of liquid hydrocarbons extracted will be measured on a monthly basis and will be reported
together with taxed production. All this information will be part of the payment price of royalties
and will be used to determine any special advantage. This information will cause adjustments
from gravity and sulfur, which will be published by the Ministry of Popular Power for Energy and
Petroleum.
c. Extraction Tax
The Reform to the Organic Hidrocarbons Law establishes a tax rate of 33.33% of value for all
liquid hydrocarbons extracted from any deposit, calculated on the same basis established for the
calculation of the royalty. When calculating this tax, taxpayers may deduct what would have
been paid on royalties, including additional royalties paid as a special advantage. As of
December 31, 2007, the joint ventures of the Orinoco Oil Belt, in addition to royalties of 16 2/3%,
paid an extraction tax of 16 2/3%.
d. Export Registration Tax
The Reform to the Organic Hydrocarbons Law establishes a rate of 0.1% of the value for all
hydrocarbons exported from any port of national territory, calculated over the sale price of said
hydrocarbons. This tax began to be applied since May 24, 2006, with an effectiveness of sixty
(60) uninterrupted days beginning on the publication date in the Official Gazette.
e. Surface Tax
The Organic Hydrocarbons Law establishes payment of tax equivalent to 100 tax units (TU) for
each square kilometer or surface extension not being extracted. This subject will increase 2%
per year for the first five years and 5% in the following years.
120
f.
Value Added Tax (VAT)
Official Gazette number 3,632, dated February 26, 2007, contained the Partial reform to the
Value-Added Tax Law, which establishes a reduction of the rate from 14% to 11%, from March
1, to June 30, 2007, and 9% from July 1, 2007.
As exporters, Venezuelan subsidiaries have the right to recover a portion of the VAT paid, which
is classified in the Balance Sheet as recoverable tax credits.
In 2006, $647 million of special tax refund certificates (CERT´s) were received from The Ministry
of Popular Power for Finance, which were used for the payment of Income Tax.
g. General Consumption Tax
In Venezuela and the United States the sale of gasoline and other fuels are subject to
consumption taxes.
h. Dividends
PDVSA is a company owned by the Bolivarian Republic of Venezuela, assigned to the Ministry
of Popular Power for Energy and Petroleum, which represents its Stockholder and supervises
and controls its operations.
In accordance with the Company’s bylaws, the Stockholder’s Meeting exercises supreme
direction and administration of PDVSA. It powers include approving or objecting to economic
and financial reports, as well as decide on the destination of profit obtained annually by the
company. By virtue of this power, based on the guidelines of National Government, and taking
into account the provisions of the Budget Law of the Nation for each fiscal year, the
Stockholder’s Meeting of PDVSA orders payment of dividends in favor of the Bolivarian Republic
of Venezuela, distributing to the nation and a portion of its profit. These dividends are paid by
PDVSA within the fiscal years in which they are budgeted in accordance with instructions from
the National Treasury Office of the Bolivarian Republic of Venezuela.
A summary of Contributions Paid to the Nation over the last five years is shown below:
Contributions Paid to the Nation (MMUS$)
2007
2006
2005
Royalties
Extraction Tax
Income Tax and Other Taxes
Dividends
Export registration tax
Total
17,161
1,659
8,334
2,573
49
29,776
17,505
797
7,594
1,317
27,213
11,327
5,069
1,317
17,713
2004
8,881
1,978
1,302
12,161
2003
5,945
1,216
2,326
9,487
The amounts show n in this chart corresponde to actual payments made in the respective years,
w hich slightly differ from those show n under expenses in the consolidated financial statements of PDVSA
and its subsidiaries, since in accordance w ith generally accepted accounting standards, certain
disbursements are recorded under expenses in years different from the year in w hich payment w as made.
121
4. Monetary Reconversion
On March 6, 2007, the Presidency of the Bolivarian Republic of Venezuela enacted a decree
Law on Monetary Reconversion, which establishes as of January 1, 2008 restatement of the unit
of the monetary system into the equivalent of one thousand current bolivars.
In accordance with the aforementioned decree-law, from said date, prices, salaries and other
social considerations, as well as taxes and other amounts expressed in national currency in the
financial statements or other accounting documents or securities, and in general, any
transaction or reference stated in national currency must be stated in restated Bolivars
(“Bolívares Fuertes” or “Bs.F”).
As part of the aforementioned reconversion process, this decree-law establishes that beginning
on October 1, 2007, instruments offering prices of goods and services, as well as others
showing any monetary sum, will use both the unit prior to restatement and the one resulting from
it. Likewise, this legal provision establishes use of the new monetary unit in financial statements
corresponding to years ended after January 1, 2008.
5. Operating and Financial Results
PDVSA, as a vertically integrated company, carries out exploration and production activities of
crude oil and natural gas “upstream” in Venezuela and performs refining, marketing,
transportation of crude oil and finished products and processing, marketing and transportation
downstream of natural gas not only in Venezuela but also in the Caribbean, North America,
South America and Europe and other regions. Based on the new social responsibility of
PDVSA, established in articles 302 and 311 of the Constitution of the Bolivarian Republic of
Venezuela and article 5 of the Organic Hydrocarbons Law, referring to the participation of
PDVSA in the integral and social development of the country and for the purpose of supporting
the work and services aimed at the Development of Infrastructure and Public Roads, agricultural
activities, health and education, and any other productive investment in Venezuela, PDVSA
takes part in different programs established by National Government.
PDVSA evaluates its upstream operations based on the following factors: number of wells,
production levels per field, recovery factors, incorporation of crude-oil and gas reserves and
application of technology.
PDVSA evaluates its downstream operations based on the following factors: percentages of
refineries use, product output and refining costs.
The financial results are evaluated taking into account refining margin, return of used capital,
economic added value, free cash flows, operating costs per barrel produced, gross margin,
comparative market studies among others.
The financial results of PDVSA are in function with the export volumes and oil prices. By
supplying high quality blends of crude oil to customers and its refineries, PDVSA achieved
profitability in capital investments and used 81% of its Refining Capacity maintaining margins in
products sold, under safe operations taking care of operating costs. Financial conditions are
analyzed through indicators such as debt/asset ration, debt/stockholder’s equity ration, return of
used capital, added economic value and indebtedness capacity.
The main opportunities of PDVSA are based on increasing light and medium crude oil reserves,
raising the recovery factor, continuing to develop extra-heavy crude oil projects and improving
existing technology to maximize the return on investments.
122
In the downstream sector, PDVSA is making investments in refining capacity, improve products
and compliance with environmental laws in both Venezuela and abroad, expanding markets in
Latin America, the Caribbean and Asia, and improve the efficiency of our refining and marketing
processes.
Regarding the gas business, PDVSA is actively promoting the participation of the private sector
in non-associated gas projects, improving the distribution process to increase the quota of the
domestic and foreign markets of liquefied natural gas.
The great challenges ahead of PDVSA in the short term are optimal maintenance of crude-oil
reservoirs and production facilities, investing in exploration programs to increase reserves,
availability of gas in the west of Venezuela and change the quality specifications of products.
The necessary changes to supply the new generation of products includes planning and
performance of capital projects for refining and producing crude-oil and gas, funding these
projects and adjusting the operating practices as procedures to ensure the quality of products to
our clients. These objectives must be accompanied with initiatives to improve efficiency and
profitability.
Risk Factors
The crude-oil and refined products business is highly volatile. The primary risk of this business
is the instability of prices. Another main risk is the operating business, which is the risk of
mechanical and/or human errors relating to operations of plants and equipment. Another risk
area is that of political risk; in the short term; geopolitical measures may affect the supply and
demand equation, affecting the prices of crude oil and/or refined products and creating rises in
the market. In the long term, changes in laws and regulations may radically increase business
costs; therefore, PDVSA constantly monitors trends that may affect the business in which it
operates.
PDVSA mitigates operational risk through the Integral Risk-Management System (SIR -PDVSA)
and by following the best operating practices and procedures. In its quest to reach operating
excellence, PDVSA holds insurance policies on property damages.
Political risk is a matter that must be accepted and managed once the business has made
investments in certain countries. Nevertheless, PDVSA is sufficiently solid in its production,
refining and sales and distribution systems, which ensures operating flexibility to react to
circumstances derived from cutbacks or increases in production. In addition, PDVSA reduces
the political and commercial risk by diversifying its client portfolio and investing its refining
capacity in new markets. In this connection, PDVSA is evaluating business opportunities in Asia,
South America and the Caribbean.
In Venezuela, PDVSA handles the risk of operating in an economy characterized by years of
unfair distribution of wealth among the population. For this reason PDVSA is part of the process
to support social projects performed by National Government.
The production of fuel with low-sulfur content, high-quality lubricants and asphalt is a trend for
the future. The capital requirement associated to these equipment facilities to produce these
products may lead to consolidation of the refining capacity. PDVSA will continue to monitor
these trends and make the most of economic advantages as they arise.
Among the greatest uncertainties of PDVSA is market risk. PDVSA cannot predict the future of
the market of crude oil and refined products, which may affect the company. The Company
believes that it is prepared to adjust to most of the contingencies to minimize the possible
negative impact on market trends; therefore, it maintains adequate levels of financial liquidity
and debt, ensuring that the distribution of assets is flexible, having multiple sources of supply
123
and a diversified client portfolio, monitoring and analyzing the market conditions on a continuous
basis.
For the purpose of mitigating the credit risk, cash equivalents are represented by high-quality
instruments that are placed in different institutions. Likewise, notes and accounts receivable are
distributed in a broad and reliable client portfolio at a global level and their financial position is
periodically assessed. As a result of this evaluation, a provision for doubtful accounts is
recorded in the financial statements.
The approach of PDVSA in managing liquidity is to ensure, to the greatest extent possible, that
the Company will always have enough liquidity to meet its obligations when they mature, in
normal conditions and under stress, without incurring in unacceptable loss or risking the
reputation of the Company.
PDVSA continues to emphasize the importance of efficient operations and its commitment to
safety. It operates in an industry subject to volatile prices and profit. Conditions may change
quickly and results may vary substantially from management estimates. In addition, the credit
risk of clients and suppliers of PDVSA may affect the liquidity of the company and credit facility
or terms of payment.
124
a. Consolidated Summary of Financial Information
In millions of US dollars (MMUS$)
Chart Consolidated Balance Sheets
2007
2006
2005
2004
2003
52,436
42,503
35,959
35,375
35,211
1,743
1,928
2,978
3,039
1,000
14,144
13,065
12,563
10,156
8,148
68,323
57,496
51,500
48,570
44,359
8,470
7,003
5,621
4,537
2,878
15,033
10,322
8,625
5,595
4,955
Restricted cash
1,555
441
1,925
709
659
Cash and cash equivalents
3,325
2,282
1.800
1,748
2,938
10,966
2,985
894
688
642
39,349
23,033
18,865
13,277
12,072
107,672
80,529
70,365
61,847
56,431
Stockholder’s Equity (1)
56,062
53,103
47,095
41,929
38,591
Long-term debt, net of current portion
13,129
2,262
2,704
2,716
6,265
Other non-current liabilities
8,005
6,009
3,405
5,369
4,280
Non-current liabilities
21,134
8,271
6,109
8,085
10,545
Accounts payable to suppliers
5,650
6,379
4,993
4,313
3,365
Current portion of long-term debt
2,877
652
729
1,004
750
Income tax payable and deferred
3,048
2,487
6,347
3,367
624
18,901
9,637
5,092
3,149
2,556
30,476
19,155
17,161
11,833
7,295
51,610
27,426
23,270
19,918
17,840
107,672
80,529
70,365
61,847
56,431
16,006
2,914
3,433
3,768
7,061
9%
18%
Property, plant and equipment, net
Restricted cash
Other non-current assets
Non-current assets
Inventories
Notes and accounts receivable
Other current assets
Current assets
Total assets
Other current liabilities
Current liabilities
Total liabilities
Total liabilities
equity
and
stockholder’s
Ratio of Debt/Stockholder’s Equity (2)
Total debt
5%
7%
29%
Debt / Stockholder’s Equity (%)
(1) From which capital stock represents $ 39,094 million.
(2) Calculated as long-term debt total, including the current portion divided by stockholder’s equity.
125
Consolidated Statements of Income
In millions of US dollars (MMUS$)
2007
2006
2005
2004
2003
93,820
96,764
81,105
60,972
44,178
2,357
65
2,233
255
1,408
402
1,227
43
961
226
99,252
82,915
62,242
45,365
Sale of crude oil and products:
Export and international markets
In Venezuela
Other sales
96,242
Cost and Expenses
Purchases of crude oil and products
28,137
38,778
32,001
23,748
20,496
Operating expenses
14,958
14,779
14,034
13,181
9,182
154
100
118
60
27
4,018
3,640
3,191
2,944
2,891
(22)
(93)
20
6
296
Exploration expenses
Depreciation and amortization
Assets impairment
Selling, administrative and general
expenses
Production and other taxes
Finance expenses
Other expenses, net
2,702
2,184
1,667
1,157
871
21,981
18,435
13,318
9,247
6,428
584
267
183
449
678
(188)
467
426
622
53
72,324
78,557
64,958
51,414
40,922
Equity in earning of non-consolidated
investees
733
1,120
1,074
938
333
Gain on sale of investment in Colonial
Pipeline Company and Explorer
Pipeline Company.
641
-
-
1,432
-
Income before social development
expenses and income tax
25,292
23,247
19,031
11,766
4,776
Social Development expenses
14,102
13,784
6,909
1,242
249
Income before income tax
11,190
9,463
12,122
10,524
4,527
Income Tax
5,017
4,031
5,793
5,420
1,274
Net income from continuing
operations
6,173
5,432
6,329
5,104
3,253
154
302
30
Discontinued operations
Income from discontinued operations
net of income tax
Net income
Attributable
Stockholder
to
Minority interest
the
100
20
6,273
5,452
6,483
5,406
3,283
5,371
4,994
6,469
5,432
3,277
902
458
14
(26)
6
6,273
5,452
6,483
5,406
3,283
Company´s
126
In millions of US dollars (MMUS$)
Information on Cash Flows
2007
Operating activities
Investment activities
Financing activities
Net increase / decrease in cash
and cash equivalents
2006
2005
2004
2003
4,174
4,044
5,595
8,792
5,929
(13,187)
(1,748)
(3,939)
(5,385)
(1,085)
10,056
(1,814)
(1,604)
(4,597)
(3,609)
1,043
482
52
(1,190)
1,235
Consolidated Statement of Income per Sector in 2007
In millions of US dollars (MMUS$)
Year ended December 31, 2007
Domestic Sector
Income
Sale of crude oil and products
Exports and international markets
In Venezuela
Other sales
Total Income
Cost and expenses
Purchases of crude oil and product
Operating expenses
Exploration expenses
Depreciation and depletion
Asset Impairment
Selling, administrative and general expenses
Finance expenses
Other expenses, net
Sub-total
Production and other taxes
Total Costs and Expenses
Equity interest
Gain on sale of investment in non-consolidated investees
Income before social development expenses and income tax
Social development expenses
Income before income tax
Income Tax
Net income from continuing operations
Discontinued operation:
Income from discontinued operation, net of income tax
Net income
Foreign Sector
61,731
2,321
64,052
50,238
5,650
55,888
(18,149)
(5,614)
65
(23,698)
93,820
2,357
65
96,242
96,764
2,233
255
99,252
7,102
7,554
154
3,424
(22)
1,764
450
344
20,770
21,981
42,751
94
21,395
14,099
7,296
4,107
3,189
44,640
7,013
515
584
134
484
53,370
53,370
630
3,148
3
3,145
1,403
1,742
(23,605)
391
79
354
(1,016)
(23,797)
(23,797)
9
641
749
749
(493)
1,242
28,137
14,958
154
4,018
(22)
2,702
584
(188)
50,343
21,981
72,324
733
641
25,292
14,102
11,190
5,017
6,173
38,778
14,779
100
3,640
(93)
2,184
267
467
60,122
18,435
78,557
1,120
1,432
23,247
13,784
9,463
4,031
5,432
71
29
-
100
20
3,260
1,771
1,242
6,273
5,452
5,372
901
6,273
4,994
458
5,452
Net income:
Attributable to the Company´s Stockholder
Minority interests
(1) Pursuant to International Financial Reporting Standards, the balances and transactions between consolidated subsidiaries must be written off.
127
Year ended
Consolidated Total December 31, 2006
Adjustments (1)
Consolidated Statement of Income per Sectors in 2006
In millions of US dollars (MMUS$)
Year ended December 31, 2006
Domestic Sector
Foreign Sector
Adjustments (1)
Consolidated Total
Income
Sale of crude oil and products
Exports and international markets
52,787
59,107
(15,130)
96,764
2,233
5,223
(5,223)
2,233
254
-
1
255
55,274
64,330
(20,352)
99,252
Purchases of crude oil and product
5,002
53,670
(19,894)
38,778
Operating expenses
8,093
6,724
(38)
14,779
100
-
-
100
3,189
465
(14)
3,640
In Venezuela
Other sales
Total Income
Cost and expenses
Exploration expenses
Depreciation and depletion
Asset Impairment
(79)
(13)
(1)
(93)
1,687
503
(6)
2,184
Finance expenses
304
116
(153)
267
Other expenses, net
(11)
430
48
467
18,285
61,895
(20,058)
60,122
Selling, administrative and general expenses
Sub-total
Production and other taxes
Total Costs and Expenses
Equity interest
Gain on sale of investment in non-consolidated investees
Income before social development expenses and income tax
Social development expenses
Income before income tax
Income Tax
Net income from continuing operations
18,435
-
-
18,435
36,720
61,895
(20,058)
78,557
202
870
48
1,120
-
1,432
-
1,432
18,756
4,737
(246)
23,247
13,784
13,781
3
-
4,975
4,734
(246)
9,463
2,992
1,661
(622)
4,031
1,983
3,073
376
5,432
Discontinued operation:
Income from discontinued operation, net of income tax
Net income
-
-
20
20
1,983
3,073
396
5,452
Net income:
Attributable to the Company´s Stockholder
4,994
Minority interests
458
5,452
(1) Pursuant to International Financial Reporting Standards, the balances and transactions between consolidated subsidiaries must be written off.
b.
•
Production
Crude Oil Production
The total average production of the nation in 2007 was 3,150 MBPD, 100 thousand barrels per
day less than the average production reached in 2006 of 3,250 MBPD mainly due to two factors:
the production cutbacks accorded by OPEC and disinvestment recorded by private companies
in former joint ventures and the Orinoco Oil Belt Associations in the migration process to
Empesas Mixtas.
128
•
Production of NGL
The average production for 2007 of natural gas liquids (NGL), including ethanol gas, was 172
MBPD, 5 MBPD below the average production of 2006 (177 MBPD).
c. Total Sales
The decrease of the total sales of PDVSA was $ 3,010 million, 3 % below the sales reported in
2006, falling from $ 99,252 million in 2006 to $ 96,242 million in 2007, and was basically due to
the effect of decreased sales of CITGO in the North American market because of a change in
business strategies, as the agreement with independent and the 7-Eleven chain of service
stations were not renewed.
•
Export Sales
The average export of 2007 was 2,789 MBPD, 186 MBPD below the average export in 2006
(2,975 MBPD) mainly because of the same reasons applicable to crude-oil production.
The average price of exports of the Venezuelan basket in 2007 amounted to 64.74 $/Bl, with a
price increase of 9.53 $/Bl with respect to the average price of 2006 (55.21$/Bl), basically
because of geopolitical tensions in the Middle East, speculation of future markets, cutbacks
accorded by OPEC and increase in demand of the countries of Latin America and the
Caribbean.
•
Net Sales of International Subsidiaries
In 2007, the total volume of crude oil, refined products and NGL sold amount to $ 50,238 million
compared with $ 59,107 millions in 2006, which represented a decrease of $ 8,869 million, due
to the effect of decreased sales of CITGO in the North American market because of a change in
business strategy, which led to cancellation of the agreement with the gasoline-station chain 7Eleven, as well as independent service stations, for a total of 4,951 stations removed.
•
Local Market Sales
PDVSA sold 563 MBPD of refined products (including liquefied petroleum gas) on the
Venezuelan market in 2007, compared with 548 MBPD in 2006, mainly because of an increase
in the automotive park in Venezuela.
d. Cost and Expenses
•
Purchase of Crude Oil and Products
Decrease in purchases of crude oil and products were $10,641 million, which represented 28 %,
falling from $38,778 million in 2006 to $28,137 million dollars in 2007. This decrease was mainly
due to less purchases of gasoline by CITGO ($9,968 million in 2007 vs. $22,204 million in 2006)
because of a decrease in its operations resulting from a business strategy.
•
Operating Expenses
The operating cost in 2007 closed with a balance of $14,958 million while in 2006 was $14,779
million, which represented an increase of $179 million. This was mainly due to the combined
effect of lower costs in the domestic sector generated by elimination of payments from services
129
of joint ventures that migrated to ”Empresas Mixtas” in April 2006, increased refining costs of
CITGO, increased employment cost of the new collective agreement and absorption of
contractor staff.
•
Exploration Expenses
Exploration expenses amounted to $154 million in 2007, $54 million more than in 2006 ($100
million) which represented an increase of 53% mainly because of an increase in geophysical
activity in the operations of purchasing seismic 3D of a total of 1,475 Km2 and in 2006 covered
42%, recorded 28 MMUS$ on transfer to expenses of dry wells in 2007; and increased
contracting of man-hours of local and foreign specialists for advisory.
•
Selling, Administration and General Expenses
In 2007 the expense was $2,702 million whereas in 2006 it amounted to $2,184 million which
represented an increase of $518 million mainly because of increased working cost generated
from benefits to employees under the new collective agreement.
•
Depreciation and Amortization Expenses
The depreciation and amortization expenses in 2007 amounted to $4,018 million, $378 million
more than expenses in 2006 ($3,640 million). This increase was due basically to an increase in
investments in operating assets, new capitalization of work in progress and incorporation of
assets of new “Empresas Mixtas”.
•
Equity Interest in the Net Income in non-consolidated investees
The Equity Interest in non-consolidated investees for 2007 was $733 million, which represented
a decrease of $387 million compared to 2006 ( $1,120 million) mainly because of the sale by
CITGO of its affiliates LYONDELL- CITGO Refining LP, in 2006 and Colonial Pipeline Company
and Explorer Pipelines in 2007.
In 2007 CITGO sold its interest of 15.79% and 6.8% in Colonial Pipeline Company and Explorer
Pipeline Company, respectively. From these sales, CITGO received in cash $756 million and
$247 million, respectively, and recorded net income from the sale of these investments of $533
million and $108 million, respectively, which are shown in the Statement of Income as gain on
sale of investment.
•
Social Development Expenses
The social expense amounted to $14,102 million, an increase of $318 million compared to
$13.784 million in 2006 (see chapter IV number 8).
e. Cash Flows
•
Liquidity and Sources of Capital
The primary sources of liquidity are the cash flows derived from operations and short and longterm loans in U.S. dollars and bolivars. PDVSA continues to make investments of capital to
maintain and increase the number of hydrocarbon reserves operated and the amount of oil that
we produce and process. In the normal course of business operations, PDVSA and its
130
Subsidiaries enter into loan facilities and agreements to meet its needs of liquidity and funds
necessary for disbursements of capital. PDVSA, as of December 31, 2007, has secured credit
facilities of $70 million.
•
Cash Flows from Operating Activities
As of December 31, 2007, the net cash of PDVSA provided by operating activities was $2,979
million derived basically from a net profit of $6,273 million; $4,018 million on depreciation and
amortization expenses; $53 million for the cost of obligation of retirement of assets, $2,784
million for provision of employee benefits and other post-retirement benefits, $446 million for
adjustment of the fair value of long-term accounts receivable, $15 million for increase of the
allowance for doubtful accounts, $5,206 million for changes in operating liabilities, $10 million for
impairment in the value of assets, $115 million for debt of transactions in foreign currency; offset
by $733 million on the net income in the equity interest in non-consiladated investees; $641
million on gain on sale of investment in Colonial Pipeline Company and Explorer Pipelines, a
decrease by $1,195 million for the purchase of a group of assets held for sale, decrease by
$1,587 million on deferred Income Tax, $ 115 million on currency loss, $666 million on excess of
values recorded over the cost of investment, $11,119 million on changes in operating assets and
$3,294 million on variation of working capital.
•
Cash Flows Used for Investment Activities
As of December, 31 2007, the net cash of PDVSA used in investment activities was $11,992
million, from which $12,852 million was used in the purchase of property, plant and equipment
net; a decrease of $929 million of Restricted Cash; and offset by $756 million for the sale of the
investment in Colonial Pipeline Company and Explorer Pipeline Company; $635 on dividends
received from affiliates and $398 million on other investment variations.
•
Cash Flows Used for Financing Activities
As of December, 31 2007, the net cash of PDVSA used for financing activities was $10,056
million, $14,959 million on issuance of the public offer of binds and other financing directed and
regulated by Banco Central de Venezuela (BCV), offset by $2,658 million corresponding to an
advance of dividends to the stockholder, $1,866 million on payments of long-term debt, and
$398 million on dividends paid to minority investors.
•
Contractual Clauses
Several loan facilities establish contractual clauses restricting the ability of the Company to incur
in additional debt, pay dividends, mortgage property and sell certain assets. The Company was
in full compliance with these clauses as of December 31, 2007 and 2006.
f.
Restricted Cash
•
Trust Fund in Bandes
Based on the new social responsibility corresponding to PDVSA, the following trust funds have
been established with BANDES to comply with social programs and projects, work and services
aimed at Development of Infrastructure, agriculture, public roads, health and education in the
country:
131
•
FONDESPA, approved by the Stockholder’s Meeting dated January 23, 2004, created in
dollars and based on extraordinary income from exports of crude oil and its products in
excess in the average price budgeted per barrel, net of royalties, taxes and other direct
expenses, during the years 2004 and 2005. In 2006 an extraordinary contribution of $229
million was made in order to guarantee the fulfillment of previously approved project
commitments. This fund did not receive contributions in 2007.
•
Integral Cooperation Convention with the Republic of Argentina, resulting from the
execution of the Integral Cooperation Convention between the Bolivarian Republic of
Venezuela and the Republic of Argentina, the Board of Directors of PDVSA, held on July
15, 2004, approved the creation of this trust fund in dollars. This trust fund is comprised
by sums of money and securities from collection before Compañía Administradora del
Mercado Mayorista Eléctrico Sociedad Anónima (CAMMESA), state-owned electricity
company of Argentina, on the sale of crude oil and its products, by PDVSA under this
agreement. Funds are restricted to payments of companies in the Republic of Argentina
on imports of goods and services produced in that country. During 2007 and 2006,
contributions of US$ 101 million and US$ 96 million, respectively, were place into this
trust.
•
Fondo para la Estabilización Macroeconómica (FEM)
In November 2003, National Government created the FEM in order to achieve stability in State
expenditures at the national, state and municipal levels, by compensating for fluctuations that
may occur in ordinary income. Pursuant to Law, PDVSA made contributions in dollars until 2003
based on additional income from petroleum sales calculated as 50% of the difference in excess
between income from exports of crude oil and its products, and the average of said income
collected over the last three calendar years after deduction of taxes relating to such income. The
Law and its reforms have not established additional contributions since 2004.
FEM resources may be used in case of a decrease in fiscal income, regardless of its origin, in
relation to the average of said income collected over the last three calendar years or, in case of
a state of emergency declared in accordance with the Constitution of the Bolivarian Republic of
Venezuela. For withdrawal of FEM resources by the respective entities, the Permanent
Commission on Finance of the National Assembly must be informed, as well as the General
Comptrollership of the Republic, and then the process described by Law will be performed.
In 2007 and 2006, this fund originated financial income of $39 million for both years, which is
included in other net expenses in the Consolidated Statements of Income.
•
Trust Fund entered into with BANFOANDES for Construction
Conditioning of Assistance Modules for Misión Barrio Adentro
and
On March 24, 2005, the Board of Directors of PDVSA approved the creation of a trust fund
between Palmaven, S.A. (subsidiary of PDVSA) and BANFOANDES. This trust fund was
created on June 20, 2005 and its purpose is the construction of 1,000 medical assistance
modules for Misión Barrio Adentro. It was created with an initial contribution of $23 million and
will have a term of one year, automatically renewable for similar terms (see note 30). In 2007
and 2006, the trust fund did not receive additional contributions from PDVSA.
•
Funds for Extra-Heavy Crude Oil Projects in the Orinoco Oil Belt
Corresponds to funds deposited in financial institutions abroad, restricted to compliance with
commitments relating to financing received for development of production projects and
upgrading of extra-heavy crude oil of the Orinoco Oil Belt.
132
•
Investment Fund of PDV Caribe, S.A.
On August 11, 2006, the Board of Directors of PDVSA approved the creation of a fund in Euros
(€) with the amount of € 310 million (equivalent to US$ 407 million) for the purpose of complying,
through its subsidiary PDV Caribe, S.A., with investment plans in energy projects of significant
strategic importance within the policies of energy integration with countries in the area of the
Caribbean, fostered by National Government. On September 4, 2006, restricted placement of
these funds was approved in a foreign financial institution for the purpose of procuring proper
performance of planned investments.
•
Energy Cooperation Agreement entered into with the Oriental Republic of
Uruguay
As a result of this agreement, signed in 2005, PDVSA engages in the supply of crude oil, refined
products and liquefied petroleum gas to the Oriental Republic of Uruguay. In 2005, an initial
contribution of $44 million was made into a financial institution located in the Oriental Republic of
Uruguay, in which the collections to Administradora Nacional de Combustibles, Alcohol y
Portland (ANCAP), Uruguay’s oil company, from the sales related to this agreement, will be
deposited. These funds are restricted to making payments to companies located in the Oriental
Republic of Uruguay for imports of goods and services produced in that country. In 2007 and
2006, contributions were made to this fund of $11 million and $191 million, respectively.
•
Liquidity Account of PDVSA Finance and CITGO
Corresponds to the “liquidity account” established in the agreement executed with financial
institutions for the issuance of bonds, which is comprised by cash and time deposits, including
interest earned over such amounts.
g. Supply Agreement
PDVSA Petróleo maintains several supply agreements, as summarized below:
Company
Ruhr
Nynäs
LYONDELL- Houston
Refining LP
Chalmette Refining
ConocoPhillips
Hovensa
Hamaca Marketing Company
Suppy
Agreement
(MBPD)
Year Ending
237
57
Period of association, plus 3 additional years
Period of association, plus 3 additional years
230
90
190
270
129
1,203
2011
Period of association
2020
From 2008 to 2022
Period of association
As a result of the sale of the investment in LYONDELL-CITGO, performed in 2006, the Supply
Agreement was rendered ineffective. A new agreement with similar conditions was signed by
LYONDELL Houston Refining LP. and PDVSA Petróleo.
133
h. Significant Accounting Policies
The Consolidated Financial Statements are prepared in accordance with International Financial
Reporting Standards (IFRS), adopted by the International Accounting Standards Board – IASB
and its interpretations issued by the International Financial Reporting Interpretations Committee
– IFRIC of IASB.
The Consolidated Financial Statements were approved by the Board of Directors in March 2008.
Preparation of the Consolidated Financial Statements requires that management make
estimates, judgments and assumptions affecting the application of accounting policies and
amounts presented of assets, liabilities, income and expenses. The Company makes its best
estimates and judgments; nevertheless, the final results may vary from such estimates.
Related estimates and assumptions are based on experience and certain other factors deemed
reasonable under current circumstances, whose result is the basis for establishing judgments
over the carrying value of assets and liabilities not easily determinable through other sources.
These estimates and assumptions are reviewed periodically and, the reviews of these
accounting estimates are recorded in the same year and future years affected.
The significant areas of uncertainty of critical estimates and judgments in the application of
accounting policies having a significant effect over the amounts recorded in the financial
statements are the following:
•
ƒ
Note 13 – Deferred income tax and use of tax loss
ƒ
Note 14 – Depreciation and amortization
ƒ
Note 24 – Measurement of employee retirement benefits defined by contract
and other post-retirement benefits different to actual retirement.
ƒ
Note 25 – Accrued and other liabilities
ƒ
Note 27 – Valuation of financial instruments
Recently Issued Accounting Pronouncements
Several standards, amendments and interpretations of current standards are not effective for the
year ended December 31, 2007 and have not been applied in preparation of the Consolidated
Financial Statements. The most important for PDVSA are the following:
ƒ
In November 2006, IASB issued IFRS 8 (NIIF 8) Operating Segments. This
standard will be effective for fiscal years beginning on or after January 1,
2009, and the same requires disclosure of information segments based on
internal reports regularly reviewed by the Committee Exploration and
Production Operations, the Refining Operations Committee and the Trade and
Supply Operations Committee for the purpose of evaluating each segment.
ƒ
In 2006, IASB issued Interpretation 12 (IFRIC 12) Service Concession
Arrangements. This interpretation serves as a guide for recognizing and
measuring operations relating to service concession arrangements from the
public sector to the private sector. IFRIC 12 will be effective for fiscal years
beginning on or after January 1, 2008.
134
ƒ
In March 2007, IASB issued International Accounting Standard 23 revised
Borrowing Costs (IAS 23), which eliminates the option of recording under
income borrowing costs and requires that the Company capitalizes such
borrowing costs directly attributable to the acquisition, construction or
production of a qualified asset, as cost of this asset. This standard will be
effective for fiscal years beginning on or after January 1, 2009.
ƒ
In July 2007, IASB issued Interpretation 14 IFRIC 14 - IAS 19 The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their Interaction,
which clarifies when reimbursements or reductions in future contributions with
a defined benefit asset will be deemed available, and additionally provides
guidance on the impact of minimum funding requirements of such assets.
Likewise, it clarifies when a minimum funding requirement must give rise to a
liability. This interpretation will be effective for fiscal years beginning on or
after January 1, 2008.
PDVSA is evaluating new standards issued based on advances reached in their analysis to date
and believes that these standards would not bear a significant impact on the Consolidated
Financial Statements.
Recently Adopted Accounting Pronouncements
In 2007, the following standards and interpretations came into effect:
ƒ
IFRIC 7 Financial Instruments: Disclosures and amendment to IAS 1
Presentation of Financial Statements: Capital Disclosures, require detailed
disclosures on the relevance of financial instruments for the financial position
of an entity and its performance, both qualitative and quantitative disclosures
on the nature and scope of associated risk.
ƒ
IFRIC 9 Reassessment of Embedded Derivatives requires that an entity to
assess a derivative embedded financial instrument by separating it from the
main contract and record it in the accounting as a derivative from the time the
entity enters into said contract. The subsequent disclosure is prohibited
unless a change in the original terms of the contract is made.
ƒ
IFRIC 10 Interim Financial Reporting and Impairment clarifies that an entity
must not reverse impairment loss recorded in a previous interim term with
regards to surplus or investment of any other asset recorded at cost.
The accounting policies of the Company have been reviewed and amended, as necessary, to
adopt the requirements set forth in these new standards and interpretations. Adoption of these
standards and interpretations did not bear significant effects in the Consolidated Financial
Statements of PDVSA.
135
6. Consolidated Financial Debt
The consolidated financial debt as of December 31, 2007 was the following:
(In millions
of dollars)
PDVSA (Parent Company):
Secured loans, granted by export government agencies
and financial institutions, with a variable annual interest of LIBOR plus 0.5%
and due 2008
Secured loans, granted by export government agencies
and financial institutions, with a variable annual interest from 1.70% and 2.30%
and due 2012 (in Yens)
Unsecured Loan Facility at a variable interest LIBOR plus
4.5% and due 2010
Unsecured bonds, due 2017, 2027 and 2037
of $3,000, $3,000 and $1,500 million and annual interest
payable every six months of 525%, 5.375% and 5.50%, respectively
Secured loans, granted by export government agencies
and financial institutions, with an annual variable interest rate of LIBOR plus 1.13%
and due 2022
Rotating credit facility, unsecured, with variable interest rate of LIBOR plus 1%
due 2008, extendable
Carried forward,
200
213
6
7,500
3,327
1,124
12,370
136
(In millions
of dollars)
Brought forward,
12,370
CITGO:
Secured rotational credit facility, with an annual interest of
8.25% due 2010
Credit facility, with an interest rate of LIBOR plus 1.75% and
due 2008
Secured loan agreement of $700 million, with a variable interest rate
of LIBOR plus 1.38% and due 2012
Bonds exempts from taxes, with a variable and fixed annual interest from 3.92%
to 8.00%, secured by letters of credit and due
2008 to 2037
Bonds subject to taxes, secured with letters of credit,
at variable rates of 5.88% and due 2026
80
1,000
637
562
60
2,339
Petrozuata:
Secured loan with variable annual interest from LIBOR plus 1.25%
and 1.50% per year, due 2009 to 2011
Secured bonds, with an interest rate from 7.63% to 8.37% per year,
and due 2009, 2017 and 2022
177
800
977
PDVSA Sincor:
Secured credit facility at a variable interest rate from LIBOR plus 5.53%
to 6.97%, and due 2007 and 2012
236
PDVSA VI:
Bonds secured by PDVSA and share interest in Hovensa,
with an annual interest of 8.46%, and due 2008 and 2009
76
Tropigas, S.A.C.A.:
Promissory notes with an annual interest rate of 17.67% and due
2008 (in Bolivars)
5
Bariven:
Secured loans, granted by export government agencies and
financial institutions, with a variable and fixed annual interest rate from 6.13%
to 7.69%, and due 2008
3
Total consolidated financial debt
16,006
The balance of consolidated financial debt does not include the consolidated financial liabilities
of C.A. La Electricidad de Caracas (EDC) because investment in this company is presented by
PDVSA as available for sale in its financial information as of December 31, 2007.
137
Maturity of consolidated financial debt, as of December 31, 2007, is as follows:
(In millions
of dollars)
Years
2008
2009
2010
2011
2012
Remaining years
2,877
447
422
436
1,113
10,711
16,006
Consolidated financial debt is shown in dollars, except for debt in Yens and Bolivars
indicated above.
Issuance of Bonds and Other Borrowings
From January to February 2007, the public offer of bonds was approved up to $7,500
million due in 10, 20 and 30 year (2017, 2027 and 2037). This issuance was directed and
regulated by BCV, and was exempt from application of the Capital Markets Law of
Venezuela because of the nature of state company of PDVSA. The performance coupon
of issued bonds is 5.25%, 5.375% and 5.50% per year, due in 10, 20 and 30 years,
respectively. The combined issuance of these bonds generated a premium of 5.5%.
These bonds will be payable in dollars upon maturity.
From April 12 to May 10, 2007, the process to issue bonds was completed reaching a
placement of $7,500 million. Likewise, on April 12, 2007, decree 5,282 was published
establishing exoneration of Income Tax payments on income obtained by holders of this
placement.
In February 2007, a group of banks led by Japan Bank for International Cooperation
(JBIC), approved granting a loan to the Company of $3,500 million. This loan expires in
15 years and bears interest at a rate equivalent to LIBOR plus 1.13%, and includes cash
payment options or through delivery of crude oil and products at market prices, subject to
an agreement of minimum sums reviewed every three years. As of December 31, 2007,
the Company has made payments of $173 million, and an outstanding balance to date of
$3,327 million remains.
In January 2007, the Company entered into a credit facility of $1,124 million with a group
of banks led by BNP Paribas. This loan expires onJanuary 30, 2008 and was extended
for an additional year through approval of lenders representing more than 50% of the
original commitment. This loan bears interest at a rate equivalent to LIBOR, plus an
increase determined based on the country-risk of Venezuela, established by a qualifying
agency. As of the issue date, this increase was 1.15%.
In December 2007, PDVSA paid $501 million, on 99% of the bonds maturing in 2009,
2020 and 2028, of former joint venture Cerro Negro conformed by PDVSA, Exxon Mobil
and British Petroleum, which operated in the Orinoco Oil Belt. Likewise, PDVSA paid $129
million to a syndicate of banks led by ABN Amro Bank for a total paid of $630 million, with
which the indebtedness of the former joint venture was settled. With payment of the
credits of Cerro Negro, a new mixed company will be incorporated, Petromonagas, S.A.,
138
in which PDVSA will hold 83.33% of its shares through CVP and British Petroleum (BP)
16.67%, through its subsidiary Veba Oil & Gas Cerro Negro GMBH.
In 2007, PDVSA paid all of the indebtedness of former joint venture Hamaca, comprised
by PDVSA, ConocoPhillips and ChevronTexaco, which operated in the Orinoco Oil Belt.
PDVSA paid the debt in two parts: the first part through an initial prepayment of $400
million, on November 30, 2007; and the second through a final payment of $340 million,
which was made onDecember 14, 2007, for a total payment of $740 million. From this
amount, a total of 70% corresponded to PDVSA and 30% to ChevronTexaco in
accordance with the share interest in the new Empresa Mixta. These payments were
made by Corpoguanipa and Texaco Orinoco Resources Company, subsidiary of Chevron
Corporation.
On November 15, 2005, CITGO committed to a secured preferential loan facility of $1,850
million (Bs3,977,500 million), comprised of a revolving loan facility of 5 years of $1,150
million and a loan of $700 million with a term of 7 years. The loan facility is secured by
interest of CITGO in its refineries in Lake Charles, Louisiana and Corpus Christi, Texas; its
trade accounts receivable and inventory; in addition, it is subject to typical agreements for
this secured borrowing. On December 17, 2007, CITGO modified this credit facility to
incorporate payment of the collateral on a six-month bridge loan of $1,000 million. This
short-term loan was entered into with a union of banks led by BNP Paribas and UBS and
expires on June 17, 2008. The net funds received by CITGO were used to make a loan to
PDVSA. The general cost of this borrowing of $22 million will be amortized throughout the
term of the loan. CITGO may choose between (i) the highest premium rate or the rate of
federal funds plus a margin of 0.5%; or (ii) the LIBOR rate adjusted plus the applicable
margin. At December 31, 2007, the interest rate of the loan is 6.06% based on the LIBOR
rate option.
On March 13, 2006, PDVSA Finance Ltd. made a public offer of total redemption of the
outstanding debt as of said date of $83 million. This redemption was made on April 11,
2006 through payment of a premium of approximately $13 million, which is included in the
Consolidated Statements of Income under the item of other expenses, net.
Since October 2007, the financial information of Petrozuata is included in the Consolidated
Financial Statements of the Company; therefore, as of such date, the loan and secured
loans of this subsidiary are recorded as part of the consolidated debt.
Petrozuata has entered into agreements (revolving loans), subject to certain conditions,
with certain lenders for an additional borrowing sum of $450 million. Petrozuata received
and used $450 million resulting from this agreement. Interest is determined at the LIBOR
rate plus a percentage from 1.12% to 1.25% and is paid every six months in April and
October of each year. The principal amortization amount is $38.9 million per year payable
in two six-month installments since 2001.
In June 1997 Petrozuata Finance Inc., a subsidiary of Petrozuata created for the sole
purpose of making the placement of the private offer of bonds issued bonds of $988
million net of discounts of $13 million, through issuance of Series “A” bonds ($300 million),
Series “B” ($625 million) and Series “C” ($75 million). These bonds expire in 2009, 2017
and 2022, and an interest rate of 7.63%, 8.22% and 8.37%, respectively. Interest is paid
every six months in April and October of each year. For Series “A” and “B” bonds, the
amortization of principal is payable every six months beginning on April 1, 2004 and 2008,
respectively. The amount for amortization of principal of Series “A” and “B” bonds is
determined based on a percentage of the original amount, which varies in accordance with
the payment term while the principal of Series “C” bonds is payable upon maturity on
October 1, 2022.
139
Contractual Clauses
Several loan facilities establish contractual clauses restricting the ability of the Company to
incur in additional debt, pay dividends, mortgage property and sell certain assets. The
Company was in full compliance with these clauses as of December 31, 2007 and 2006,
with the exception in 2006 indicated in the paragraph below relating to contractual
commitments of the subsidiary PDVSA Petróleo, which holds an interest in the Hamaca
Project.
A portion of long-term debt of PDVSA Petróleo, corresponding to the loan facility of
Corpoguanipa, is shown as outstanding as of December 31, 2006, since the receipt of a
notice of probable non-compliance on January 20, 2006 from delay in execution of the
Collateral Assignment and Acknowledgement of Electrical Services Agreement. This
situation was solved in 2007 through payment of the total indebtedness of the Hamaca
Project.
At December 31, 2007, PDVSA holds secured loan facilities of $70 million.
140
X. Schedules
Independent Auditor’s Report
Consolidated Financial Statements as of December 31, 2007 and 2006
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholder’s Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
141
PETRÓLEOS DE VENEZUELA, S.A.
AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Consolidated Financial Statements
December 31, 2007 and 2006
With Independent Auditors’ Report Thereon
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Consolidated Financial Statements
December 31, 2007 and 2006
Table of Contents
Pages
Independent Auditors’ Report
1-2
Consolidated Balance Sheets
3
Consolidated Statements of Income
4
Consolidated Statements of Stockholder’s Equity
5
Consolidated Statements of Cash Flows
6
Notes to the Consolidated Financial Statements:
(1)
Reporting Entity
(2)
Basis of Presentation:
(a)
(b)
(c)
(d)
(e)
(f)
(3)
Statement of Compliance
Basis of Measurement
Functional and Presentation Currency
Use of Estimates and Judgements
Presentation of Consolidated Balance Sheets
Consolidated Financial Statements – Subsidiaries Audited by Other Auditors
7
8
8
8
8-9
9
10
Significant Accounting Policies:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
(p)
(q)
(r)
(s)
Basis of Consolidation
Currencies Other than the Dollar
Financial Instruments
Property, Plant and Equipment
Costs Associated to Asset Retirement Obligations
Leased Assets
Inventories
Trade Accounts Receivable
Cash and Cash Equivalents
Impairment of Assets
Assets Held for Sale and Discontinued Operations
Employee Termination, Pension and Other Postretirement Benefits
Provisions
Revenue Recognition
Financial Income and Expenses
Income Tax
Segment Reporting
Operating Agreements
Research and Development Costs
11-12
12-13
13-14
14-15
15
15
15
16
16
16
17
18-19
19
19
19
19-20
20
20-21
21
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Consolidated Financial Statements
December 31, 2007 and 2006
Table of Contents, continued
Pages
(t)
(u)
(v)
Social Development Contributions
Recently Issued Accounting Standards
Recently Adopted Accounting Standards
21
21-22
22-23
(4)
Foreign Exchange Agreement with the Banco Central de Venezuela (BCV)
23
(5)
Transactions and Balances in Currencies Other than the Dollar
24
(6)
Fair Value of Financial Instruments
(7)
Financial Risk Management:
(a)
(b)
(c)
(8)
Credit Risk
Liquidity Risk
Market Risk
26
26
26
Operating Segments and Geographical Data:
(a)
(b)
(9)
24-25
Business Segments
Geographical Segments
27
27-30
Joint Development Activities:
(a)
(b)
(c)
(d)
Development of the Orinoco Belt Extra-Heavy Crude Oil Reserves
Migration of Operating Agreements to “Empresas Mixtas”
Projects for Development of Offshore Natural Gas - Plataforma Deltana
Energy Agreements with Latin America and the Caribbean
(10) Assets Held for Sale and Discontinued Operations
(11) Other (Income) Expenses, Net
30-35
36-38
38-39
39
40-43
43
(12) Taxes and Production Tax:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Income Tax
Production Tax
Extraction Tax
Surface Tax
Export Registration Tax
Value Added Tax (VAT)
General Consumption Tax
Bank Debit Tax
44-48
48-49
49
49
50
50
51
51
2
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Consolidated Financial Statements
December 31, 2007 and 2006
Table of Contents, continued
Pages
(13) Property, Plant and Equipment
52-57
(14) Non – Consolidated Investees
58-59
(15) Long-Term Accounts Receivable and Other Assets
(16) Restricted Cash
60
61-64
(17) Inventories
64
(18) Notes and Accounts Receivable
64-65
(19) Prepaid Expenses and Other Assets
65
(20) Stockholder’s Equity
65-66
(21) Long-Term Debt
67-71
(22) Employee Termination, Pension and Other Postretirement Benefits:
(a)
(b)
Defined Contribution Savings Plans
Pension Plans and Other Postretirement Benefits
71
71-76
(23) Accruals and Other Liabilities
77-78
(24) Accounts Payable to Suppliers
78
(25) Financial Instruments
79-83
(26) Financial and Operating Leases
83-84
(27) Commitments and Contingencies
84-87
(28) Related Party Transactions
87-93
(29) Production, Refining and Exports Activities
94-95
(30) Financial Information for Domestic and Foreign Sectors
96-97
(31) Legal Contributions:
(a)
(b)
Organic Law on Science, Technology and Innovation
Organic Law against Illegal Trafficking and Consumption of Stupefacient and
Psychotropic Substances
3
98
98
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Consolidated Financial Statements
December 31, 2007 and 2006
Table of Contents, continued
Pages
(32) New Laws:
(a)
(b)
(c)
(d)
Financial Transactions Tax Law
Organic Law on Reorganization of the Electricity Sector
Enabling Law
Monetary Conversion Law
98
99
99
99
(33) Subsequent Events
(a)
(b)
(c)
(d)
(e)
(f)
“Empresas Mixtas”
Renewal of BNP Paribas Credit Line
New PDVSA Subsidiaries
Settlement Agreement with ENI for Campo Dación
Arbitration before the International Chamber of Commerce (ICC)
Recently Issued Accounting Standards and Pronouncements
99-100
100
100
100
100-101
101
(34) Supplementary Information on Oil and Gas Exploration and Production Activities
(unaudited)
(a)
(b)
(c)
Conventional and Extra-Heavy Crude Oil (in millions of barrels)
Extra-Heavy Crude Oil (in millions of barrels)
Natural Gas Reserves (in billions of cubic feet)
4
102
102-104
104-110
Independent Auditors’ Report
To the Stockholder and Board of Directors of
Petróleos de Venezuela, S.A.:
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Petróleos de Venezuela, S.A. and its
subsidiaries (PDVSA) (wholly-owned by the Bolivarian Republic of Venezuela), which comprise the
consolidated balance sheets as of December 31, 2007 and 2006, and the consolidated statements of income, the
consolidated statements of stockholder’s equity and the consolidated statements of cash flows for the years then
ended, and a summary of significant accounting policies and other explanatory notes. The financial statements of
certain subsidiaries were audited by other auditors. These subsidiaries represent 9% and 5% of total assets as of
December 31, 2007 and 2006, respectively, and 39% and 17% of net income for the year ended December 31,
2007 and the nine-month period ended December 31, 2006, respectively, with respect to the corresponding
consolidated totals (see note 2-f to the accompanying consolidated financial statements). The financial
statements of those subsidiaries were audited by other auditors, whose reports as of December 31, 2007 and 2006
have been furnished to us and, in our opinion, insofar as they relate to the amounts included in the financial
statements of those subsidiaries as of those dates and for the periods then ended, is based solely on the reports of
the other auditors.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards.
This responsibility includes designing,
implementing and maintaining internal control relevant to the preparation and fair presentation of the financial
statements that are free from material misstatements, whether due to fraud or error; selecting and applying
appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with International Standards on Auditing. Those standards require that we
comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether
the financial statements are free of material misstatement.
(Continued)
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on our judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk
assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting principles used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements
give a true and fair view of the consolidated financial position of Petróleos de Venezuela, S.A. and its
subsidiaries as of December 31, 2007 and 2006, and of its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.
Emphasis Paragraphs
Without qualifying our opinion, the following issues should be noted:
ƒ
As explained in note 28 to the accompanying consolidated financial statements, PDVSA as a state
company owned by the Bolivarian Republic of Venezuela and, according to its corporate objectives and
specific responsibilities, undertakes significant transactions with its Stockholder, government institutions
and others. These transactions relate mainly to fiscal obligations for the payment of royalties and taxes,
social programs and purchase and transfer of assets, among others.
ƒ
As explained in note 2-e to the accompanying consolidated financial statements, during 2007 the Company
changed the presentation of its consolidated balance sheet based on the recommendations of professional
standards and financial statement presentation used by other energy sector companies.
ALCARAZ CABRERA VÁZQUEZ
Public Accountant
C.P.C. Nº 5326
March 20, 2008
Caracas, Venezuela
2
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Consolidated Balance Sheets
(In millions of U.S. dollars)
Note
December 31,
2007
2006
13
14
12-a
15
12-f
16
52,436
2,088
5,343
4,483
2,230
1,743
42,503
2,503
3,443
3,659
3,460
1,928
68,323
57,496
8,470
3,346
11,687
7,721
1,555
3,325
3,245
7,003
776
9,546
2,985
441
2,282
-
39,349
23,033
107,672
80,529
20
56,062
53,103
21
13,129
2,262
22
12-a
23
2,508
2,402
3,095
1,731
2,089
2,189
21,134
8,271
2,877
490
5,650
3,048
17,646
765
652
374
6,379
2,487
9,263
-
Total current liabilities
30,476
19,155
Total liabilities
51,610
27,426
107,672
80,529
Assets
Property, plant and equipment, net
Investment in non-consolidated investees
Deferred income tax
Long-term accounts receivable and other assets
Recoverable value-added tax, net of current portion
Restricted cash, net of current portion
Total non-current assets
Inventories
Recoverable value-added tax
Notes and accounts receivable
Prepaid expenses and other assets
Restricted cash
Cash and cash equivalents
Assets held for sale
17
12-f
18
19
16
10
Total current assets
Total assets
Stockholder's Equity
Stockholder's equity, see consolidated statements of stockholder's
equity
Liabilities
Long-term debt, net of current portion
Employee benefits and other postretirement benefits, net
of current portion
Deferred income tax
Accruals and other liabilities, net of current portion
Total non-current liabilities
Current portion of long-term debt
Employee benefits and other postretirement benefits
Accounts payable to suppliers
Income tax payable
Accruals and other liabilities
Liabilities held for sale
21
22
24
12-a
23
10
Total liabilities and stockholder’s equity
Notes 1 to 34 are an integral part of the consolidated financial statements.
3
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Consolidated Statements of Income
(In millions of U.S. dollars)
Note
Continuing operations:
Sale of crude oil and products:
Export to international markets
In Venezuela
Other sales
Years ended
December 31,
2007
2006
28
93,820
2,357
65
96,764
2,233
255
96,242
99,252
28,137
14,958
154
4,018
2,702
21,981
584
(210)
38,778
14,779
100
3,640
2,184
18,435
267
374
72,324
78,557
733
641
1,120
1,432
25,292
23,247
14,102
13,784
11,190
9,463
5,017
4,031
6,173
5,432
100
20
Net income
6,273
5,452
Net income:
Attributable to the Company’s stockholder
Minority interests
5,371
902
4,994
458
6,273
5,452
Costs and expenses
Purchases of crude oil and products
Operating expenses
Exploration expenses
Depreciation and amortization
Selling, administrative and general expenses
Production, extraction tax and other taxes
Finance expenses
Other (income) expenses, net
9, 28
13
12
11
Equity in earnings of non-consolidated investees
Gain on sale of investment in non-consolidated investees
14, 28
14
Income before social development
expenses and income tax
Social development expenses
28
Income before income tax
Income tax
12-a
Net income from continuing operations
Discontinued operation:
Income from discontinued operation, net of income tax
Notes 1 to 34 are an integral part of the consolidated financial statements.
4
10
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Consolidated Statements of Stockholder's Equity
Years ended December 31, 2007 and 2006
(In millions of U.S. dollars)
Note
Balance as of December 31, 2005
Net income
Transfer to reserves
Equity distribution of Stockholder
Dividend advances to Stockholder
Minority interests of "Empresas Mixtas" in the
additional contribution to Stockholder
Dividends paid
39,094
Balance as of December 31, 2007
8,825
28
9-b & 20
-
9-b & 20
20
-
-
39,094
8,860
Balance as of December 31, 2006
Net income
Transfer to reserves
Additional contribution of Stockholder
Additional contribution of minority interests
Decrease of additional contribution of Stockholder
Dividends paid
Minority interests of "Empresas Mixtas" in the
additional contribution to Stockholder
Minority interests of "Empresas Mixtas"
in dividends declared by those companies
Capital
stock
Equity attributable to the Company’s Stockholder
Retained Earnings
Legal
Accumulated
Additional
reserves
(loss)
contribution of
and other
profit
Total
Stockholder
20
9-b & 20
9-b & 20
20
20
-
9-b & 20
-
20
(905)
262
(227)
-
Total
stockholder’s
equity
47,014
81
47,095
458
(70)
-
5,452
(2,879)
5,151
4,994
(2,809)
-
5,151
4,994
(2,809)
5,151
(1,716)
(1,716)
(1,918)
-
(1,918)
(1,716)
1,918
-
(1,716)
8,389
3,233
50,716
2,387
53,103
5,371
1,908
(2,658)
-
-
Minority
interests
4,994
(262)
(2,582)
-
(471)
(1,908)
-
7,920
Total
attributable to
Company’s
Stockholder
-
5,371
(2,658)
-
93
(223)
-
5,371
93
(223)
(2,658)
(93)
(93)
-
-
-
-
-
-
39,094
6,952
4,150
11,102
3,010
53,206
Notes 1 to 34 are an integral part of the consolidated financial statements.
5
902
3
(150)
93
(379)
2,856
6,273
93
3
(373)
(2,658)
(379)
56,062
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Consolidated Statements of Cash Flows
Years ended December 31, 2007 and 2006
(In millions of U.S. dollars)
Years ended
December 31,
2007
2006
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities Depreciation and amortization
Asset impairment (reversal)
Cost of asset retirement obligations
Deferred income tax
Foreign exchange loss
Provision for employee benefits and other postretirement benefits
Equity in earnings of non-consolidated investees
Gain on sale of investments in non-consolidated investees
Excess of net assets purchased over the cost of investment
Changes in the fair value of long-term accounts receivable
Increase (decrease) in allowance for doubtful accounts
Changes in operating assets Notes and accounts receivable
Inventories
Prepaid expenses and other assets
Recoverable value-added tax
Changes in operating liabilities Accounts payable to suppliers
Income tax payable, accruals and other liabilities
Payment of employee benefits and other postretirement benefits
Total adjustments
Net cash provided by operating activities
Cash flows from investment activities:
Purchases of property, plant and equipment, net
(Increase) decrease in restricted cash, net of trust fund contributions
of US$229 million in 2006
Sale of investment in non-consolidated investees
Incorporation of new non-consolidated investees
Dividends received from non-consolidated investees
Purchase of assets held for sale, net
Other variations in investments
Net cash used in investment activities
Cash flows from financing activities:
Proceeds from long-term debt
Payments of long-term debt
Dividends paid to Stockholder
Dividends paid to minority interests
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
6,273
5,452
4,018
10
53
(1,587)
115
2,784
(733)
(641)
(666)
446
15
3,640
(93)
195
(724)
486
969
(1,120)
(1,432)
822
(12)
(2,137)
(1,636)
(6,006)
(1,340)
(3,956)
(1,562)
(2,212)
(313)
(709)
7,921
(2,006)
1,659
2,856
(611)
(2,099)
(1,408)
4,174
4,044
(12,852)
(7,193)
(929)
756
635
(1,195)
398
2,534
1,774
(202)
1,236
103
(13,187)
(1,748)
14,959
(1,866)
(2,658)
(379)
(497)
(1,317)
-
10,056
(1,814)
1,043
482
Cash and cash equivalents at beginning of year
2,282
1,800
Cash and cash equivalents at year-end
3,325
2,282
376
27,124
13,897
68
25,896
11,993
Supplemental disclosure:
Significant cash disbursements in the year Interest, net of amount recorded under assets
Income tax, production and other taxes
Social development expenses
Significant transactions not requiring cash Offset of accounts
Dividends paid through assignment of promissory notes
Equity distribution to Stockholder - Pequiven, net of minority interest
Additional contribution of Stockholder, net of minority interest
(223)
Notes 1 to 34 are an integral part of the consolidated financial statements.
6
1,317
399
(2,809)
3,233
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(1)
Reporting Entity
Petróleos de Venezuela, S.A. is a company incorporated and domiciled in the Bolivarian Republic of
Venezuela and its headquarters are located at Edificio Petróleos de Venezuela, Torre Este, Avenida
Libertador, La Campiña, Apartado N° 169, Caracas 1010-A.
Petróleos de Venezuela, S.A. and its subsidiaries (PDVSA or the Company) are wholly-owned by the
Bolivarian Republic of Venezuela, which controls, as stockholder, PDVSA through the Ministry of
Popular Power for Energy and Oil (hereinafter referred to as MENPET). PDVSA is responsible, in
Venezuela, for developing the hydrocarbon industry; and planning, coordinating, supervising and
controlling the activities of its subsidiaries, both in Venezuela and abroad (see notes 3-a, 9, 14 and 28).
Most of its foreign subsidiaries are responsible for refining and marketing activities in North America,
Europe and the Caribbean. The consolidated financial statements of PDVSA, for the years ended
December 31, 2007 and 2006, include the Company, its affiliates and jointly-controlled entities.
Based on the new social responsibility of PDVSA, set forth in Articles 302 and 311 of the Constitution of
the Bolivarian Republic of Venezuela and Article 5 of the Organic Hydrocarbons Law, regarding
PDVSA’s involvement in the country’s social development and in order to support the development of
infrastructure, highways and roads, agricultural, health and educational programs and other investments in
Venezuela, PDVSA participates in diverse programs established by the National Government (see notes 3a, 15, 16 and 28).
The main activities of PDVSA are governed by the Organic Hydrocarbons Law Gas activities are regulated
by the Organic Law of Gas Hydrocarbons of September 1999 and its Regulation dated June 2000.
In Official Gazette 38,443, published on May 24, 2006, the Partial Reform Law of the Organic
Hydrocarbons Law was passed. The previous law was effective since 2002. Among the most relevant
changes of this reform affecting PDVSA are the following new taxes:
ƒ
Production Tax: establishes a rate of one third of the value of all liquid hydrocarbons extracted
determined using the same base established in the law to calculate royalties. In determining this tax,
the taxpayer may deduct the amount that would have been paid as a royalty, including the additional
royalty paid as a special advantage.
ƒ
Export Registration Tax: establishes a rate of one per one thousand over the value of all
hydrocarbons exported from any domestic port, determined on the sales price of such hydrocarbons.
7
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(2)
Basis of Presentation
(a)
Statement of Compliance
The consolidated financial statements are prepared in accordance with International Financial
Reporting Standards (IFRSs), adopted by the International Accounting Standards Board (IASB) and
its interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC)
of the IASB.
On March 19, 2008, the Board of Directors approved to submit for consideration at the
Stockholder’s Meeting the consolidated financial statements for the year ended December 31, 2007,
which are expected to be approved without changes. The consolidated financial statements for the
year ended December 31, 2006, were approved at the Stockholder’s Meeting on September 7, 2007.
(b)
Basis of Measurement
The consolidated financial statements have been prepared on the historical cost basis, except for
certain assets and liabilities measured at fair value. Assets measured and stated at fair value are the
following: derivative financial instruments, recoverable value-added tax and long-term accounts
receivable from entities performing the social projects and energy agreements.
The methods used to measure fair values are discussed comprehensively in note 6.
(c)
Functional and Presentation Currency
The consolidated financial statements are stated in US dollars (dollar or $), which is the functional
currency of the Company since the main economic environment of the operations of PDVSA is the
international market of crude oil and refined products. Additionally, a significant portion of
revenues and long-term debt as well as most costs, expenses and investments are denominated in
dollars.
All financial information presented in dollars has been rounded to the nearest million.
(d)
Use of Estimates and Judgements
The preparation of consolidated financial statements in conformity with IFRS requires management
to make estimates, judgements and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses. The Company uses its best
estimates and judgments; however, actual results may differ from these estimates.
The related estimates and assumptions are based on experience and other factors which are
considered reasonable under current circumstances and form the basis for determining the carrying
value of assets and liabilities not easily determinable by other means. Estimates and assumptions are
reviewed periodically, and revisions of accounting estimates are recorded in the same year and in
any future years affected.
8
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
The significant areas of estimation, uncertainty and critical judgments in applying accounting
policies that have the most significant effect on the amounts recognized in the financial statements
follow:
(e)
ƒ
Note 12 - Deferred income tax and use of tax losses
ƒ
Note 13 - Depreciation and amortization
ƒ
Note 22 - Employee termination, pension and other postretirement benefits.
ƒ
Note 23 - Accrual for asset retirement obligations (included in accruals and other liabilities).
ƒ
Note 25 - Valuation of financial instruments.
ƒ
Note 26 - Financial and operating leases.
ƒ
Note 27 - Provision for litigation and other claims and accrual for environmental matters.
Presentation of Consolidated Balance Sheets
In preparing and presenting its consolidated financial statements, until December 31, 2006, the
Company used a balance sheet classification, which commenced with the presentation of assets and
liabilities taking into account current and non-current items regarding their expected realization, in
the case of assets, and the degree of immediacy of payment expectations, in the case of liabilities.
During the year ended December 31, 2007, the Company, based on evaluations and believing that
the nature of its transactions and industry trends would be more suitably presented, opted to prepare
its balance sheets using different criteria, that is, assets and liabilities are presented beginning with
non-current items followed by current items. As required under IAS, the new format was applied to
the 2006 consolidated financial statements, presented for comparative purposes.
9
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(f)
Consolidated Financial Statements – Subsidiaries Audited by Other Auditors
The consolidated financial statements of PDVSA as of December 31, 2007 and 2006, and for the
years then ended, were audited by independent auditors. A list of subsidiaries audited by auditors,
other than our corporate auditors Alcaraz Cabrera Vázquez (a Venezuelan member firm of KPMG
International), indicating the respective interest in net income and total assets with respect to the
consolidated totals, is presented below:
Company
Rate (%) with regards to
consolidated totals
Year 2007
Year 2006
Net
Total
Net
Total
income
income
income
assets
Independent
Auditors
Subsidiaries :
Petroboscán, S.A.
9.98%
1.30%
6.86%
0.74%
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
Petrolera Zuata, Petrozuata, S.A.
9.00%
3.57%
-
-
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
Petroregional del Lago, S.A.
4.78%
1.08%
3.38%
1.11%
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
Petroquiriquire, S.A.
3.10%
0.56%
2.47%
0.52%
Lara Marambio y Asociados, a member firm of Deloitte
Touche Tohmatsu (Deloitte)
Petrodelta, S.A.
2.89%
0.23%
0.03%
0.02%
Lara Marambio y Asociados, a member firm of Deloitte
Touche Tohmatsu (Deloitte)
Petroindependiente, S.A.
1.76%
0.69%
0.84%
0.67%
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
Petrolera Sino-Venezolana, S.A.
1.50%
0.36%
1.22%
0.36%
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
Baripetrol, S.A.
1.43%
0.27%
1.06%
0.27%
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
Lagopetrol, S.A.
1.37%
0.03%
0.02%
0.01%
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
Boquerón, S.A.
1.09%
0.29%
0.07%
0.69%
Mendoza, Delgado, Labrador y Asociados, a member
firm of Ernst & Young Global (E&Y)
Petroperijá, S.A.
1.02%
0.43%
0.61%
0.37%
Mendoza, Delgado, Labrador y Asociados, a member
firm of Ernst & Young Global (E&Y)
Petrocabimas, S.A.
0.58%
0.11%
0.35%
0.12%
Marambio González & Asociados
Petrowarao, S.A.
0.38%
0.14%
0.37%
0.16%
Lara Marambio y Asociados, a member firm of Deloitte
Touche Tohmatsu (Deloitte)
Petrocumarebo, S.A.
0.21%
0.07%
-0.07%
0.06%
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
Petroguárico, S.A.
0.18%
0.05%
0.08%
0.06%
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
Proyecto Hamaca
7.51%
3.21%
5.28%
1.72%
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
Sincor Joint Operation
5.59%
2.49%
7.23%
3.69%
Mendoza, Delgado, Labrador y Asociados, a member
firm of Ernst & Young Global (E&Y)
Proyecto Cerro Negro
3.66%
2.08%
4.55%
1.97%
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
-
-
3.48%
2.22%
Espiñeira, Sheldon y Asociados, a member firm of
PricewaterhouseCoopers (PWC)
Joint Venture:
Petrolera Zuata, Petrozuata, S.A.
10
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(3)
Significant Accounting Policies
Accounting policies have been applied consistently for all years presented in these consolidated financial
statements and have been applied consistently by its subsidiaries, affiliates and jointly-controlled entities.
Certain reclassifications have been made in the 2006 consolidated financial statements to conform to the
classifications used in 2007. Also, the comparative consolidated statements of income have been presented
as if discontinued operations in the current year had taken place at the beginning of the comparative year
(see note 10).
(a)
Basis of Consolidation
Investment in Subsidiaries
Subsidiary companies are those controlled by PDVSA. Control exists when PDVSA has the power,
directly or indirectly, to control the financial and operating policies of an entity in order to obtain
benefits from its activities. In assessing control, potential voting rights that may be exercised or
transferred are taken into account. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control
ends. The accounting policies of subsidiaries have been amended as necessary to adjust them to the
policies adopted by the Company.
The most significant wholly-owned subsidiaries are the following: PDVSA Petróleo, S.A. (PDVSA
Petróleo); Corporación Venezolana del Petróleo, S.A. (CVP); PDVSA Gas; S.A. (PDVSA Gas); and
Deltaven, S.A. (Deltaven) in Venezuela; PDV Holding, Inc. (PDV Holding) and its main subsidiary
PDV America, Inc. (PDV America) which operates in the United States of America. The main
activity of PDVSA in the United States of America is represented by CITGO Petroleum Corporation
and its subsidiaries (CITGO), wholly-owned by PDV America.
During 2007, new PDVSA subsidiaries were incorporated to meet the requirements of operations
under different energy cooperation agreements undertaken between the Bolivarian Republic of
Venezuela and other countries, as well as other subsidiaries to service development activities: Magna
Reserva; Orinoco Project; Delta Caribe; Growth of Traditional Areas; Refining, Infrastructure and
Commercialization and Integration Projects, namely, PDV Sur, S.A.; PDV Andina, S.A.; PDVSA
Panamá, S.A., PDVSA Ibérica, S.L.; PDVSA Agrícola, S.A.; PDVSA Industrial, S.A.; PDVSA
Servicio, S.A. and PDVSA Gas Comunal, S.A.
In accordance with the strategic objectives and guidelines of the National Government, the
Stockholder’s Meeting of PDVSA in 2007 authorized the purchase of shares of the following
companies operating the electricity sector in the country: C.A. La Electricidad de Caracas; Sistema
Eléctrico del Estado Nueva Esparta, C.A. (SENECA); C.A. Electricidad de Valencia (ELEVAL) and
C.A. Luz y Fuerza Eléctrica de Puerto Cabello (CALIFE) (see note 10).
From October 2007, the consolidated financial statements of PDVSA include the financial
statements of Petrolera Zuata, Petrozuata, C.A. (Petrozuata), resulting from control over its activities
from that date. Until September 30, 2007, the investment in Petrozuata was recorded under the
equity method (see note 9-a).
11
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Jointly-Controlled Entities
Jointly-controlled entities are those where PDVSA has common control, established through a
contractual agreement. PDVSA Petróleo participates through its consolidated subsidiaries PDVSA
Cerro Negro, S.A. (PDVSA Cerro Negro), PDVSA Sincor, S.A. (PDVSA Sincor) and
Corpoguanipa, S.A. (Corpoguanipa), in associations for the development of extra-heavy crude oil
reserves in the Orinoco Belt. These subsidiaries of PDVSA Petróleo account for these investments
using the proportional consolidation method, recognizing their percentage share in the assets,
liabilities, income and costs, in accordance with their percentage participation in the joint businesses
from the date that joint control commences until the date that joint control ceases. In accordance
with guidelines established by the National Government, the activities of these entities are
undertaken by mixed companies incorporated with a majority interest of PDVSA, from the time
when the asset transfer decrees are published, which is expected to be during the first semester of
2008. After publication, the financial information of the mixed companies will be included in the
consolidated financial statements of PDVSA on a consolidated basis (see notes 9-a and 33-a).
Non-Consolidated Investees
Non-consolidated investees are those entities where PDVSA has a significant influence, but not
control, over the financial and operating policies. Significant influence is presumed when the
Company owns directly or indirectly between 20 and 50 percent of the voting rights in the other
company. The consolidated financial statements include the interest in the income or losses in the
non-consolidated investees recorded on an equity basis, from the date when influence commences
until the date when control ceases. The equity method consists of increasing the cost of the
investment by the corresponding interest in the results of operations of the issuer for periods
subsequent to the acquisition date. Dividends received are reduced from the carrying value of the
investment. When the interest in losses exceeds the investment in an affiliate, the carrying value of
that investment is reduced to zero and recognition of further losses ceases, except when PDVSA is
jointly and severally liable for obligations incurred by such non-consolidated investees.
Transactions Eliminated in Consolidation
Intercompany balances and transactions, and any unrealized gains from intercompany transactions,
are eliminated in preparing the consolidated financial statements. Unrealized gains from transactions
with entities, whose investment is accounted for using the equity method, are eliminated against the
interest in such companies. Unrealized losses are eliminated in the same manner as unrealized gains,
provided that there is no evidence of impairment.
(b)
Currencies Other than the Dollar
Transactions in Currencies Other than the Dollar
Transactions in foreign currencies other than the dollar are translated to the respective functional
currency of the related entities of the Company, at the exchange rate in effect at the transaction date.
Monetary assets and liabilities in foreign currencies other than the dollar at the balance sheet date are
translated into the functional currency using the applicable exchange rate on that date. The foreign
currency gain or loss on monetary items is the difference between the net cost in the functional
12
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
currency at the beginning of the year, adjusted by the effective interest rate and payments during the
year, and the net cost in foreign currency translated using the exchange rate at year-end. Nonmonetary assets and liabilities in currency other than dollar stated at fair value are retranslated to the
functional currency using the exchange rate as of the date of determining fair value. Foreign
exchange gain or losses resulting from retranslation are recorded in the consolidated statements of
income (see note 5).
Financial Statements of Subsidiaries Incorporated Outside Venezuela and the United States of
America
Assets and liabilities of subsidiaries outside of Venezuela and the United States of America are
generally translated into dollars at the rate of exchange in effect at the reporting date. Income and
expense items are translated at the weighted average exchange rate prevailing during each year
presented. The accumulated translation effect has not been significant in recent years and is included
in stockholder’s equity under accumulated losses. When a foreign operation is sold, fully or
partially, the translation effect associated with such operation is recorded in the consolidated
statements of income.
(c)
Financial Instruments
Non-Derivative Financial Instruments
Non-derivative financial instruments are cash and cash equivalents, restricted cash, recoverable tax
credits, notes and accounts receivable, long-term accounts receivable, accounts payable to suppliers,
long-term debt and other liabilities.
Non-derivative financial instruments are initially recorded at fair value, plus any direct transaction
costs, for financial instruments recorded at fair value and subsequent changes are recorded in the
consolidated statement of income.
A financial instrument is recorded when the Company engages or commits to the contractual clauses
thereof. Financial assets are reversed if the contractual rights of the Company over the cash flows of
the asset expire or if the Company transfers the financial asset to another entity without retaining
control or a significant portion of risks and rewards of the asset. Regular way purchases and sales of
financial assets are accounted for at trade date, which is generally the date on which the Company
commits to purchase or sell the asset. Financial liabilities are derecognize when the specific
contractual obligation of the Company expires or is paid.
See accounting policies for recording financial income and expenses in note 3-o.
Derivative Financial Instruments
PDVSA uses derivative financial instruments to reduce its exposure to commodity price risk and
interest rate risk arising from operational, borrowing and financing activities. In accordance with its
corporate policy, PDVSA does not use derivative financial instruments for trading or speculative
purposes.
13
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Derivative financial instruments are recorded initially at their fair value. Transaction costs are
recorded in the consolidated statements of income when incurred. Subsequent to initial recognition,
derivative financial instruments are measured at fair value recognizing any changes in the
consolidated statements of income. The effects of changes in the fair value of derivatives in 2007
and 2006 are not significant and are included in the consolidated statements of income under other
(income) expenses, net.
(d)
Property, Plant and Equipment
Property, plant and equipment are stated at cost net of accumulated depreciation and impairment loss
(see note 3-j). The successful efforts method of accounting is used for exploration and production
activities for crude oil and gas. Costs of well development, related plant and equipment used in
exploitation of oil and gas are recorded as part of the cost of assets. Costs of exploratory wells are
recorded as assets until it is determined whether the well is commercially feasible; otherwise, such
costs are charged to operating expenses. Other exploratory expenditures, including the geological
and geophysical costs, are expensed as incurred. Major maintenance costs other than a general
repair are capitalized when these are identified as a separate component of the asset to which such
maintenance or repair corresponds and are depreciated over the period between one maintenance and
another. Disbursements for minor maintenance, repairs and renewals incurred to maintain the
facilities in normal operating condition are expensed. Gains or losses from withdrawal or disposal of
assets are included as operating expenses in the consolidated statements of income.
The cost of property, plant and equipment also includes, when relevant, the amounts associated with
asset retirement obligations (see note 3-e).
Financing costs of projects requiring major investments in long-term construction and those incurred
from financing of specific projects are capitalized and amortized over the estimated useful lives of
the related assets.
The cost of assets built by the Company includes the cost of materials and direct labor as well as any
other direct cost attributable to bringing the asset to working condition. It also includes dismantling
and removal costs at the location where built.
All disbursements relating to construction or purchase of property, plant and equipment in the stage
prior to implementation are stated at cost as work in progress. Once the assets are ready for use, they
are transferred to property, plant and equipment and depreciation or amortization commences.
When parts of an asset under property, plant and equipment have different useful lives, they are
recorded separately as a significant component of that asset.
Gains or losses on disposal of an item of property, plant equipment are determined by comparing the
proceeds from disposal with the carrying amount of property, plant and equipment and are
recognised under other (income) expenses, net in the consolidated statement of income.
14
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Depreciation and amortization of capitalized costs related to wells and facilities for the production of
crude oil and gas, are determined using the units of production method by field, based on the proved
developed reserves. The rates used are reviewed annually, based on an analysis of reserves and are
applied retroactively at the beginning of the year. Capitalized costs of other plants and equipment
are depreciated over their estimated useful lives, mainly using the straight-line method, which for
plants and refining facilities range between 17 and 25 years; for storage facilities and crude oil and
gas transportation between 12 and 25 years; for buildings and constructions 20 years; for machinery
and equipment between 5 and 10 years; for land, maritime and air transportation units between 3 and
20 years; for the services of industrial and camps support between 10 and 17 years; and for
remaining assets between 3 and 10 years. In addition, the assets acquired under financial leases are
depreciated using the straight-line method over approximately 10 years, which approximates the
average estimated useful life, with the transfer of ownership of these assets at the end of the lease
term (see note 26).
Depreciation methods and useful lives of property, plant and equipment are reviewed annually.
(e)
Costs Associated with Asset Retirement Obligations
PDVSA capitalizes estimated cost associated with asset retirement obligations, involving assets for
exploration activities and production of crude oil and gas and other industrial facilities, based on the
future retirement plan for those assets. Costs are capitalized as part of the long-lived assets and are
amortized by charging operating cost over their useful lives.
Obligations associated with the retirement of long-lived assets are recorded at fair value on the date
on which such obligation is incurred, based on future discounted cash flows. The fair values are
determined based on current regulations and technologies.
(f)
Leased Assets
Leased assets for which the Company undertakes substantially all risks and rewards are classified as
capital leases. At the time of initial recognition, the leased asset is valued at the lower of its fair
value and the present value of minimum lease payments. After initial recognition, the asset is
recorded according to the applicable accounting policies. Other leases are deemed operating;
therefore, such leased assets are not recorded in the consolidated balance sheets (see note 26).
(g)
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of inventories of crude oil
and its products is determined using the average cost method. Materials and supplies are stated
principally at average cost, less an allowance for possible losses, and are classified into two groups:
current assets and non-current assets.
Net realizable value is the estimated sale value in the normal course of business, less costs to
complete and estimated selling costs.
15
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(h)
Trade Accounts Receivable
Trade accounts receivable are recorded using the amounts billed and are stated net of an allowance
for doubtful accounts, which represents the amount of probable losses. The Company estimates such
allowance based on the aging of accounts receivable and the results of assessment of the client
portfolio (see notes 18 and 25).
(i)
Cash and Cash Equivalents
PDVSA considers as cash equivalents all deposits and other cash placements and time deposits with
original maturities of less than three months and available on a current basis which at December 31,
2007 and 2006 amounted to approximately $622 million and $1,229 million, respectively.
(j)
Impairment of Assets
Financial Assets
PDVSA reviews the carrying value of its financial assets at each reporting date to determine whether
there is any objective evidence of impairment. A financial asset is impaired if there is objective
evidence that one or more events have had a negative effect on the estimated future cash flows of the
asset.
Significant financial assets are evaluated individually to determine their impairment. The remaining
financial assets with similar credit-risk characteristics are evaluated as a group.
An impairment loss is recognised in the consolidated statements of income. Reversal of an
impairment loss is recorded if the reversed can be related objectively to an event occurring after the
impairment loss was recognized (see note 25).
Non-Financial Assets
The carrying amounts of non-financial assets, excluding inventory and deferred tax, are reviewed at
each reporting date to determine whether evidence of impairment exists. If any such indication
exists, then the recoverable amount of the asset is estimated
An impairment loss is recorded when the carrying amount of an asset or of its cash-generating unit
exceeds its recoverable amount. A cash generating unit is the smallest group of assets identifiable
generating cash flows substantially independent of other assets or groups of assets. Recoverability
of assets to be held and used is measured by comparison of the carrying amount of the related assets
to estimated undiscounted future net cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
recorded for the amount by which the carrying amount of the asset exceeds the fair value of the
asset. The cost of the relevant asset is presented net of this impairment charge. Impairment is
determined by the Company based on the cash generating units, in accordance with its business
segments, geographical locations and the final use of the production generated by each unit. An
impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount (see note 13).
16
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(k)
Assets Held for Sale and Discontinued Operations
Assets Held for Sale
Non-current assets or alienable groups comprised of both assets and liabilities are classified as held
for sale if their carrying value will be recovered by selling them and not by continuous use. This
condition is met only when the sale is highly probable and non-current assets or alienable groups are
available for sale immediately in their present condition, and the sale is expected to take place in the
term of one year from their classification date. Immediately after their classification, non-current
assets or alienable groups are recorded in accordance with the Company’s accounting policies and,
subsequently, measured at the lower of carrying value or fair value, less estimated costs to sell
(see note 10).
Any impairment loss of an disposable group is first allocated to surplus and then prorated to the
remaining assets and liabilities, except in the event that no loss has been recorded in inventories,
financial assets, deferred tax assets, employee benefit assets, which would continue to be recorded
initially in accordance with the Company’s policies. Any subsequent gain or loss from changes in
fair value is recorded in the consolidated statements of income. Gain from changes in fair value may
not exceed the accumulated impairment loss previously recognized.
On the purchase date, the Company distributes the purchase cost of entities recognizing assets,
liabilities and contingent assets identifiable at their fair values, except for assets held for sale, which
are recorded at fair value less estimated costs to sell. Any difference between the purchase cost and
the Company’s interest in the net fair value of identifiable assets, liabilities and contingent liabilities,
as well as valuation of the purchase cost, is recorded initially reconsidering the valuation of those
identifiable assets, liabilities and contingent liabilities, as well as the valuation of purchase cost, and
subsequently, any excess of net assets acquired over the cost of the investment existing after their
revaluation is recorded immediately in the income of that year.
Discontinued Operations
A discontinued operation is a business component of the Company represented by an operating
segment or significant geographic area separated from the rest of the operations and has been
disposed of or classified as held for sale or a subsidiary acquired exclusively for resale.
Classification as discontinued operations occurs when the asset is retired, sold or otherwise disposed
of or when the transaction meets the criteria to be classified as held for sale, if earlier. When an
operation is classified as a discontinued operation, the comparative consolidated statement of income
is restated as if the operation had been discontinued from the beginning of the comparative year
(see note 10).
17
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(l)
Employee Termination, Pension and Other Postretirement Benefits
Retirement Plans
PDVSA’s net obligation for retirement benefits as defined by contract is calculated for each
participant in the plan, estimating the amount of future benefits that employees have acquired for
their services during the current and prior periods; this benefit is discounted in order to determine its
present value which is reduced by the fair market value of plan assets. The discount rate must reflect
the performance which, at the date of the consolidated financial statements, is reflected by financial
instruments issued by institutions with high credit ratings and having maturities similar to those of
the obligations. The calculation is made by an actuary using the projected unit credit method.
Improvements to benefits of a plan, relating to cost of past services, are recorded as an expense in the
consolidated statement of income over the estimated period, until the benefits become vested. To the
extent such benefits are vested, the expense is recorded immediately in the consolidated statement of
income.
The Company records as either income or expense a portion corresponding to the amount of its
unrecorded actuarial gains or losses, exceeding 10% of the greater of the following amounts: a) the
present value of defined benefit obligations; and b) the fair value of the plan’s assets. The resulting
amount is divided by the average remaining service period of the employees participating in the plan.
These limits are determined and applied separately for each of the defined benefit plans.
Employees’ Severance Indemnities
Employees’ severance indemnities corresponding to employees in Venezuela are recorded as
incurred, in accordance with labor laws and collective labor contracts. A significant portion of the
termination benefits has been deposited in trust accounts on behalf of the employees.
On October 11, 2007, PDVSA signed a new collective labor contract, effective until 2009, whereby
salary improvements and social benefits for the workers of the contractual payroll in Venezuela were
introduced. The obligations arising from this collective labor contract are effective from November
2007.
Short-Term Benefits
Obligations for short-term benefits, such as employee bonuses, vacations and other benefits are
recorded an expenses as the related services performed by the employee.
Other Postretirement Benefits
The net obligation for other postretirement benefits, contractually defined, is the amount of future
benefits that employees have earned for their services during the current and previous periods.
These benefits include health and dental plans, funereal insurance and electronic meal card. The
obligation is calculated using the projected unit credit method, and is discounted to reflect its present
value and is reduced by the fair value of related assets, if any. The discount rate must reflect the
performance of financial instruments issued by institutions of high credit rating at the date of the
consolidated financial statements and having maturities similar to those of the obligations.
18
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Costs of past services and actuarial gains and losses are recorded using the same methodology as the
contractually defined retirement plan.
(m)
Provisions
A provision is recorded if as a result of a past event the Company has a present or legal constructive
obligation that can be reliably estimated, and it is probable that an outflow of economic benefits will
be required to settle the obligation.
According to the environmental policies established by PDVSA and current laws, a liability is
recorded when the costs are probable and can be reliably estimated. The obligations for
environmental conservation relating to income from current or future operations are recorded as
expenses or assets, as the case may be. Obligations for past operations that do not contribute to
generating current or future income are charged to expense. The creation of these provisions
coincides with the identification of an obligation for environmental remediation where PDVSA has
sufficient information to determine a fair estimate of the respective cost. Subsequent adjustments to
estimates, if necessary, are made upon obtaining additional information.
(n)
Revenue Recognition
Revenue from the sale of crude oil, natural gas, refined products and other, of the domestic and
foreign subsidiaries are recorded in the statement of income when the risk and significant rights
derived from property has been transferred to the buyer, the recovery of the respective account
receivable is probable, there is sufficient evidence according to sale and prices have been fixed or are
determinable. Mainly, these transfers are governed by the delivery terms in agreements with clients.
Revenues from activities other than the principal activities of the Company are recorded when
realized. Income is not recorded if there is a significant uncertainty regarding the recovery of the
obligation acquired by the purchaser.
(o)
Financial Income and Expenses
Financial income is mainly comprised of interest income on invested funds, gains from the sale of
financial assets held for sale and changes in the fair value of financial assets, which are included in
other (income) expenses, net in the consolidated statements of income.
Financial expense related to impairment losses and changes in the fair value of financial assets are
included in other (income) expenses, net in the consolidated statements of income. Financial
expenses for interest on financial obligations are presented under finance expenses in the
consolidated statements of income.
(p)
Income Tax
Income Tax expense comprise current and deferred taxes. Income tax expense is recorded in the
results of each year, except when it corresponds to items directly recorded in stockholder’s equity.
19
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Current tax is the estimated amount that must be paid based on the taxable income for the year, using
the tax rates and methodology established by current laws, tax rates as of the balance sheet date and
any adjustment to taxes payable from previous years.
Deferred income tax is recorded using the balance sheet method. Deferred tax assets and liabilities
are recorded for future tax consequences attributable to differences between the amounts of assets
and liabilities stated in the balance sheet and their respective fiscal bases, and operating loss and tax
credits carryforwards. Deferred tax assets and liabilities are measured using the tax rates applicable
to taxable income in the year in which temporary differences will be recovered or cancelled,
pursuant to law. The effect on deferred tax assets and liabilities of changes in tax rates is recorded in
the results of the year in which they become effective.
A deferred tax asset is recognized for tax benefits to the extent that it is probable that such benefits
will be realized in the future. Deferred tax assets are reviewed at the date of the consolidated
financial statements and are reduced to the extent that it is no longer probable that the related tax
benefit will be realized.
Income tax arising from the distribution of dividends, determined on the basis of the laws of each tax
jurisdiction, is recorded as a liability when the liability to pay the related dividend is recognized.
(q)
Segments Reporting
A segment is an identifiable component of PDVSA providing products or services (operating
segment), or providing products or services within a specific economic environment (geographic
segment), which is subject to specific risks and benefits that are different from those of other
segments.
PDVSA has determined that its business segments are based on the methodology used by
management for internal reporting. PDVSA identifies these segments based on its business units and
geographical locations. The operating segments of PDVSA include exploration and production
activities of crude oil (upstream); refining, trade and supply (downstream); and gas (see note 8).
Operating income, assets and liabilities of each segment include transactions and balances directly
attributable to that segment, as well as any other item that can be distributed on a reasonable basis.
Undistributed transactions and balances are mainly comprised of long-term debt, financial leases and
related financial expenses, deferred income tax and income tax payable.
Net disbursements for investments include net total costs incurred in the year for the purchase of
property, plant and equipment.
(r)
Operating Agreements
Operating Agreements of the first, second and third round executed by PDVSA with domestic and
foreign companies in 1992, 1993 and 1997, respectively, were effective until March 31, 2006. After
that date, the activities relating to such operating agreements were undertaken by “Empresas Mixtas”
majority-owned by PDVSA (see note 9-b).
20
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Until March 31, 2006, the balances corresponding to operating agreements were controlled through
memorandum accounts, considering that the respective payments were subject to compliance with
certain variables and conditions established in the contracts. Recorded in such memorandum
accounts are property, plant and equipment, depreciation and the costs and expenses related to such
agreements. These operating agreements provide for periodic payments for operating and capital
fees or stipends based on crude oil production, subject to certain restrictions. The amounts recorded
for fees and stipends are accounted for in operating expenses.
(s)
Research and Development Costs
Research costs incurred to obtain new scientific or technical knowledge are recorded as operating
expenses in the consolidated statements of income when incurred. In 2007 and 2006, such costs
amounted to $188 million and $126 million, respectively.
Development activities involve a plan or design for production of new or substantially improved
products and processes. Development costs are capitalized only if development costs can be
measured reliably, the product or process is technically and commercially feasible, future economic
benefits are probable and the Company has sufficient resources to complete development and to use
or sell the asset. The capitalized costs include the cost of materials, direct labor and other general
expenses that are directly attributable to preparing the asset for its intended use. Other development
costs are expensed in income as incurred. Capitalized development costs are measured at cost less
accumulated amortization and accumulated impairment losses.
(t)
Social Development Contributions
Correspond to contributions to social programs and projects through which PDVSA takes part in the
social and integral development of the country (see notes 1, 15, 16 and 28). Most of these
contributions are recorded directly as an expense at the time the disbursements are made.
(u)
Recently Issued Accounting Standards
Several new standards, amendments and interpretation to current standards are not effective for the
year ended December 31, 2007 and have not been applied in preparation of these consolidated
financial statements. The most significant standards for PDVSA are the following:
ƒ
In November 2006, the IASB issued International Financial Reporting Standard 8 (IFRS 8)
Operating Segments. This standard is effective for fiscal years beginning on or after January
1, 2009. IFRS 8 introduces a “management approach” to segment reporting and will require
the disclosure of operating segment information based on internal reports regularly reviewed
by the Company’s Chief Operating Decision Maker in order to assess each segment’s
performance.
The Company completed its analysis of this standard and determined that it will not have any
significant effect on the consolidated financial statements.
21
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
ƒ
In March 2007, the IASB issued revised International Accounting Standard 23 Borrowing
Costs (IAS 23), which removes the option to expense borrowing costs and requires
capitalization of such costs, directly attributable to the acquisition, construction or production
of a qualifying asset as part of the cost of that asset. This standard will be effective for fiscal
years beginning on or after January 1, 2009.
The Company completed its analysis of this standard and determined that it will not
significantly affect the consolidated financial statements.
ƒ
In July 2007, the IASB issued Interpretation 14 (IFRIC 14) - IAS 19 The Limit on a Defined
Benefit Asset, Minimum Funding Requirements and their Interaction, which clarifies when
refunds or reductions in future contributions in relation to defined benefit assets should be
regarded as available and, provides guidance on the impact of the minimum funding
requirements of such assets. It also addresses when the minimum funding requirement might
give rise to a liability. This interpretation is effective for fiscal years beginning on or after
January 1, 2008.
PDVSA is currently evaluating this standard and has yet to determine any possible effects on
the consolidated financial statements.
ƒ
In September 2007, the IASB issued International Accounting Standard 1 revised (IAS 1)
Presentation of Financial Statements, which introduces an unrealized statement of income for
transactions with stockholders, for the purpose of improving analysis and comparability of
information in the financial statements. This standard will be effective for fiscal years
beginning on or after January 1, 2009.
PDVSA is currently evaluating this standard and has yet to determine any possible effects on
the consolidated financial statements.
(v)
Recently Adopted Accounting Standards
In 2007, the following standards and interpretations are effective:
ƒ
International Financial Reporting Standard 7 Financial Instruments: Disclosures and the
amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures require
detailed disclosures about the significance of financial instruments for an entity’s financial
position and performance, and quantitative and qualitative disclosures on the nature and extent
of risks (see notes 3-c and 25).
ƒ
IFRIC 9 Reassessment of Embedded Derivatives requiring that an assessment of whether
embedded derivatives should be separated from the underlying host contract should be made
only when there are changes to the contract.
22
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
ƒ
Interpretation 10 (IFRIC 10) Interim Financial Information and Impairment prohibits the
reversal of an impairment loss recognized in a previous interim period in respect of goodwill,
an investment in an equity instrument or financial asset carried at cost.
The Company’s accounting policies have been reviewed and modified as necessary, in order to adopt
the requirements established in these new standards or interpretations. Adoption of these standards
and interpretations did not have any significant effects on PDVSA’s consolidated financial
statements.
(4)
Foreign Exchange Agreement with the Banco Central de Venezuela (BCV)
On March 22, 2007 Official Gazette 38,650 was published containing Foreign Currency Agreement 9,
which establishes that PDVSA may acquire currency directly from the BCV to replace, up to the
authorized amount, funds placed offshore in accordance with Article 113 of the of BCV Law. Based on
this agreement, on February 8, 2007, the Board of Directors of BCV authorized PDVSA to keep a special
fund of up to $3,500 million to meet requirements associated with the Oil Production Plan 2007 - 2013.
Based on the BCV Law and Currency Agreement 9, on March 2, 2006 the directors of the BCV authorized
PDVSA to increase the revolving fund to $2,000 million, to secure operating payments and investments.
According to the above reform law, effective since July 20, 2005, PDVSA must only sell to the BCV
income in foreign currency required to meet its obligations in domestic currency. The remaining amounts
in foreign currency can be held by PDVSA to meet its foreign-currency obligations and investments. Any
excess must be transferred by PDVSA to the Fondo de Desarrollo Nacional (FONDEN), created by the
Government on September 8, 2005, for the support of social investment projects for production, education,
health, special situations and improvement of the profile and balance of foreign public debt (see note 28).
On November 21, 2005, the National Government and the BCV subscribed Foreign-Currency Exchange
Agreement 9, which establishes the use of funds derived from export of hydrocarbons, including gaseous
hydrocarbons and others, which must be sold to the BCV, except for those resulting from PDVSA’s
activities as mentioned in the BCV Law above. This agreement states that PDVSA and its subsidiaries are
not allowed to maintain funds in foreign currency within the National Territory for more than 48 hours and
establishes conditions for the use of funds by PDVSA, the monthly information to be filed with the BCV
relating to the flow of funds generated by its activities, its asset and liability positions in foreign currency
and detailed information of the payments made by PDVSA abroad.
On March 1, 2005, the National Government and the BCV superseded Exchange Agreement 2 of February
6, 2004, fixing the exchange rates for the sale and purchase of foreign currency at Bs2,150.00 and
Bs2,144.60 to $1, respectively.
23
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(5)
Transactions and Balances in Currencies Other than the Dollar
PDVSA has the following monetary assets and liabilities denominated in currencies other than the dollar
which are converted to dollars at the exchange rate prevailing at the balance sheet date (in millions of
dollars):
December 31
2007
2006
Monetary assets:
Bolivars
Euros
Other currency
Monetary liabilities:
Bolivars
Yens
Euros
Other currency
Net monetary liability position
12,619
502
5
11,056
452
15
13,126
11,523
18,942
213
3
35
12,591
249
3
42
19,193
12,885
(6,067)
(1,362)
The year-end exchange rate, the average exchange rate for the year and the inter-annual increases in the
exchange rate and Consumer Price Index (CPI), published by the BCV, were as follows:
December 31
2007
2006
Exchange rate for dollars at year-end (Bs/$1)
Average annual dollar exchange rate (Bs/$1)
Interannual increase in the CPI (%)
(6)
2,150
2,150
22
2,150
2,150
17
Fair Value of Financial Instruments
Certain of the Company’s accounting policies and disclosures require the determination of fair values both
for financial and non-financial assets and liabilities. Fair values have been determined by the Company
using available market information and appropriate valuation methodologies. Additional information
about fair value estimates is included in the specific notes to the assets and liabilities.
The fair value of property, plant and equipment recognized as a result of a business combination is based
mainly on market values and other suitable valuation methods. The market value of assets is the estimated
amount at which it could be exchanged on the valuation date between a willing buyer and seller in an arm’s
length transaction, after proper marketing wherein the parties had each acted knowleageably, prudently and
without compulsion.
24
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
The fair value of recoverable value-added tax, long-term accounts receivable and other assets and liabilities
is determined by discounting net cash flows expected to be generated by the asset, using interest rates
applicable in the money market.
Restricted cash bears interest at variable market rates, and the carrying amount approximates fair value.
The carrying value of cash and cash equivalents, notes and accounts receivable, prepaid expenses and other
assets, accounts payable to suppliers approximate their fair values due to the short maturity of these
instruments.
The fair value of derivative financial instruments is based on the estimated amount that the Company
would receive or pay to terminate the agreements, taking into account current commodity prices and
interest rates and the current creditworthiness of the parties involved.
The fair value of long-term debt as of December 31, 2007 and 2006, which is determined for disclosure
purposes, is based on interest rates that are currently available to PDVSA for the issue of debt with similar
terms and remaining maturities and broker quotes which contemplate credit risk.
The fair value of non-derivative instruments, which is determined for disclosure purposes, is determined
based on the present value of future cash flows of interest and capital, discounted at the market interest rate
as of the date of the consolidated financial statements. For financial lease agreements, the market interest
rate is determined based on similar lease agreements.
(7)
Financial Risk Management
PDVSA has exposure to the following risks from its use of financial instruments:
ƒ
Credit risk
ƒ
Liquidity risk
ƒ
Market risk
This note presents information about PDVSA’s exposure to each of the above risks, the Company’s,
objectives, policies and processes for measuring and managing risks, and the Company’s management of
capital. The consolidated financial statements include quantitative disclosures (see note 25).
The Board of Directors of PDVSA is responsible for establishing and oversight of the Company’s risk
management framework. When developing the strategic plan and budget for the Company, business risks
are analyzed to gain an understanding of their impact on the Company.
Risk management policies are established to identify and analyze the risks faced by the Company, set
proper risk limits and controls, and monitor risks and compliance with limits. Risk management policies
and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.
25
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(a)
Credit Risk
Credit risk is the risk of financial loss to the Company if a client or counterparty to a financial
instrument fails to meet its contractual obligations which arise principally from cash and cash
equivalents and accounts receivable. For the purpose of mitigating credit risk, cash equivalents are
represented by high-quality instruments placed in different institutions. Also, accounts receivable
are distributed among a broad and reliable client portfolio worldwide and, periodically, their
financial position is evaluated. As a result of this evaluation, an allowance for doubtful accounts is
recognized in the consolidated financial statements (see notes 18 and 25).
(b)
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations upon
maturity. The Company’s approach to managing liquidity to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when are, under both normal and stressed
conditions, without incurring unacceptable losses or risking the Company’s reputation.
The Company ensures that it has enough cash available to meet expected operating expenses for a
term of 90 days, including payment of financial obligations. This excludes the possible impact of
extreme circumstances that may not be reasonably foreseen, such as natural disasters. Furthermore,
PDVSA maintains credit facilities, with unused balances not bearing interest (see notes 21 and 25).
(c)
Market Risk
Market risk is the risk of changes in market prices, including exchange rates, interest rates or sales
prices, affecting the income of PDVSA or the value of its financial instruments.
The activities of the Company, financial conditions and the results of its operations depend on export
volumes and crude oil and byproduct prices. These prices are cyclical and tend to be unstable;
therefore, the primary risk is volatility of crude oil and byproduct prices.
PDVSA constantly monitors market conditions to ensure optimal placement of its crude oil and other
products. Furthermore, the Bolivarian Republic of Venezuela is a member of the Organization of
Petrol Producing Countries (OPEC), through which it enters into agreements aimed at stabilizing
prices for crude oil and by-products (see note 27).
(8)
Operating Segments and Geographical Data
Inter segment sales, which primarily consist of sales of crude oil and natural gas, are generally made at
approximate market prices.
PDVSA evaluates the performance of its segments and allocates resources to them based on net revenues,
operating income (sales of crude oil and products, less cost and expenses except for borrowing expenses),
net disbursements for investment and property, plant and equipment.
26
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(a)
Business Segments
The following are the main business segments of the Company:
(b)
ƒ
The exploration and production activities include the search for oil and gas reserves, and
improvement of extra-heavy crude, and transportation of crude and natural gas to the point of
delivery to the refineries and fractionation plants.
ƒ
Refining, supply and marketing activities in Venezuela include the administration of refineries,
marketing and transportation of crude oil and refined products under the brand name PDV.
The refining, trade and supply activities in the USA comprise the administration of refineries
and gasoline and byproducts marketing, mainly in the East and the Midwest regions of the
United States, under the brand name CITGO.
ƒ
The gas activity includes the management of gas processing plants, commercialization and
upgrading of natural and liquid gas, both for industrial and household use, as well as its
transportation, distribution, placement, and sale.
Geographical Segments
The exploration and production activities for crude oil and gas are performed solely in Venezuela.
Refining, supply and marketing activities are focused mainly in Venezuela and the USA.
The “other” line item includes corporate related items and results of non-significant operations in
Venezuela, Europe and the Caribbean.
Information by geographical sector, income and assets by segment are based on the geographical
location of assets.
27
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Financial information for the segments of the Company is presented in the following table
(in millions of dollars):
Refining,
trade and
supply
2007
2006
Exploration and
production
2007
2006
Gas
2007
2006
Other
2007
2006
Total
2007
2006
At December 31, 2007 Current assets not distributed
Segment assets:
Property, plant and equipment, net:
In Venezuela
In the United States of America
In other countries
Total property, plant and
equipment, net
23,033
33,503
-
26,990
-
6,674
4,578
332
5,317
4,572
300
6,977
-
4,566
-
372
-
604
154
47,526
4,578
332
37,477
4,572
454
33,503
26,990
11,584
10,189
6,977
4,566
372
758
52,436
42,503
15,887
14,993
107,672
80,529
Non - current assets not distributed
Total assets
Segment liabilities:
In Venezuela
In the United States of America
In other countries
39,349
16,090
-
11,001
-
1,782
3,180
738
2,653
3,457
141
1,830
-
990
-
4,147
834
1,022
387
23,849
3,180
1,572
15,666
3,457
528
16,090
11,001
5,700
6,251
1,830
990
4,981
1,409
28,601
19,651
Total liabilities not ditributed
23,009
7,775
Total liabilities
51,610
27,426
Total segment liabilities
28
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Exploration and
production
2007
2006
Years ended December 31 Capital expenditure, net:
In Venezuela
In the United States of America
In other countries
Total capital expenditure, net
Refining
trade and
supply
2007
2006
Gas
2007
2006
7,955
-
4,166
-
1,600
371
57
385
685
606
3,122
-
1,244
-
Discontinued
operations (3)
2007 2006
-
Other
2007
2006
Eliminations
2007
2006
Total
2007
2006
-
(303)
50
77
30
-
-
12,374
371
107
5,872
685
636
Discontinued
operations (3)
2007
2006
-
-
12,374
371
107
5,872
685
636
-
12,852
7,193
4,018
3,640
7,955
4,166
2,028
1,676
3,122
1,244
-
-
(253)
107
-
-
12,852
7,193
2,446
2,269
1,293
1,192
219
161
146
12
60
18
-
-
4,164
3,652
Cost of asset retirement obligations
54
179
-
-
(1)
16
-
-
-
-
-
-
53
195
-
-
53
195
Impairment loss (reversal)
10
-
(74)
-
-
-
-
-
-
10
(93)
-
-
10
(93)
Depreciation and amortization
Sale of crude oil and products:
In Venezuela
In the United States of America
In other countries
Total income
Operating income:
In Venezuela
In the United States of America
In other countries
Total operating
income (loss)
(5)
-
(14)
(146)
(12)
69,550
-
56,414
-
57,652
38,014
17,854
50,428
47,742
16,370
4,732
-
3,801
-
859
17
15
488
20
350
203
671
(68,371)
(23,697)
-
(56,388) (1)
(20,339) (1)
-
64,910
14,317
17,891
54,605
27,606
17,056
(859)
(17)
(15)
64,051
14,317
17,874
54,605
27,606
17,041
69,550
56,414
113,520
114,540
4,732
3,801
876
15
508
1,224
(92,068)
(76,727)
97,118
99,267
(876)
(15)
96,242
99,252
36,541
-
28,062
-
(19,001)
2,315
(146)
(12,426)
2,826
-
1,110
-
2,029
-
111
29
20
(126)
483
311
324
3,326
-
(164) (2)
-
21,961
2,315
366
17,812
2,826
344
(111)
(29)
(20)
21,850
2,315
337
17,812
2,826
324
36,541
28,062
(16,832)
(9,600)
1,110
2,029
140
20
357
635
3,326
(164)
24,642
20,982
(140)
(20)
24,502
20,962
Finance expenses:
Equity in earning of non-consolidated investees
Gain on sale of investment in earnings
of non-consolidated investees
Social development expenses
Income tax
Net income
Non-cash expenses (income) for
depreciation and depletion
-
Continuing
operations
2007
2006
1,264
544
1,240
297
191
(24)
-
Non-cash net income not distributed
Total non-cash income
-
152
254
-
-
(584)
733
(267)
1,120
-
-
(584)
733
(267)
1,120
641
(14,102)
(5,057)
1,432
(13,784)
(4,031)
40
-
641
(14,102)
(5,017)
1,432
(13,784)
(4,031)
6,273
5,452
(100)
6,173
5,432
(20)
2,847
1,071
-
-
2,847
1,071
(3,051)
(1,980)
-
-
(3,051)
(1,980)
(204)
(909)
-
-
(204)
(909)
(1) Represents elimination of sales between segments.
(2) Represents elimination of purchases and costs between segment.
(3) See note 10.
(Continued)
29
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Financial information relating to geographical segments of the Company is presented in the table below
(in millions of dollars):
Venezuela
United
States
of America
Other
countries
Total
46,632
47,526
38,014
4,578
11,596
332
96,242
52,436
51,157
36,873
47,742
4,572
353
1,058
99,252
42,503
December 31, 2007 Net sales (1)
Long-lived assets (1)
December 31, 2006 Net sales (1)
Long-lived assets (2)
(9)
(1)
Based on the country in which the sale originates.
(2)
Based on asset location.
Joint Development Activities
PDVSA has entered into association agreements and joint projects with other countries.
important agreements follow:
(a)
The most
Development of the Orinoco Belt Extra-Heavy Crude Oil Reserves
The Venezuelan National Assembly (formerly National Congress) approved between 1993 and 1999
several joint ventures for exploring and upgrading extra-heavy crude oil and marketing of upgraded
crude oil, of the Orinoco Belt. The purpose of these joint ventures was to perform vertically
integrated activities for the exploration, development, production, mixing and transport of extraheavy crude oil, in the areas of Junín (formerly Zuata), Carabobo (formerly Cerro Negro) and
Ayacucho (formerly Hamaca) of Orinoco Belt, for processing in the improvement plants to produce
upgraded crude oil of high gravity to be traded in foreign markets.
The disbursements required by these associations for the development and completion of the projects
were funded by PDVSA, capital contributions from investors, debt financing and income from
production during the development stage.
Under the “Plena Soberanía Petrolera" policy and for the purpose of putting an end to the
privatization process of the Venezuelan oil industry since the 1990’s, on February 26, 2007 the
government of the Bolivarian Republic of Venezuela issued Decree Law 5,200 for Migration of Joint
Ventures in the Orinoco Belt to “Empresas Mixtas”, as well as Exploration and Profit Sharing
Agreements; therefore, Petrolera Zuata, Petrozuata C.A. (Petrozuata), Sincrudos de Oriente, S.A.
(Sincor), Petrolera Cerro Negro, S.A. (Cerro Negro) and Petrolera Hamaca, C.A. (Hamaca) must
become “Empresas Mixtas”, in which the subsidiary CVP or any other PDVSA subsidiary will have
no less than a 60% interest, in accordance with the provisions of the Organic Hydrocarbons Law.
30
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
In this connection, transition commissions were created for each of the aforementioned agreements.
These commissions joined their Board of Directors to ensure transfer of control of all of their
activities to the new “Empresas Mixtas”. Also, this Decree Law granted the partners of the
agreements a term of four months beginning on the date of its enactment to agree the terms and
conditions for their possible involvement in the new “Empresas Mixtas”, as well as an additional
term to furnish the National Assembly with the terms and conditions for authorization in accordance
with the Organic Hydrocarbons Law. Once the term has elapsed, without an agreement for
incorporation and operation of the “Empresas Mixtas”, the Bolivarian Republic of Venezuela,
through PDVSA, will directly undertake the activities set forth in the different agreements to ensure
continuity in accordance with their public and social interest.
On June 26, 2007, PDVSA executed memoranda of understanding with transnational companies
which are parties to the aforementioned agreements, except for ConocoPhillips in Petrozuata and
ExxonMobil in Cerro Negro, with which no agreements were reached; therefore, PDVSA undertook
the activities of those agreements. These memoranda of understanding define the share composition
of “Empresas Mixtas” to be incorporated, which will be subject to approval by the National
Assembly, as set forth in the Organic Hydrocarbons Law.
Official Gazette 38,785, dated October 8, 2007, contained the Law on the Effect of the Migration
Process of Joint Ventures of the Orinoco Belt to “Empresas Mixtas”, as well as Exploration and
Profit Sharing Agreements. This Law establishes terms for the private parties to reach agreements to
incorporate the “Empresas Mixtas”. In the event that agreements are not reached, PDVSA or one of
its subsidiaries will undertake operations. PDVSA received from the National Government the net
assets of the partners that decided not to migrate to “Empresas Mixtas”, recording a net liability as of
December 31, 2007 with the Bolivarian Republic of Venezuela of $1,706 million, which includes the
following balances (in millions of dollars):
Accounts payable to related parties (see note 23) Net value of assets received
Notes and accounts receivable Companies and related entities (see note 18)
corresponding mainly to payments made by
PDVSA to different creditors, for financial obligations
to release on loan covenants
Petrozuata
Cerro Negro
795
344
795
Hamaca
1,345
(316)
(462)
28
883
Total
2,484
(778)
1,706
This same law sets forth that the Joint Ventures of the Orinoco Oil Belt and Exploration and Profit
Sharing Agreements will be terminated as of the date of publication of the decree transferring the
right to perform their principal activities to “Empresas Mixtas” incorporated in accordance with
Decree Law 5,200. The joint ventures will continue to perform their activities with the partners that
decide to migrate to “Empresas Mixtas’ until publication of the aforementioned transfer decrees. As
of December 31, 2007, no transfer decrees have been published (see note 33-a).
31
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
In Official Gazette 38,801, dated November 1, 2007, the National Assembly approved the creation of
the following “Empresas Mixtas”:
"Empresa Mixta"
Petromonagas, S.A.
Petrocedeño, S.A.
Petropiar, S.A.
PDVSA's
share
(%)
Area or
Agreement
83.33
60.00
70.00
Cerro Negro
Sincor
Hamaca
CVP Partners
Veba Oil & Gas Cerro Negro GmbH
Statoil Sincor AS
Chevron Orinoco Holdings B.V.
As a result of the migration to “Empresas Mixtas” of joint ventures of the Orinoco Oil Belt and
Exploration and Profit Sharing Agreements, ExxonMobil sought arbitration and precautionary
measures against PDVSA (see note 27).
A summary of the joint ventures follows:
Joint
venture
PDVSA's
share (%)
Partner
As of December 31, 2007 Petrozuata
Cerro Negro
Sincor
Hamaca
100.00
83.33
38.00
70.00
British Petroleum (BP)
Total Fina - Statoil
ChevronTexaco
As of December 31, 2006 Petrozuata
Cerro Negro
Sincor
Hamaca
49.90
41.67
38.00
30.00
ConocoPhillips
ExxonMobil - British Petroleum (BP)
Total Fina - Statoil
ChevronTexaco - ConocoPhillips
In the quarter ended December 31, 2007, Petrozuata contributed profits of $289 million. If
consolidation had taken place from January 1, 2007, management believes that consolidated sales
and consolidated net income for 2007 would have amounted to $97,461 million and $6,396 million,
respectively.
32
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
A summary of the combined financial statements of the Cerro Negro, Sincor and Hamaca joint
ventures follows (in millions of dollars):
December 31,
2007
2006
Financial position:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net stockholder's equity
10,199
3,304
(1,876)
(1,465)
10,042
1,330
(2,071)
(1,023)
10,162
8,278
Years ended
December 31,
2007
2006
Results of operations:
Sales
Costs and expenses
Operating income
Net income
7,396
(4,117)
3,279
3,279
5,877
(2,744)
3,133
2,972
Exploration and Profit Sharing Agreements
In January 1996, the subsidiary CVP was appointed, through contract-risk and profit-sharing
agreements with private investor companies (association agreements), to coordinate, control and
supervise the activities relating to the exploration and extraction in hydrocarbon fields in new areas.
These agreements establish the creation of a Control Committee, as the ultimate body for approval
and control, making fundamental decisions in the national interest on behalf of the Venezuelan
Government, in connection with the execution of these association agreements.
These areas were assigned by means of a competitive bid process to participate in association
agreements with CVP. These agreements establish that investors will carry out exploration activities
at risk, and in those cases where a field is declared commercially viable and a development plan is
approved by the Control Committee, CVP will notify the investors of its participation in such
development. The participation of CVP will not be less than 1% or greater than 35%. Considering
the exploration, development and commercial production phases of the areas and their potential
extension, the agreements, in general, will have a maximum duration of thirty-nine years.
33
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
In accordance with the terms of the association agreements, CVP and the investors incorporated
jointly “Empresas Mixtas” for each area, the capital stock of which is represented by 35% Class “A”
shares owned by CVP and 65% Class “B” shares owned by the investors. The purpose of the jointly
“Empresas Mixtas” is to direct, coordinate and supervise the activities that will be executed by the
operators of the areas. As of December 31, 2006, CVP holds investments in shares representing its
35% interest in the “Empresas Mixtas” as of that date, as follows:
Area
Eastern Paria Gulf
Western Paria Gulf
La Ceiba
Partners of CVP
Ineparia Inc - Conoco Venezuela, C. A. - ENI
Venezuela B.V. (ENI) - OPIC Karimun
Corporation (OPIC)
Conoco Venezuela, C. A. - ENI - OPIC
Mobil Venezolana de Petróleos, Inc PetroCanada
"Empresas Mixtas"
Administradora del Golfo de Paria Este, S.A.
Compañía Agua Plana, S.A.
Administradora Petrolera La Ceiba, C.A.
The activities performed in 2006 by the above “Empresas Mixtas” were mainly comprised of
completing exploration and development efforts and programs, as well as approving and continuing
with the assessment and outline plans. These companies have not commenced hydrocarbon
production for commercial purposes.
In October 2002, the Control Committee announced the commercial approval of the discovery in the
Western Paria Gulf Project, named Corocoro, and in May 2003 the Board of Directors of PDVSA
authorized CVP to take part in the development plan for this discovery. The participants in the
Corocoro development plan are CVP (35%), Conoco Venezuela, C.A. (32.5%), ENI (26.0%) and
OPIC (6.5%). In 2006, Phase I of the development of the project was launched using a temporary
processing facility as a production barge. In 2007, the partners Conoco Venezuela, C.A. and OPIC,
withdrew from the operation as they did not sign the Memorandum of Understanding for Migration
to as “Empresa Mixta”; therefore, in accordance with regulations for the migration process, the
development of the project will be continued by the partners CVP and ENI, until the transfer decree
is issued for the “Empresa Mixta” Petrosucre, S.A. (see note 33-a). As of December 31, 2007 and
2006, property, plant and equipment include approximately $284 million and $209 million,
respectively, corresponding to contributions made by CVP to this project.
In 2007, as a result of the Law on Migration to “Empresas Mixtas” of Joint Ventures of the Orinoco
Oil Belt, Exploration and Profit Sharing Agreements, the partners of the joint venture of the East
Paria Gulf area entered into an agreement to migrate to the “Empresa Mixta” Petrolera Paria, S.A.
This joint venture will continue its activities until the transfer decree is published. Such decree has
not been published as of December 31, 2007 (see note 33-a).
34
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
With regards to the joint venture in the area of La Ceiba, in 2007, Mobil Venezolana de Petróleo,
Inc. (a subsidiary of ExxonMobil) and Petro-Canada did not enter into the memorandum of
understanding for migration to an “Empresa Mixta”; therefore, activities in this area were undertaken
by PDVSA. In August 2007, CVP paid Petro-Canada the sum of $75 million for settlement of the
joint venture at the area of La Ceiba, which is included under notes and accounts receivable from
related entities as of December 31, 2007. ExxonMobil sought arbitration and precautionary
measures against PDVSA, relating to this process (see note 27).
In Official Gazette 38,801, dated November 1, 2007, the National Assembly approved the creation of
the following “Empresas Mixtas”:
Area
Eastern Paria Gulf
Western Paria Gulf
Central Paria Gulf
Zumano
CVP Partners
Sinopec International Petroleum Corporation
and Production Corporation - Ineparia, Inc.
ENI Venezuela B. V.
ENI Venezuela B. V. Ineparia, Inc.
CNPC Venezuela B. V.
“Empresa Mixta”
Petrolera Paria, S.A.
Petrosucre, S.A.
Petrolera Güiria, S.A.
Petrozumano, S.A.
Orimulsión® Agreements
In April 2001, a cooperation agreement for Orimulsión® was signed between BITOR and China
National Oil and Gas Exploration and Development Corporation (CNODC), a subsidiary of China
National Petroleum Corporation (CNPC), the objective of which is to carry out a series of
pre-investments necessary to determine definitively the feasibility of the project. On December 13,
2001, the National Assembly of the Bolivarian Republic of Venezuela authorized BITOR to
establish with CNODC, a jointly controlled entity named Orifuels Sinoven, S. A. (SINOVENSA).
Pursuant to “Full Oil Sovereignty” policies and to enhance the value of the natural resource and use
extra-heavy crude oil for mixing, in the first quarter of 2006, the Company ceased production of
Orimulsión® at its facilities in Morichal (Monagas state) and launched a negotiation process
regarding existing Orimulsion® supply agreements. As part of the negotiation, certain clients have
agreed to receive fuel oil instead of Orimulsión® whereas others have terminated their supply
agreements.
In the case of SINOVENSA, PDVSA is in conversations with the China National Petroleum
Corporation (CNPC) to agree the new structure for an “Empresa Mixta” under Decree 5,200.
35
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(b)
Migration of Operating Agreements to “Empresas Mixtas”
Migration to “Empresas Mixtas”
In 2005, MENPET (the Ministry of Popular Power for Energy and Oil) performed legal and
technical analyses of the 32 operating agreements, which concluded that such agreements contain,
among other elements, fee clauses based on the volume and price of the hydrocarbons produced in
the areas, which contravenes the nature of a simple service contract and is not in accordance with the
current Organic Hydrocarbons Law.
On April 12, 2005, MENPET instructed the Board of Directors of PDVSA to correct the omissions
or errors in all operating agreements and evaluated the legal mechanisms to extinguish such
operating agreements in a period of not more than one year. In the last quarter of 2005, all of the
companies with operating agreements signed “Transitory Agreements” in order to review the
original operating agreements and form “Empresas Mixtas”.
On March 31, 2006, the National Assembly enacted the Terms and Conditions for Incorporating
“Empresas Mixtas”, as well as the model of the Contract for Conversion into “Empresas Mixtas” to
be executed by any private companies interested in such process. On that same date, the respective
Memoranda of Understanding for the migration of Operating Agreements to “Empresas Mixtas”,
except for the operators of two Operating Agreements, which voluntarily abstained from doing so.
The aforementioned Contract for Conversion into “Empresas Mixtas” establishes the automatic
termination of Operating Agreements from March 31, 2006, without the operating companies having
the right to be compensated, except for payments corresponding to the first quarter of 2006 or to file
any claim relating to such termination. Furthermore, it was agreed that the assets operated as of that
date by such Operating Agreements were to be immediately at the disposal of the “Empresas
Mixtas” for performance of their activities, and property thereof would be subsequently transferred.
On April 1, 2006, the value of assets contributed for the incorporation of the “Empresas Mixtas” was
$4,991 million ($4,931 million of assets previously recorded in memorandum accounts of PDVSA
and $60 million contributed by minority investors), which were recorded by the “Empresas Mixtas”,
mainly as property, plant and equipment credited to an equity account.
36
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
According to the Terms and Conditions for Incorporating “Empresas Mixtas”, approved by the
National Assembly, such companies would operate in a transition period from April 1, 2006 to the
date of incorporation. Once incorporated, the contractual terms would be applicable retroactively
from April 1, 2006. As of December 31, 2006, the following 19 “Empresas Mixtas” were
incorporated, which had obtained the respective official permits to perform the primary activities set
forth in the Organic Hydrocarbons Law:
Interest
of PDVSA (%)
“Empresas Mixtas”
Petroperijá, S.A.
Petrowarao, S.A.
Boquerón, S.A.
Petroindependiente, S.A.
Petrocabimas, S.A.
Petronado, S.A.
Petrokariña, S.A.
Petroven-Bras, S.A.
Petroguárico, S.A.
Petrocuragua, S.A.
Petrocumarebo, S.A.
Petrolera Kaki, S.A.
Petroboscán, S.A.
Petroritupano, S.A.
Petroregional del Lago, S.A.
Petroquiriquire, S.A.
Petrolera Sino-Venezolana, S.A.
Petrowayu, S.A.
Baripetrol, S.A.
60.00
60.00
60.00
74.80
60.00
60.00
60.00
60.00
70.00
60.00
60.00
60.00
60.00
60.00
60.00
60.00
75.00
60.00
60.00
On March 5, 2007, PDVSA, through its subsidiary CVP, entered into a payment agreement with
Total Oil & Gas and British Petroleum, to end all interest, rights, actions or claims relating to the
extinct operating agreement, corresponding to Campo Jusepín in Monagas state, amounting to $250
million.
In June 2007, the National Assembly of the Bolivarian Republic of Venezuela approved the
incorporation of the “Empresas Mixtas” Petrodelta, S.A. and Lagopetrol, S.A. with an interest of
CVP of 60% and 69%, respectively. In Official Gazette 38,796, dated October 25, 2007,
authorization was granted to these “Empresas Mixtas” to carry out primary activities related to
hydrocarbons.
The Terms and Conditions for Incorporation of “Empresas Mixtas” establish that asset transfer
transactions, as well as termination of operating agreements, do not give rise to tax obligations for
PDVSA.
37
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Operating Agreements
The first, second and third round of Operating Agreements were executed by PDVSA in 1992, 1993
and 1997, respectively. The purpose of such Operating Agreements was to reactivate and operate 32
oil fields for a maximum term of 20 years.
According to the conditions regulating the Operating Agreements, PDVSA recognized investments,
payments of operating fees, capital and other concepts and expenditures, included as operating
expenses in the consolidated statements of income, as follows (in millions of dollars):
December 31,
2006
Operating fees
Capital fees and other
Stipends
1,053
248
356
1,657
As of December 31, 2007 and 2006, Accounts Payable to Suppliers, relating to Operating
Agreements, includes $199 million and $547 million, respectively (see note 24).
Capitalized production assets, work in progress and costs and expenses not capitalized, held in
memorandum accounts, presented the following balances (in millions of dollars):
December 31,
2006
Capitalized production assets
Construction in progress
3,806
1,125
Subtotal
4,931
Non-capitalized costs and expenses
4,833
9,764
(c)
Project for Development of Offshore Natural Gas - Plataforma Deltana
For purposes of granting rights related to the exploration and development of the Plataforma Deltana
(Delta Platform), the area was divided into 5 blocks, mainly considered non-associated gas projects.
The first exploration phase was completed by PDVSA in July 2003.
The licenses for exploration and development of blocks 2 and 4 were granted by MENPET in
February 2003 to ChevronTexaco Corporation and ConocoPhillips to blocks 2 and Statoil ASA to
block 4. These companies are engaged in carrying out a minimum exploratory program with an
estimated investment of $150 million and the subsequent investment for its development, if its
profitability is confirmed. The interest of PDVSA in the partnership will be established when the
profitability of each block is determined.
38
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
During the second half of 2003 blocks 3 and 5, as re-dimensioned, were offered. Block 3 was won
by ChevronTexaco Corporation, which was allocated officially by MENPET in February 2004.
Block 5 did not receive offers.
The activity of PDVSA in the Project has been concentrated on following the administration of the
licensees of blocks 2, 3 and 4 during the exploration phase as technical support to MENPET; the
analysis of possible business opportunities and development for blocks 1 and 5; the assessments
required to complete the conceptual engineering of the entire project, including the transportation
systems from CIGMA and the gas liquefaction plant, in addition to the social-economic
environmental impact analyses, the environmental base line and programs for sustainable
development for the communities of the Delta Orinoco.
(d)
Energy Agreements with Latin America and the Caribbean
The Government of the Bolivarian Republic of Venezuela subscribed the following agreements
together with the governments of other countries, mainly from Latin America and the Caribbean:
Caracas Energy Cooperation Agreement (ACEC), Integral Agreement of Cooperation (CIC) and the
Petrocaribe Energy Cooperation Agreement. These agreements establish, among others, that
PDVSA will supply crude oil and products to the state oil companies of the participating countries.
A summary of these agreements follows:
Agreement
Country
Company
CIC
ACEC / PETROCARIBE
Cuba
Domincan Republic
CIC
ACEC
ACEC
Argentina
Paraguay
Bolivia
ACEC / PETROCARIBE
Jamaica
ACEC
PETROCARIBE
ACEC
PETROCARIBE
PETROCARIBE
San José Agreement (1)
Uruguay
Surinam
Ecuador
Nicaragua
Other Caribbean countries
Several Caribbean and Latin American countries
(1)
CUPET
Refinería Dominicana, S.A.
(REFIDOMSA)
CAMMESA (see note 15)
Petróleos de Paraguay (PETROPAR)
Yacimientos Petrolíferos Fiscales
de Bolivia (YPFB)
Petroleum Corporation
of Jamaica (PETROJAM)
ANCAP (see note 15)
Staatsolie Maatschappij Suriname N.V.
Petróleos del Ecuador (PETROECUADOR)
Petróleos de Nicaragua (PETRONIC)
Several
Several
MBPD
Year of
execution
92
2000
50
25
19
2004
2004
2004
8
2004
24
44
10
100
27
29
80
2005
2005
2005
2006
2007
1980
In 2007 only 16 MBPD of crude oil and products was supplied.
Most of these supply agreements establish, among other conditions, a sales price equivalent to the
market value, payment terms between 30 and 90 days for a significant portion of each shipment, and
long-term borrowing for the remaining portion, between 15 and 25 years (see note 15). The
agreements will be effective for a one-year period and may be renewed by mutual agreement of the
parties involved.
39
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(10) Assets Held for Sale and Discontinued Operations
In 2007, the Company decided to sell the following non-current assets or disposable groups of assets and
liabilities, undertaking the necessary actions to complete their sale in 2008:
ƒ
Property, plant and equipment and inventory of two asphalt refineries owned by CITGO Asphalt
Refining Company (CARCO), a subsidiary of CITGO, located in Paulsboro - New Jersey and
Savannah - Georgia, in the United States of America.
ƒ
Propernijn, N.V. (a subsidiary of Propernyn, B.V.), located in the Netherlands Antilles and its
subsidiaries Baproven Limited (BAPROVEN); Bahamas Oil Refining Company International
Limited (BORCO); Borco Towing Company Limited (BORTOW); Freeport Traing Co. Ltd.
(FREETRADE) and Marine Agent & Brokers Ltd (MARBROK), located in the Bahamas.
ƒ
Two vessels (Morichal and Paria) owned by the subsidiary PDV Marina, S.A.
In accordance with the guidelines and strategic objectives of the National Government, in 2007 the
stockholder of PDVSA authorized the purchase of shares of several companies in the electricity sector of
the country, which will be transferred in the short-term to Corporación Eléctrica Nacional, S.A. pursuant to
Decree Law of the Organic Law on Reorganization of the Electricity Sector, published in Official Gazette
38,736 dated July 31, 2007 (see note 32-b). In accordance with instructions issued by MENPET, the
shares of those electricity sector companies will be transferred at their carrying value at the time of the
transaction.
A summary of these purchase transactions is presented below:
(a)
C.A. La Electricidad de Caracas
On February 15, 2007, PDVSA entered into an agreement with The AES Corporation (AES) and its
subsidiary AES Shannon Holding, B.V. for the purchase of the latter’s interest in C.A. La
Electricidad de Caracas (EDC), equivalent to 82.14% of the shares. In accordance with Venezuelan
law, to purchase the remaining outstanding shares, PDVSA made a public tender.
From April 8, to May 8, 2007, PDVSA made a public tender to purchase up to 17.86% of the
remaining outstanding shares of EDC, for the Bolívar equivalent of $0.2734 per share (determined
based on the official exchange rate for the sale of dollars, effective as of the closing date). This also
involved a public tender in Venezuela and one in the United States of America for the purchase of
each and every American Depositary Share (ADS’s) outstanding, each representing 50 shares of
EDC at a price of $13.6675 per each ADS.
As a result of the above and the agreement with AES, PDVSA purchased 93.61% of the total
outstanding shares of EDC, amounting to $844 million.
40
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(b)
Sistema Eléctrico del Estado Nueva Esparta, C.A. (SENECA)
On February 8, 2007, PDVSA entered into a Memorandum of Understanding with CMS Energy
Corporation, to purchase its shares in the company Sistema Eléctrico del Estado Nueva Esparta, C.A.
(SENECA), for $106 million, which represent 88% of the capital stock of that company. On March
7, 2007, the stockholder of PDVSA approved the purchase on the agreed terms, which was
completed by March 30, 2007.
(c)
Other Electricity Sector Companies
On July 6, 2007, PDVSA purchased all of the shares of C.A. Electricidad de Valencia (ELEVAL) for
$190 million and on November 16, 2007, it purchased all of the shares of C.A. Luz y Fuerza
Eléctrica de Puerto Cabello (CALIFE) for $55 million.
The purchase of the shares of these electricity sector companies resulted in operating and financial control
and had the following effects on the consolidated financial statements of PDVSA as of the purchase date
(in millions of dollars):
Values
recorded
as of the
purchase date
Property, plant and equipment, net
Accounts receivable and other
Cash and cash equivalents
Long-term debt
Accounts payable and other liabilities
2,091
372
108
(313)
(397)
Identified assets and liabilities, net
Excess of net assets acquired over cost
of the investment (see note 11)
1,861
Cash payments
Cash acquired
1,195
(108)
(666)
Cash paid, net of cash acquired
1,087
The Company determined the carrying values of assets and liabilities of electricity sector companies as of
the purchase date and did not identify significant fair value adjustments for purposes of reporting the
purchase (see note 6).
41
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
As of December 31, 2007, non-current assets or disposable groups of assets and liabilities held for sale are
as follows (in millions of dollars):
Property,
plant and
equipment
Inventories
136
4
145
169
-
Accounts
receivable
Other
Total
9
305
4
173
2,763
Assets held for sale Paulsboro Refinery and New Jersey Refinery
Vessels Morichal and Paria - PDV Marina
Propernijn, N.V. and subsidiaries
Net assets of electricity sector companies
19
Total
3,245
Accounts
payable
Other
Total
Liabilities held for sale Propernijn, N.V. and subsidiaries
Liabilities of electricity sector companies
20
10
Total
30
735
765
Income attributable to discontinued operations follows (in millions of dollars):
Year ended
December 31,
2007
2006
Propernijn, N.V. and subsidiaries
Sales
Other income from services
Costs and expenses
Income before income tax and net income of
Propernijn, N.V. and subsidiaries
17
65
53
15
58
53
29
20
Electricity sector companies
Net income of electricity sector companies
71
-
100
20
(29)
(25)
Total income from discontinued
operations, net of taxes
Propernijn, N.V. and subsidiaries
Cash flows used in discontinued operations
of investment activities
42
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
If the electricity sector companies had been purchased on January 1, 2007, management estimates that the
income from discontinued operations, net of taxes for the year ended December 31, 2007, would have been
$170 million.
(11) Other (Income) Expenses, Net
A summary of other (income) expenses, net follows (in millions of dollars):
Years ended
December 31,
2007
2006
Provision for litigation and other claims
(see notes 23 and 27)
Impairment (reversal) of assets (see note 13)
Income for sale of assets
Freight services and third-party storage services
Interest income
Adjustments to the fair value of financial assets
(see notes 12-f and 15)
Income from currency exchange transactions
Excess of net assets acquired over cost
of the investment (see note 10)
Income from procurement services for Petroquímica
de Venezuela, S.A. (PEQUIVEN) (see note 28)
Other non-operating income
43
1,153
10
(207)
(166)
(566)
374
(93)
(182)
(397)
446
(16)
1,072
(20)
(666)
-
(73)
(125)
(67)
(313)
(210)
374
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(12) Taxes and Production Tax
A summary of taxes and production tax affecting the consolidated operations of PDVSA follows (in
millions of dollars):
Years ended
December 31,
2007
2006
Income tax:
Continuing operations
Discontinued operation (see note 10)
Production, extraction tax and other taxes:
Production tax
Extraction tax
Surface tax
Export registration tax
Special advantages tax
Other taxes
Total production and other taxes
(a)
5,017
40
4,031
-
5,057
4,031
19,872
1,720
113
54
203
19
17,061
1,117
144
20
93
-
21,981
18,435
Income Tax
Income before income tax, for each year comprised the following (in millions of dollars):
Years ended
December 31,
2007
2006
Venezuela:
Continuing operations
Discontinued operation
7,279
111
4,468
-
Foreign:
Continuing operations
Discontinued operation
3,911
29
4,995
20
11,330
9,483
44
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
The income tax expense for each year follow (in millions of dollars):
Years ended
December 31,
2007
2006
Continuing operations:
Estimated income tax expense Venezuela (see note 28)
Foreign
Deferred income tax (beneficit) expense Venezuela
Foreign
Income tax expense, continuing operations
Discontinued operations:
Income tax expense, discontinued operations Venezuela
45
4,953
1,652
3,518
1,237
6,605
4,755
(1,239)
(349)
(770)
46
(1,588)
(724)
5,017
4,031
40
-
5,057
4,031
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
The difference between the statutory income tax rate and the effective consolidated income tax rate
for each year is analyzed as follows:
%
Net income:
Continuing operations
Discontinued operation (see note 10)
Income tax:
Continuing operations
Discontinued operation (see note 10)
Net income (from continuing operations and
discontinued operation) before tax
Nominal income tax rate for the petroleum sector
Tax adjustment for inflation and effect of translation into dollars
Unrealized loss on financial instruments
Tax credits
Fund for Macroeconomic Stabilization (FEM)
Extraterritorial income
Provision for contingencies
Effects of subsidiaries subject to lower tax rates
Tax losses not recorded as deferred
tax asset
Equity interest
Income from assets received
Dividend tax
Other differences, net
Effective income tax rate in Venezuela
Effect of foreign subsidiaries
50.0
(10.1)
(0.1)
(0.1)
3.1
(2.8)
6,173
100
6,273
5,432
20
5,452
5,017
40
5,057
4,031
4,031
11,330
9,483
5,665
(1,140)
(17)
(10)
348
(316)
2.5
0.3
7.6
1.0
284
36
866
109
51.4
5,825
(6.8)
Effective income tax rate
Years ended December 31,
2007
2006
millions of
millions of
dollars
%
dollars
44.6
(768)
5,057
50.0
(11.1)
1.5
(0.6)
0.3
2.5
8.3
4,742
(1,052)
146
(59)
24
241
790
3.4
(1.1)
1.8
8.4
(1.9)
319
(103)
168
793
(177)
61.5
5,832
(19.0)
(1,801)
42.5
4,031
The Partial Amendment to the Income Tax Law published in Official Gazette 38,529 dated
September 25, 2006 repealed all tax credits on new investments applicable to companies in the
hydrocarbons sector and related activities, and exempts them from application of tax credits
available for activities other than those relating to hydrocarbons. Until the date this amendment was
enacted, PDVSA and some of its Venezuelan subsidiaries were entitled to tax credits for new
investments in property, plant and equipment up to 12% of the amounts invested, and the carryforward period could not exceed three years. Such credits, however, could not exceed 2% of net
taxable income according to the previous law. In 2007 and 2006, tax credits on new investments of
$27 million and $59 million, respectively, were used.
46
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
The income tax law allows tax losses to be carried forward for three years to offset future taxable
income, except losses resulting from the application of the fiscal inflation adjustment, which can be
carried forward for one year.
As of December 31, 2007, investment tax credits corresponding to excess credits on new investments
and tax loss carryforwards amount to approximately $284 million and $973 million, respectively,
which expire as follows (in millions of dollars):
December 31,
2008
2009
2010
Investment tax credits
Tax losses
160
865
124
44
73
The Venezuelan Income Tax Law introduced an initial adjustment for the effects of inflation for the
income tax calculation. The inflation adjusted value of fixed assets is depreciated or depleted over
their remaining useful lives for tax purposes. The Tax Law also provides for the calculation of a
regular inflation adjustment to be made every year, and included in the reconciliation to taxable
income as a taxable or deductible item.
In conformity with the Venezuelan Income Tax Law, taxpayers subject to income tax who carry out
import, export and loan operations with related parties domiciled abroad must determine their
income, costs and deductions applying transfer pricing rules. PDVSA has obtained analyses
supporting its transfer pricing methodology. The resulting effects are included as a taxable or
deductible item in the determination of income tax of each year.
On September 25, 2006, Official Gazette 38,529 of the Bolivarian Republic of Venezuela was
published amending Article 11 of the Law relating to the rates applicable to companies involved in
hydrocarbons and related activities, and adopting 50% as the general rate. Nevertheless, only
companies performing integrated or non-integrated activities, exploration and use of non-associated
gas, processing, transportation, distribution, storage, marketing and export of gas and its
components, or exclusively performing hydrocarbon exports or improvement of heavy or extraheavy crude oil are subject to a rate of 34%. In this connection, application of the 34% rate for
companies incorporated under the joint venture agreements executed under the superseded Organic
Law Restricting Industry and Trade of Hydrocarbons to the State. The applicable income tax rate for
the principal foreign subsidiaries is 35%.
47
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Movements of deferred income tax assets (liabilities) reported in income for each year are presented
below (in millions of dollars):
Employee benefits and other
postretirement benefits
Property, plant and equipment
Royalties payable
Capitalized financial costs
Investments in non-consolidated
investees
Inventories
Investements tax credits and tax loss
carryforwards
Payments of dividends
Provision for contingencies
Other
(b)
2005
Assets
(liabilities)
Benefit
(expense)
recognized in
the statement
of income
2006
Assets
(liabilities)
Benefit
(expense)
recognized in
the statement
of income
2007
Assets
(liabilities)
767
(290)
47
(223)
98
260
77
(50)
865
(30)
124
(273)
32
412
95
166
897
382
219
(107)
(289)
(376)
100
236
(189)
(140)
152
578
(37)
438
13
(100)
741
340
1
(150)
205
(53)
14
(250)
946
287
(3)
(250)
446
(40)
630
724
1,354
1,588
11
(500)
1,392
246
2,941
Production Tax
Production Tax is paid based on the crude oil produced and natural gas processed in Venezuela. A
rate of 30% is applied to the volumes of hydrocarbons and natural gas produced in traditional areas
(applicable to PDVSA Petróleo, PDVSA Gas and “Empresas Mixtas”).
In the case of reservoirs related to Orinoco Oil Belt projects, a rate of 16 2/3% was established for
the first phase of production based on certain guidelines established by the government. Agreements
establish that when commercial production of improved crude oil begins, the rate is lowered to 1%,
and this level is maintained for the next nine years or until the income from the sale of crude oil is
tripled with regards to the value of the initial investment, should this take place prior to completion
of the term. After the nine-year period, a rate of 16 2/3% would once again be applied. In October
2004, the Ministry of Popular Power for Energy and Oil established that the new rate of production
tax, effective as of October 11, 2004 and applicable to extra-heavy oil activities in the Orinoco Belt
carried out through Joint Development Activities is 16 2/3%.
In May 2006 the Partial Amendment to the Organic Hydrocarbons Law was enacted, establishing
that operators must pay production tax of 30% of the value of each barrel at the wellhead.
Production tax for 2007 and 2006 was $19,872 million and $17,061 million, respectively, and is
included in the consolidated statements of income under production and other taxes.
48
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
“Empresa Mixta” are subject to payment of taxes on special advantages, which are determined based
on: a) an interest as additional royalty of 3.33% on volumes of hydrocarbons extracted in marked
areas and delivered to Petróleos de Venezuela, S.A., and b) an amount equivalent to the difference, if
any, between (i) 50% of the value of hydrocarbons extracted in marked areas and delivered to
Petróleos de Venezuela, S.A. in each calendar year and (ii) the sum of payments made by “Empresas
Mixtas” to the Bolivarian Republic of Venezuela, for the activity in the same calendar year, for
taxes, royalties and taxes on and special advantages on hydrocarbons and investments in endogenous
development projects equivalent to 1% of income before taxes. The taxes on special advantages
must be paid before the April 20 of each year, according to the provisions set forth in schedule F of
the Contract for Conversion to “Empresas Mixtas”. PDVSA, through its mixed companies, incurred
this tax in 2007 and 2006 of $203 and $93 million, respectively, included in the consolidated
statements of income under production, extraction tax and other taxes.
On November 14, 2006 a new calculation for production tax, was established for companies
performing primary oil activities in the country, based on the production fields being measured for
contents of sulfur and API gravity of liquid hydrocarbons extracted, which must be reported together
with production. All this information will be part of the settlement price of production tax and will
be used to determine any special advantage. This information will give rise to adjustments for
gravity and sulfur to be published by the Ministry of Popular Power for Energy and Oil.
(c)
Extraction Tax
The amendment to the Organic Hydrocarbons Law establishes a rate of 33.33% of the value of all
liquid hydrocarbons extracted from any reservoir, determined on the same basis established for
determining the royalty. When determining this tax, the taxpayer may deduct the amount that would
have been paid as royalties, including the additional royalty paid as a special advantage. This tax is
effective since 2006, and PDVSA paid $1,720 million and $1,117 million for 2007 and 2006,
respectively, included in the consolidated statements of income under production, extraction tax and
other taxes. The joint ventures in the Orinoco Belt, in addition to the royalty of 16 2/3%, must pay
extraction tax of 16 2/3%.
(d)
Surface Tax
The Organic Hydrocarbons Law establishes the payment of a tax equivalent to 100 tax units (TU)
per square kilometer or fraction of surface extension of land granted and not exploited. This tax will
be increased annually by 2% during the first five years and by 5% in subsequent years. In 2007 and
2006, PDVSA Petróleo incurred surface tax in Venezuela of $113 million and $144 million,
respectively, included under royalties, production tax and other taxes in the consolidated statements
of income.
49
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(e)
Export Registration Tax
The amendment to the Organic Hydrocarbons Law establishes a rate of 0.1% of the value of all
hydrocarbons exported from any port in the national territory, calculated on the sales price of such
hydrocarbons. This tax is effective since May 24, 2006, applicable sixty (60) uninterrupted days
beginning on the date of publication of the corresponding Official Gazette. PDVSA paid $54 million
and $20 million, respectively, included in the consolidated statements of income under production,
extraction tax and other taxes.
(f)
Value Added Tax (VAT)
Official Gazette 38,632, dated February 26, 2007, included the Partial Amendment Law of the VAT
Law, which establishes a decrease of the rate from 14% to 11%, from March 1 until June 30, 2007,
and to 9% after July 1, 2007.
The VAT law establishes an exemption on trading of certain fuels derived from hydrocarbons and
the possibility to recover from the National Tax authorities certain tax credits resulting from export
sales. The amounts pending recovery do not bear interest. A consolidated summary of VAT credits
pending recovery or offset follows (in millions of dollars):
December 31,
2007
2006
Credits pending recovery or offset at the beginning of the year
Generated during the year
Recovered during the year
Fair value adjustment
Credits pending recovery or offset at the end of the year (see note 28)
Less, current portion
Long-term portion
4,236
1,340
5,576
3,346
4,011
1,122
(647)
(250)
4,236
776
2,230
3,460
Management believes that the agreements made with the National Treasury will enable the Company
to recover a significant percentage of the tax credits in 2008.
In 2006, $647 million in tax reimbursement certificates were received from the Ministry of Popular
Power for Finance and were used to pay income tax.
Of the balance of recoverable tax credits as of December 31, 2007 and 2006, approximately $184
million and $118 million, respectively, correspond to subsidiaries involved with the Orinoco Belt’s
joint ventures.
50
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(g)
General Consumption Tax
In Venezuela and the United States of America, sales of gasoline and other motor fuels are subject to
taxes. In 2007 and 2006, such taxes amounted to approximately $3,414 million ($2,901 million in
the United States of America and $513 million in Venezuela, respectively) and $4,556 ($4,100
million in the United States of America and $456 million in Venezuela, respectively). In the United
States of America, this tax is paid by the consumer; therefore, it is included in the sale price of the
product and collected and paid to government entities without affecting the consolidated income of
the Company. In Venezuela, this tax is paid by PDVSA and recognized as operating expenses in the
consolidated statements of income.
(h)
Bank Debit Tax
The Law repealing Bank Debit Tax was published in Official Gazette 38,375 dated February 8,
2006, effective on February 9, 2006. This tax was applied to bank transactions at the rate of 0.50%.
51
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(13) Property, Plant and Equipment
Property, plant and equipment are comprised of the following (in millions of dollars):
Plants and
refining
facilities
Storage
facilities and
transportation of oil,
crude and gas
Land, buildings
and
constructions
Machinery
and
equipment
Land, sea
and air
transportati
on units
Industrial, camp
and other support
services
39,868
10,301
6,895
3,942
11,500
1,671
5,715
5,698
85,590
4,018
1,142
(50)
126
1
980
400
(85)
11
8
79
-
27
89
(3)
(651)
-
266
484
(45)
(2,546)
(4)
2
51
(3)
(67)
9
317
33
(50)
-
6,538
(2,278)
(156)
(166)
12,156
(101)
(3,555)
126
(149)
45,105
11,607
6,982
3,404
9,655
1,663
6,015
9,636
94,067
693
295
14
-
10
5
181
9,461
10,659
2,072
3,072
387
-
-
-
174
191
5,896
2,406
(237)
86
(327)
375
(190)
23
84
(2)
(181)
-
52
(27)
(13)
-
449
(123)
(279)
(7)
71
(13)
(5)
(17)
4,518
54
(4,626)
12
(3,491)
(20)
(29)
(186)
4,518
(612)
(5,133)
86
(502)
49,798
15,182
7,284
3,416
9,705
1,704
6,328
15,562
108,979
25,255
5,473
4,772
2,581
6,617
1,154
3,779
-
49,631
1,932
(29)
(80)
(18)
3
704
(65)
267
245
10
(1)
106
(1)
(220)
(1)
342
1
(26)
(1,468)
(13)
-
64
(3)
(66)
2
247
1
-
-
3,640
12
(59)
(1,819)
(93)
(18)
270
27,063
6,379
5,026
2,465
5,453
1,151
4,027
-
51,564
2,125
(19)
772
(142)
286
-
102
(17)
384
(99)
73
(10)
276
142
(9)
-
4,018
142
(296)
626
702
129
-
-
-
68
-
1,525
-
-
-
-
-
-
2,427
-
2,427
6
(8)
(8)
(24)
(95)
(3)
5
(131)
4
2
(2)
(1)
(2,584)
2
-
(2,812)
10
(8)
(27)
29,785
7,687
5,343
2,555
5,613
1,211
4,349
-
56,543
Total net cost as of December 31, 2007
20,013
7,495
1,941
861
4,092
493
1,979
15,562
52,436
Total net cost as of December 31, 2006
18,042
5,228
1,956
939
4,202
512
1,988
9,636
42,503
Wells and
production
facilities
Cost:
Balances as of December 31, 2005
Purchases and additions
Transfers and capitalizations
Sales and disposals
Discontinued operation
Asset retirement obligations
Other
Balances as of December 31, 2006
Purchases and additions
Cost of joint-venture assets
(see note 9-a)
Cost of electricity sector
assets (see note 10)
Transfers and capitalizations
Sales and disposals
Reclasification of assets held-for-sale
Asset retirement obligations
Other
Balances as of December 31, 2007
Construction
in progress
Total
Depreciation and amortization:
Balance as of December 31, 2005
Depreciation and amortization
Depreciation of discontinued operation
Sales and disposals
Discontinued operation
Reversal of impaired assets (see note 11)
Asset retirement obligations
Other
Balances as of December 31, 2006
Depreciation and amortization
Depreciation of discontinued operation
Sales and disposals
Accumulated depreciation of assets from
joint ventures (see note 9-a)
Accumulated depreciation of assets from the
electricity sector (see note 10)
Reclasification of assets held-for-sale
(see note 10)
Impairment (see note 11)
Asset retirement obligations
Other
Balances as of December 31, 2007
52
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
In 2007 PDVSA increased its interest in Petrozuata and the Cerro Negro and Hamaca Projects principally
because two of its former partners decided not to take part in the migration process of Joint Ventures of the
Orinoco Oil Belt to “Empresa Mixtas”. Consequently, the Company reported the following value of
production assets, as part of purchases and additions of that year (see note 9-a) as follows (in millions of
dollars):
Cost
Accumulated
depreciation
Net
value
3,545
840
1,511
907
341
277
2,638
499
1,234
5,896
1,525
4,371
Company or Project
Petrozuata
Cerro Negro
Hamaca
As a result of the migration process of joint ventures to “Empresas Mixtas”, in 2006 the Company added
productive assets of $4,991 million, which are reported under purchases and additions of that year (see
note 9-b).
The item “other” of property, plant and equipment includes $373 million corresponding to adjustments
made to the following “Empresas Mixtas” of CVP to decrease the initial value of assets recorded as a result
of the migration to “Empresas Mixtas”: Boquerón, S.A. ($340 million); Petroguárico, S.A. ($14 million);
and Petrokariña, S.A. ($19 million). These adjustments were made in 2007 and charged to additional
contribution of Stockholder and minority interests in stockholders’ equity (see note 20).
In 2007, the Company evaluated impairment and, taking into account new market conditions and business
aspects, identified the need to record an impairment loss of $10 million, mainly relating to certain assets
for production, commercialization and transportation of gas. In 2006 and as a result of these evaluations,
$93 million of asset impairment loss recognized in previous years was reversed.
As of December 31, 2007 and 2006, the Company reported expenditures for major maintenance and
general repairs which are considered as a separate component of assets of $1,542 million and $816 million,
respectively, included under property, plant and equipment, mainly in plants and refining facilities
(see note 3-d).
In 2007 and 2006, interest of $328 million and $16 million, respectively, was capitalized.
As of December 31, 2007 and 2006, the Company has recorded leasing charges under property, plant and
equipment of $605 million and $239 million, respectively (see note 26).
53
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Construction in Progress
The balance of construction in progress is mainly comprised of investment programs for drilling, major
maintenance, electric systems, piping, reconditioning and adaptation of wells, expansion and infrastructure,
aimed at maintaining production capacity and adjusting the facilities to the production levels set forth in
the business plan of the Company. As of December 31, 2007 and 2006, the balance of construction in
progress is approximately $8,236 million and $4,969 million, respectively. Construction in progress
includes several projects that will be capitalized as property, plant and equipment at the date of
incorporation into operations. The most significant projects follow:
(a)
The purpose of the Anaco Gas project is to increase the production of gas to meet the domestic
market’s demand. Currently, the drilling process of exploratory wells located north of Anaco,
Anzoátegui State is underway. This project includes the design and construction of facilities to
increase the daily gas production to 2,400 million cubic feet per day (MMCFD) and 35 thousand
barrels per day (MBPD) of light crude. The total estimated investment in this project is $2,433
million. As of December 31, 2007 and 2006, the balance of this construction in progress is
approximately $1,032 million and $612 million, respectively.
(b)
The purpose of the Interconexión Oriente-Occidente (ICO) project is to connect the natural gas
transmission systems of the central and eastern region of Venezuela (Anaco, Anzóategui State,
Barquisimeto, Lara State) with the transmission system located in the country’s western region
(Ulé, Zulia State - Amuay, Falcon State), to cover the gas demand of the country’s western region,
expand the gas service to other regions nationwide and to promote the industrial and commercial
development in areas near the construction of this transmission system. The estimated total
investment in this project is $530 million and it is expected to be completed by 2008. As of
December 31, 2007 and 2006, the balance of this construction in progress is approximately $436
million and $242 million, respectively.
(c)
The Plataforma Deltana Gas project contemplates the participation of third parties in order to
complete the exploration and future development of this area. PDVSA completed the project’s initial
phase, including 3D seismic analysis and the perforation of four exploratory wells completed in
2003, with successful results in three of them. The total estimated investment for this project is
$3,810 million, including the participation of PDVSA. It has been established that blocks 1 and 5
are maintained in reserve for future business. At December 31, 2007 and 2006, the balance of this
construction in process is approximately $161 million and $157 million respectively (see note 9-c).
(d)
Trans-Caribbean Gas Pipeline Antonio Ricaurte Project was started in 2006 for exchange of gas
between Venezuela y Colombia and will follow the route from Puerto de Ballena, Colombia to the
Eastern Coast of Lake Maracaibo in Venezuela costing approximately $473 million, with an
estimated length of 225 kilometers. In the first four years the gas pipeline will transport gas from
Colombia to Venezuela and subsequently from Venezuela into Colombia. As of December 31, 2007
and 2006, the balance of this construction in progress is approximately $461 million and $114
million, respectively.
54
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(e)
The purpose of the Complejo Criogénico de Occidente (CCO) project is to optimize the processing
of natural gas in the country’s western region. The estimated total investment in this project is $926
million. As of December 31, 2007 and 2006, the balance of this construction in progress is
approximately $197 million and $108 million, respectively.
(f)
The Gran Delta Caribe Oriental project, formerly named Complejo Industrial Gran Mariscal de
Ayacucho (CIGMA) project, involves building infrastructure in Güiria, Sucre State, for the
development and industrialization of natural gas in the oriental offshore. The total cost of the work
is estimated at $371, and income from the project will be derived from the sale of land lots for
industrial use, fully developed and bearing all the relevant services. This complex will gather the
diverse gas streams delivered by the offshore northern-eastern gas development projects, including
the Plataforma Deltana, Mariscal Sucre, as well as further medium and long-term projects. These
gas volumes will be primarily destined to supply the Venezuelan internal market’s demand and the
national industrialization plans. Excess gas volumes will be exported as Liquefied Natural Gas
(LNG). The scope of the project also includes installation of a LNG plant required for this purpose.
As of December 31, 2007 and 2006, the balance of this construction in progress is approximately
$170 million and $33 million, respectively.
(g)
The Mariscal Sucre for Liquefied Natural Gas project is aimed at developing and exploring the
reserves of non-associated offshore gas, as well as the construction of a liquefied natural gas plant,
for projected gas production of 1,200 MMCFD and the processing of 4.7 million metric tons per year
(MMT/Y) of LNG; 300 million daily cubic feet of methane gas that will be used to meet domestic
market demand, and the remainder of the production is expected to be exported. The investment
required for the development of offshore fields, the LNG plant and the associated infrastructure is
estimated at $2,700 million. As of December 31, 2007 and 2006, the balance of this construction in
progress is approximately $136 million and $32 million, respectively.
(h)
The Jose 250 project is aimed at enhancing the processing capacity of associated gas generated at
San Joaquín, Jusepín and Pirital in the eastern region of the country, in order to meet the demand of
the domestic market and supply of gas injected to secondary recovery processes of oil filed in the
north of Monagas state. The project is focused on development of three new plants, a fractioning
unit, expansion of the Marine Terminal at Condominio Jose; as well as development and expansion
of pipelines for LNG. The total estimated investment in this project is $664 million, and it is
expected to be completed in 2009. As of December 31, 2007 and 2006, the balance of this
construction in progress is approximately $77 million and $21 million, respectively.
(i)
The main purpose of the Integral Ceuta-Tomoporo project is to maximize the recoverable crude oil
reserves value of Ceuta-Tomoporo, which has estimated reserves of 1,000 million barrels of 23.6°
API crude oil. Total investment will approximate $3,870 million, with an average crude oil
production of between 90 MBPD and 277 MBPD. It is estimated that the development project
relating to these reserves will end in 2021. As of December 31, 2007 and 2006, the balance of this
construction in progress is approximately $379 million and $253 million, respectively.
55
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(j)
The Replacement Project of Plant TJ1 is aimed at properly supporting the gas production levels
established in the business plan for the central area of Tía Juana in the western region of the country,
minimizing operating loss of gas, saving 44% in the consumption of fuel gas and lowering operating
and maintenance costs. The total estimated cost of the project is $180 million and should be
completed in 2008. In 2007 previously invested amounts were partially capitalized. As of
December 31, 2007 and 2006, the balance of this construction in progress is approximately $17
million and $164 million, respectively.
(k)
The Thermoelectric Plant and Interconnection Work project is aimed at increasing the electric
generation and transmission capacity in the western region of the country for large-scale projects
such as the Complejo Criogénico de Occidente and Integral Ceuta - Tomoporo. The project involves
design, procurement, installation and implementation of a combined-cycle electric generation plan
with a capacity of generating 500 million watts (MW), in a first module, and future expansion of an
additional 500 MW and interconnection work for 400,000, 230,000 and 115,000 volts. This will
facilitate transportation of energy from the construction site of the plant to the Costa Oriental del
Lago. The estimated total investment in this project is $1,125 million and it should be completed by
2009. As of December 31, 2007 and 2006, the balance of this construction in progress is
approximately $176 million and $15 million, respectively.
(l)
The Catalytic Cracking Fractioning (CCF) - Cardón project is aimed at replacing the reactor-stripper
set of the CCF unit at the Cardón refinery. The project is based on the adaptation of the reaction
zone to new technologies developed to maximize the benefits of this type of unit, taking into account
the trends and advantages of the local and international markets. This project will facilitate
implementation of the technology required to ensure extension of the useful lives of critical
equipment at the plant, under stricter quality requirements, and will enhance income from the
increase of charge to the CCF unit, which will in turn enable optimal use of the current
infrastructure. The estimated total investment in this project is $407 million, and it is expected to be
completed in 2008. As of December 31, 2007 and 2006, the balance of this construction in progress
is approximately $324 million and $159 million, respectively.
(m)
The Deep Conversion project in the Puerto La Cruz refinery is aimed at enhancing the capacity to
process heavy and extra-heavy crude oil to meet domestic demand and export fuel. This project
involves design, procurement, development, installation and implementation of service units to
process 210 MBPD of crude. The estimated total investment in this project is $1,600 million, and it
should be completed in 2011. As of December 31, 2007 and 2006, the balance of this construction
in progress is approximately $129 million and $20 million, respectively.
56
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(n)
The project El Palito Refinery 2009 is aimed at adapting this refinery for processing 140 MBPD of
heavy and extra-heavy crude oil with minimum residual production, thus ensuring the production of
light products (gasoline/distilled products) with export quality, improve the refining margin in
compliance with environmental standards and social surroundings of the facility. The purpose of
this project is to increase the processing of heavy and extra-heavy crude oil within the domestic
market so that crude-oil refining goes from 28° API to 22° API. The total estimated investment in
this project is $2,000 million, and it should be completed in 2011. As of December 31, 2007 and
2006, the balance of this construction in progress is approximately $33 million and $9 million,
respectively.
(o)
The Natural Gas for Vehicles (GNV) project is aimed at reaching a socioeconomic balance in the
country through the use of gas. In the first stage of the program 2006 – 2009, 148 GNV service
points will be reactivated at existing service stations, and 350 new supply points will be built so that
a total of 498 GNV service points are implemented by the end of the first phase of the project.
Furthermore, the program includes the conversion of 171,000 public-transportation units and
government-owned vehicles. Through implementation of this project, 56 MBPD of gasoline and 1
MBPD of diesel will be saved in the internal consumption of liquid fuel, which will facilitate an
increase in the export of these products. The total estimated investment in this project is $921
million. In 2007 amounts previously invested were partially capitalized. As of December 31, 2007
and 2006, the balance of this construction in progress is approximately $23 million and $38 million,
respectively.
(p)
The Special Maintenance Recovery Plan at Western Facilities (PREMIO) is intended to improve the
facilities and operating assets used in exploration and production in the western area of the country
through increased maintenance and purchase of equipment to ensure a rise in production levels set
forth in the business plan the Company (Plan Siembra Petrolera). The project was launched in 2006,
with a total estimated investment of $2,047 million, and it is expected to be completed in 2008. In
2007 amounts invested in 2006 and 2007 were partially capitalized. As of December 31, 2007 and
2006, the balance of this construction in progress is approximately $1 million and $668 million,
respectively.
(q)
The project for construction and purchase of vessels is aimed at design, procurement, construction
and equipment of 42 tank vessels for transportation of crude oil and refined products, to ensure
compliance with the market diversification policy and to strengthen the Company’s own fleet in
accordance with the business plan of the Company (Plan Siembra Petrolera). The first phase
contemplates alliances with companies and shipyards in Argentina, Brazil and Iran, to build 16 oil
tankers with a total estimated capacity of 6.8 million barrels, together with development and
upgrading of the shipyard in Venezuela. Total estimated investment in this project amounts to
$1,115 million, and it is expected to be completed in 2013. As of December 31, 2007 and 2006, the
balance of construction in progress is approximately $304 million and $18 million, respectively.
57
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(14) Non-Consolidated Investees
Investments in non-consolidated investees recorded under the equity interest method are summarized as
follows:
December 31,
2006
2007
2006
Equity
interest
Percentage of
(in millions
capital stock
of dollars)
2007
Foreign investees:
United States of America Interest of CITGO in its affiliates
Chalmette Refining, L.L.C. (Chalmette Refining)
Merey Sweeny, L.P. (Merey Sweeny)
US Virgin Islands - Hovensa L.L.C. (Hovensa)
Germany Ruhr Oel GmbH (Ruhr)
Sweden AB Nynäs Petroleum (Nynäs)
Other PDV Cupet, S.A.
Petrolera del Cono Sur, S.A.
Investees of Bitúmenes Orinoco, S.A. (BITOR)
Investees of PDVSA América, S.A.
Investees in Venezuela:
Petrozuata (see notes 3-a and 9-a)
Ceras de Venezuela, C.A. (Ceraven)
Propilenos de Falcón, C.A. (Profalca)
Quiriquire Gas, S.A.
Gas Guárico, S.A.
Other
(*)
(*)
50
50
50
(*)
50
50
50
77
440
46
845
1,408
170
392
52
964
1,578
50
50
200
179
50
50
226
183
49
46
(*)
(*)
49
46
(*)
-
95
18
5
2
1,954
98
15
5
2,058
35
40
30
(*)
50
49
35
40
30
(*)
31
78
21
4
314
10
31
70
19
1
134
2,088
445
2,503
Equity interest of between 20% and 50% in several affiliates.
58
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
A summary of PDVSA’s investments in non-consolidated investees follows (in millions of dollars):
December 31,
2007
2006
Investment in non-consolidated investees (see note 28)
Equity interest in net income of non-consolidated
investees (see note 28)
Retirement of investees
Effect of retirement of Pequiven investee
Effect of retirement of investment in
LYONDELL-CITGO
Incorporation of new non-consolidated investee
Dividends received from non-consolidated investees
Effect of consolidation of Petrozuata (see note 9-a)
Investments, net of foreign exchange effects
2,088
2,503
733
(115)
-
1,120
(580)
(635)
(374)
(24)
(342)
202
(1,236)
(103)
Between January and February 2007, CITGO sold its 6.8% and 15.8% interest in Explorer Pipeline
Company and Colonial Pipeline Company, respectively. From this sale, CITGO received approximately
$756 million in cash and recorded a gain from the sale of this investment of $641 million.
In August 2006, CITGO sold its 41.25% interest in LYONDELL-CITGO, effective as of July 31, 2006.
From this sale, CITGO received $1,774 million in cash and recorded a gain from the sale of this
investment of $1,432 million. Additionally, CITGO also received payment of an account receivable from
LYONDELL-CITGO of $35 million, and related interest of $4 million.
A summary of the combined financial information of non-consolidated investees abroad and in Venezuelan
follows (in millions of dollars):
December 31,
Financial position:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net stockholders' equity
Results of operations
for the year:
Sales
Operating income
Net income
Venezuela
2007
Abroad
1,003
580
(940)
(282)
5,716
3,842
(2,062)
(3,507)
361
1,486
680
132
59
Venezuela
2006
Abroad
6,719
4,422
(3,002)
(3,789)
3,660
993
(2,253)
(873)
6,551
2,613
(3,151)
(2,561)
10,211
3,606
(5,404)
(3,434)
3,989
4,350
1,527
3,452
4,979
25,687
1,943
1,284
27,173
2,623
1,416
1,627
843
413
26,474
2,656
2,061
28,101
3,499
2,474
Total
Total
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(15) Long-term Accounts Receivable and Other Assets
Long-term accounts receivable and other assets are summarized as follows (in millions of dollars):
December 31,
2007
2006
Long-term accounts receivable from related parties (see note 28)
FONDESPA project executing entities (see notes 16 and 28)
Long-term accounts receivable - energy agreements (see note 9-d)
Materials and supplies (see note 17)
Buildings used by government entities (see note 28)
Other
2,013
836
979
69
82
504
1,483
882
707
45
87
455
4,483
3,659
As of December 31, 2007 and 2006, the Company determined and adjusted to fair value balances
receivable from each of the entities performing the programs and projects, as well as long-term accounts
receivable from energy agreements, recording losses of $446 million and $822 million, respectively,
included in the consolidated statements of income under other (income) expenses, net. A summary of the
adjustments to fair value as of December 31, 2007 and 2006 follows (in millions of dollars):
Contractual
value
Fair
value
Adjustment to fair value
Accumulated
For the year
2,195
1,934
836
979
1,359
955
126
320
4,129
1,815
2,314
446
2,115
1,342
882
707
1,233
635
292
530
3,457
1,589
1,868
822
December 31, 2007 FONDESPA project executing entities
Long-term accounts receivable - energy agreements
December 31, 2006 FONDESPA project executing entities
Long-term accounts receivable - energy agreements
60
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(16) Restricted Cash
Restricted cash is comprised of the following (in millions of dollars):
December 31,
2007
2006
Trust funds in the Banco de Desarrollo Económico y Social
de Venezuela (BANDES), for social programs and
projects (see note 28):
Fondo para el Desarrollo Económico y Social del País
(FONDESPA)
Integral Cooperation Agreement executed with
the Republic of Argentina (see note 9-d)
686
924
12
72
698
996
805
766
14
16
1,728
479
1
98
50
2
11
3
Less current portion
3,298
1,555
2,369
441
Long-term portion
1,743
1,928
Fondo para la Estabilización Macroeconómica (FEM) (see note 28)
Trust fund entered into with Banfoandes, Banco Universal, C. A.
(BANFOANDES), for construction and conditioning of
medical assistance facilities for Misión Barrio Adentro
(see note 28)
Funds for projects of extra-heavy crude oil in the
Orinoco Oil Belt (see notes 9-a, 33-a and 33 -b)
Caracas Energy Cooperation Agreement undertaken with
the Oriental Republic of Uruguay (see note 9-d)
Liquidity account of PDVSA Finance Ltd. and CITGO
(see note 21)
Other
Trust Funds in BANDES
As a result of the new social responsibilities of PDVSA, the following trusts have been established with
BANDES for social programs and projects, work, goods and services aimed at the development of
infrastructure, agricultural activities, roads, health and education in the country:
a)
FONDESPA approved in Stockholder’s meeting on January 23, 2004, established in US dollars and
to be funded by extraordinary income from the export of crude oil and products exceeding the
average price budgeted per barrel, net of royalties, taxes and other direct expenses, in 2004 and 2005.
In 2006 a special contribution of $229 million was made to ensure compliance with the
commitments of projects previously approved. There were no contributions to this fund in 2007.
61
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
b)
Integral Agreement of Cooperation with the Republic of Argentina, subscribed by the Bolivarian
Republic of Venezuela and the Republic of Argentina, and approved at PDVSA’s Board of
Directors’ Meeting on July 15, 2004. This trust will comprise cash and securities received from
Compañía Administradora del Mercado Mayorista Eléctrico Sociedad Anónima (CAMMESA),
Argentina’s energy company, for the sales of crude oil and products by PDVSA under the agreement
(see note 9-d). The funds will be limited to making payments to companies located in the Republic
of Argentina for the imports in Venezuela of products from that country. In 2007 and 2006,
contributions to this trust were made of $101 million and $96 million, respectively (see note 28).
Transactions relating to FONDESPA are controlled and reported in the consolidated financial statements
through the subsidiary CVP. The allocations to the entities performing the projects are accounted for by
CVP as long-term accounts receivable (see note 15), or expenses, as payments are made in accordance
with the terms established in the relevant contracts. A summary of the financial information of the funds in
FONDESPA follows (in millions of dollars):
December 31,
2007
2006
Assets:
Cash
Long-term accounts receivable, net
(see note 15)
Total assets
Contributions:
Accumulated contributions received
Deficit at beginning of year
Results for the year
Deficit at year-end
Total contributions, net
686
924
836
882
1,522
1,806
4,229
(2,423)
(284)
(2,707)
4,229
(1,262)
(1,161)
(2,423)
1,522
1,806
Years ended
December 31,
2007
2006
Result of operations:
Interest earned
Commissions and expenses, net
Social development expenses (see note 28)
Adjustments to the fair value of long-term
accounts receivable (see note 15)
Net results from operations
62
39
(2)
(195)
74
(4)
(939)
(126)
(292)
(284)
(1,161)
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Fondo para la Estabilización Macroeconómica (FEM)
In November 2003, the Venezuelan Government established the FEM, to achieve stabilization of the
Nation’s expenses, at state and municipal levels. It was created for the purpose of managing fluctuations
of ordinary income. Pursuant to Law, PDVSA made contributions in dollars until 2003 based on
additional income from oil-related sources, determined as 50% of the excess of the income from oil and
byproducts exports in dollars and the average of such income collected during the last three calendar years,
after deducting the taxes related to such income. The law and its amendments have not established
additional contributions since 2004.
Deposits made in the FEM may be used in the event of a decrease in the fiscal income, regardless of its
origin, in relation to the average of such income collected during the last three calendar years or in the
event of a national state of economic emergency declared in accordance with the Constitution of the
Bolivarian Republic of Venezuela. For the withdrawal of resources from the FEM by the respective
entities, the Permanent Finance Commission of the National Assembly must be notified, as well as the
General Comptrollership of the Republic, and the respective process contemplated in the Law must be
initiated.
In 2007 and 2006, this fund generated interest income of $39 million each year, included in the
consolidated statements of income under other (income) expenses, net.
Trust Fund with BANFOANDES, for the Construction and Conditioning of Medical Assistance
Facilities for Misión Barrio Adentro
On March 24, 2005, PDVSA’s Board of Directors approved the creation of a trust between Palmaven, S.A.
(subsidiary of PDVSA) and BANFOANDES. Such trust was established on June 20, 2005 for the
construction of 1,000 medical assistance modules for Misión Barrio Adentro. This trust was created with
an initial contribution of $23 million for one year, automatically renewable for similar periods
(see note 28). In 2007 and 2006, this trust fund did not receive additional contributions from PDVSA.
Funds for Extra-heavy Crude Oil Project in the Orinoco Belt
Correspond to funds deposited in financial institutions abroad, which are restricted only for the compliance
with obligations for the funding received for the development of the projects relating to the production and
improvement of extra-heavy crude oil of the Orinoco Belt. A summary of these funds as of December 31,
2007 and 2006 follows (in millions of dollars):
December 31,
2007
2006
Petrozuata
Hamaca Project
Sincor Project
Cerro Negro Project
Less long-term portion
Current portion
63
656
260
448
364
89
205
185
1,728
230
1,498
479
123
356
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Energy Cooperation Agreement with the Oriental Republic of Uruguay
As a result of this agreement, subscribed in 2005, PDVSA is committed to supply crude oil, refined
products and liquefied petroleum gas to the Oriental Republic of Uruguay (see note 9-d). In 2005 an initial
contribution of $44 million was made, which was deposited in an account of a financial institution located
in the Oriental Republic of Uruguay. This account will receive deposits made by the Administradora
Nacional de Combustibles, Alcohol y Portland (ANCAP), Uruguay’s oil company, resulting from the sales
derived from this agreement. These funds will be restricted to making payments to companies located in
Uruguay for the imports in Venezuela of products from that country. In 2007 and 2006, contributions were
made to this fund of $24 million and $191million, respectively (see notes 9-d and 28).
Liquidity Account of PDVSA Finance and CITGO
Corresponds to the “Liquidity Account”, in accordance with the agreement signed with financial
institutions for the issue of bonds, and which is comprised of cash and time deposits, including interest
earned on such amounts.
(17) Inventories
Inventories are summarized as follows (in millions of dollars):
December 31,
2007
2006
Materials and supplies, net
Crude oil and products
Less materials and supplies classified in
non-current assets (see note 15)
1,011
7,528
8,539
718
6,330
7,048
69
45
8,470
7,003
(18) Notes and Accounts Receivable
Notes and accounts receivable include the following (in millions of dollars):
December 31,
2007
2006
Related parties (see note 28)
Other accounts receivable
Accounts receivable from insurance companies
Reimbursable expenses
Trade accounts receivable
Less allowance for doubtful accounts
64
2,824
748
348
353
7,564
1,132
206
208
17
8,118
11,837
150
11,687
9,681
135
9,546
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Exposure to credit and currency risks relating to notes and accounts receivable are presented in note 25.
(19) Prepaid Expenses and Other Assets
Prepaid expenses and other assets include the following (in millions of dollars):
December 31,
2007
2006
Income tax overpayments (see note 28)
Trading securities
Advances to suppliers and contractors
Prepaid insurance
Derivative assets
Other assets
6,100
317
723
157
39
385
2,240
309
175
84
52
125
7,721
2,985
Payment of estimated income tax returns for certain subsidiaries in 2007 and 2006 resulted in overpayment
of $3,860 million and $2,240 million, respectively, when compared to the final income tax return. The
accumulated overpayments as of December 31, 2007 and 2006, of $6,100 million and $2,240 million
respectively, will be offset in future income tax returns.
(20) Stockholder’s Equity
Capital Stock
According to the Company’s bylaws, the nominal value of capital stock is Bs1,280,100 million
corresponding to 51,204 shares. Pursuant to law, these shares may not be transferred or encumbered in any
way (see note 1).
Reserves
The legal reserve is a requirement for Venezuelan companies. Pursuant to Venezuelan law, the legal
reserve cannot be distributed as dividends.
Other reserves include principally the reserve for the realization of deferred income tax assets and the
reserve for new investments.
In a Stockholder’s meeting held on December 30, 2007, based on an analysis performed by management, it
was decided to transfer the total balance of the reserve for deferred income tax assets of $1,908 million to
retained earnings.
Dividends
Cash dividends are declared and paid to the Stockholder in bolivars based on the statutory financial
statements reflecting retained earnings.
65
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
In 2007, dividends were declared in cash of $2,658 million. In 2006, dividends were declared of $3,033
million and paid as follows: $1,317 million of advances to the Stockholder on account of dividends in
2005; $1,317 million in cash, and $399 million of assignments of promissory notes in 2006.
Additional Contribution of the Stockholder
In 2007, the additional contribution of the Stockholder includes $93 million corresponding to contributions
of property, plant and equipment to incorporate “Empresas Mixtas” Lagopetrol, S.A. and Petrodelta, S.A.
Also, the additional contribution of the Stockholder includes a decrease of $223 million resulting from an
analysis by management, with new information obtained, relating to the value of assets originally
contributed for the incorporation of “Empresas Mixtas”.
In 2006, the additional contribution of the Stockholder includes $4,931 million corresponding to
contributions of property, plant and equipment to incorporate “Empresas Mixtas” according to the
instructions of the National Government, through the Ministry of Popular Power for Energy and Oil and
the National Assembly of the Bolivarian Republic of Venezuela, and pursuant to the Contract for
Conversion into “Empresas Mixtas” (see note 9-b).
Minority Interests
Minority interests presented in the consolidated statements of stockholders’ equity correspond to the
interest of minority investors in the equity and consolidated results for the years ended December 31, 2007
and 2006. In 2007, “Empresas Mixtas” declared and paid dividends of $974 million, of which $379
million corresponds to minority investors. Also, minority investors in “Empresas Mixtas” made an
additional contribution of working capital of $3 million.
66
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(21) Long-Term Debt
Long-term debt consists of the following (in millions of dollars):
December 31,
2007
2006
PDVSA (Corporate):
Secured loans granted by export government agencies and
financial institutions, at variable annual interest
rate at LIBOR plus 0.5% due in 2008
Secured loans granted by export government agencies
and financial institutions, at variable annual interest
from 1.70% to 2.30% due in 2012 (in yens)
Unsecured credit facility at variable LIBOR interest rate plus
4.5% due in 2010
Unsecured bonds due in 2017, 2027 and 2037, amounting to
$3,000 million, $3,000 million and $1,500 million with annual
interest payable every six months of 5.25%, 5.375%
and 5.50%, respectively
Secured loans granted by export government agencies and
financial institutions, at variable annual interest
LIBOR rate plus 1.13% due in 2022
Revolving credit facility, unsecured, with variable interest of
LIBOR plus 1%, due in 2008 renewable
CITGO:
Secured revolving credit facility, with annual interest at
8.25% due in 2010
Credit facility, at LIBOR interest rate plus 1.75% and
due in 2008
Secured loan agreement of $700 millions, at variable
interest rate of LIBOR plus 137.5 base points or 6.45%
due in 2012
Tax-exempt bonds, at variable and fixed annual interest rate
from 3.92% to 8.00%, secured by letters of credit
due in 2008 and 2037
Tax exempt bonds, secured by letters of credit, at variable
rates of 5.88% due in 2026
Carried forward,
67
200
400
213
249
6
9
7,500
-
3,327
-
1,124
-
12,370
658
80
21
1,000
-
637
643
562
529
60
60
2,339
1,253
14,709
1,911
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Brought forward,
PDVSA Petróleo (see note 9-a):
Petrozuata loan, secured at variable annual interest of
LIBOR plus 1.25% to 1.50%, due from 2009 to 2011
Secured Petrozuata bonds, at annual interest rate of
7.63% and 8.37%, due in 2009, 2017 and 2022
Credit facility of PDVSA Sincor, secured, at variable annual
interest rate of LIBOR plus 5.53% and 6.97%, due from
2007 to 2012
Bonds of PDVSA Cerro Negro, secured, at annual interest from
7.33% to 8.03%, due in 2006 and 2028
Credit facility of PDVSA Cerro Negro, secured, at variable
interest rate of LIBOR plus 5.43% to 6.45% due in
2006 and 2012
Credit facility of Corpoguanipa, secured, at variable interest
rate of LIBOR plus 4.34% to 5.40% due in 2008 and 2018
PDVSA Virgin Island, Inc. (PDVSA VI):
Bonds secured by PDVSA and share interest in Hovensa,
at annual interest rate of 8.46%, due in 2008 and 2009
PDVSA Gas:
Promissory notes of Tropigas, S.A.C.A., at annual interest
rate of 17.67% due in 2008 (in bolivars)
Bariven, S.A.:
Secured loans, granted by export government agencies and
financial institutions, at annual variable and fixed
interest rate from 6.13% and 7.69%, due in 2008
Less current portion of long-term debt
Long-term portion
December 31,
2007
2006
14,709
1,911
177
-
800
-
236
283
-
247
-
78
1,213
232
840
76
137
5
-
3
16,006
2,877
13,129
26
2,914
652
2,262
Future maturities of long-term portion, as of December 31, 2007, are as follows (in millions of dollars):
Years
2009
2010
2011
2012
Remaining years
447
422
436
1,113
10,711
13,129
Long-term debt is denominated in dollars, except for debt in yens and bolivars, as indicated above.
68
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Issue of Bonds and Other Borrowings
Between January and February 2007, the public tender of bonds, was approved up to $7,500 million,
maturing in 10, 20 and 30 years (2017, 2027 and 2037). This issue was supervised and regulated by the
BCV and was exempt from the scope of the Venezuelan Capital Markets Law, by virtue of PDVSA’s
condition as a state-owned company. The annual coupon for bonds issued is 5.25%, 5.375% and 5.50%,
maturing in 10, 20 and 30 years, respectively. The bonds payable are initially recognized at fair value,
adjusted for transaction costs and, subsequently are recorded at their amortized cost. Any difference
between the adjusted fair value and the redemption value is recognized in the consolidated statements of
income over the financing period, using the effective interest method. For the combined issue of these
bonds a premium of 5.5% was generated of $413 million and in 2007, $20 million was recognized in the
consolidated statements of income, under other (income) expenses, net (see note 23).
Between April 12 and May 10, 2007, the issue process of bonds was completed, and the $7,500 million
offered was placed. Also, on April 12, 2007, Decree 5,282 was published exonerating income tax
payments on returns to the holders of this placement.
In February 2007, a group of banks, lead by the Japan Bank for International Cooperation (JBIC),
approved the granting of a loan to the Company of $3,500 million. This loan has a fifteen-year term, bears
interest at a rate equivalent to LIBOR plus 1.13%, and includes cash payment options or delivery of crude
oil and products at market prices, subject to an agreement of minimum amounts, reviewed every three
years. As of December 31, 2007 the Company has made repayments of $173 million, leaving an
outstanding balance of $3,327 million.
In January 2007, the Company obtained a credit facility of $1,124 million with a group of banks led by
BNP Paribas. This loan is due on January 30, 2008 and may be extended for an additional year with the
approval of lenders representing more than 50% of the original commitment. This loan bears interest at a
rate equivalent to LIBOR plus an increase based on the country risk of Venezuela, established by a rating
agency. As of the issue date, this increase was 1.15% (see note 33-b).
In December 2007, PDVSA paid $501 million, for 99% of bonds due in 2009, 2020 and 2028, of the
former Joint Venture Cerro Negro between PDVSA, Exxon Mobil and British Petroleum, with operations
in the Orinoco Oil Belt. Also, PDVSA paid $129 million to a group of banks led by ABN Amro Bank, for
a total of $630 million, with which it settled the debt of the former joint venture. With payment of the debt
of Cerro Negro, the process begins to incorporate a new “Empresa Mixta” named Petromonagas, S.A., in
which PDVSA will own 83.33% of the shares through CVP, and British Petroleum (BP) 16.67%, of the
shares through its subsidiary Veba Oil & Gas Cerro Negro GMBH (see note 9-a).
In 2007, PDVSA paid in full the debt of the former Joint Venture Hamaca, between PDVSA,
ConocoPhillips and ChevronTexaco, which operated in the Orinoco Oil Belt. PDVSA paid the debt in two
parts: the first through an initial prepayment of $400 million, on November 30, 2007; and the second and
final payment of $340 million, on December 14, 2007, for a total payment of $740 million. Of this
amount, 70% corresponds to PDVSA and 30% to ChevronTexaco in accordance with the share interest in
the new “Empresa Mixta”. The payments were made by Corpoguanipa and Texaco Orinoco Resources
Company, a subsidiary of the Chevron Corporation (see note 9-a).
69
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
On November 15, 2005, CITGO entered into an agreement for a $1,850 million senior secured credit
facility, which consists of the five-year revolving credit facility in the amount of $1,150 million and a
seven-year term loan of $700 million. The credit facility is secured by CITGO’s interest in its Lake
Charles, Louisiana and Corpus Christi, Texas refineries; its trade accounts receivable and its inventories
and is subject to covenants typical for secured borrowing. On December 17, 2007, CITGO modified this
credit facility to incorporate payment of collateral of a six months bridge loan of $1,000 million. This
short-term loan was with a group of banks led by BNP Paribas and UBS, and is due on June 17, 2008. The
net funds received by CITGO were used to make a loan to PDVSA. The cost of generating this loan of
$22 million will be amortized over the term of the loan. CITGO may choose from (i) the higher of the
premium rate or the rate of federal funds plus a margin of 0.5%; or (ii) the adjusted LIBOR rate plus the
applicable margin. As of December 31, 2007, the interest rate for the loan is 6.06% based on the LIBOR
rate option.
In March 2006, PDVSA Finance Ltd made a public tender for the total redemption of the outstanding debt
as of such date of $83 million, which was performed on April 11, 2006 through payment of a premium of
approximately $13 million, included in the consolidated statements of income under other (income)
expenses, net (see notes 11 and 16).
Beginning in October 2007, the financial information of Petrozuata is included in the consolidated
financial statements of the Company, recorded as part of the consolidated debt, beginning on that date, the
loan and secured bonds of that subsidiary (see notes 3-a and 9-a).
Petrozuata has entered into agreements (revolving loans), subject to certain conditions, with certain lenders
for an additional borrowing amount of $450 million. Petrozuata received and used $450 million resulting
from this agreement. Interest is determined at the LIBOR rate plus a percentage from 1.12% and 1.25%,
and is paid every six months in April and October of each year. The amount of principal amortization is
$38.9 million annually payable in two installments every six months from 2001.
In June 1997 Petrozuata Finance Inc., a subsidiary of Petrozuata created for the sole purpose of making the
private placement of bonds, issued a series of bonds of $988 million net of discount of $12 million,
through the issuance of Series “A” ($300 million), Series “B” ($625 million) and Series “C” ($75 million)
bonds expiring in 2009, 2017 and 2022, at an interest rate of 7.63%, 8.22% and 8.37%, respectively.
Interest is paid every six months, in April and October of each year. For Series “A” and “B” bonds, the
amortization of principal is payable every six months beginning on April 1, 2004 and 2008, respectively.
The amortization of principal of Series “A” and “B” bonds is determined based on a percentage of the
original amount, which varies according to the payment term, whereas the principal of Series “C” bonds is
payable upon maturity on October 1, 2022.
Covenants
Several credit facilities establish covenants restricting the Company from incurring additional debt, paying
dividends, placing liens on property and selling certain assets. The Company was in compliance with these
covenants as of December 31, 2007 and 2006, with the exception in 2006 as explained in the following
paragraph regarding the contractual commitments of the subsidiary PDVSA Petróleo, which holds an
interest in the Hamaca Project (see note 9-a).
70
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
A portion of the long-term debt of PDVSA Petróleo, corresponding to the credit facility of Corpoguanipa is
presented as current as of December 31, 2006, because of the receipt of notice of probably default on
January 20, 2006, arising from the delay in executing the Collateral Assignment and Acknowledgement of
Electrical Services Agreement. This situation was addressed in 2007 upon total payment of the debt of the
Hamaca Project.
Credit Facilities
As of December 31, 2007, PDVSA has secured credit lines available of $70 million.
For more information regarding the exposure of the Company to interest rate risk, exchange risk and
liquidity (see note 7).
(22) Employee Termination, Pension and Other Postretirement Benefits
An analysis of liabilities for labor obligations, pension plan and other postretirement benefit plans other
than pension plans follows (in millions of dollars):
December 31,
2007
2006
Accrual for employee termination benefits
Pension plans
Other postretirement benefits other than pension plans
136
1,080
1,782
150
767
1,188
Less current portion
2,998
490
2,105
374
2,508
1,731
Long-term portion
PDVSA has implemented the following employee benefit plans:
(a)
Defined Contribution Savings Plans
PDVSA and its Venezuelan subsidiaries maintain savings funds for their employees and guarantee
contributions to the members’ accounts. As of December 31, 2007 and 2006, the guaranteed amount
in the savings fund is approximately $174 million and $110 million, respectively. CITGO maintains
three retirements and savings plans with defined contributions, covering all eligible employees; the
employees who are members of these plans make voluntary contributions to the plans that in turn are
matched by the subsidiary. In 2007 and 2006 CITGO recorded $26 million and $25 million
respectively, relating to contributions to such plans.
(b)
Pension Plans and Other Postretirement Benefits
In Venezuelan and foreign subsidiaries, there are retirement plans and other benefits covering
employees and eligible former employees. These plans, among other conditions, are based on
seniority of service, age and salary.
71
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Pursuant to the collective labor contract, PDVSA and its Venezuelan subsidiaries have a retirement
plan that covers all eligible employees. There are pension funds with the respective organizations
for the administration of the assets of such funds once the employee has retired. The financing of the
pension plan for Venezuelan employees is based on a contribution system, managed on the basis of
individual capitalization. This plan establishes monthly mandatory contributions based on normal
salary of 3% by the employee and 9% by the Company. If necessary, the Company will make
additional contributions to ensure payment of the amount of the pension benefit according to the
defined benefit plan set forth in the agreement.
CITGO sponsors three non-contributory defined benefit plans; two of them cover eligible employees
under an hourly regime and one covers eligible employees earning salaries. CITGO also sponsors
three defined benefit plans not qualifying for certain eligible employees.
In addition to pension plans, PDVSA provides health and dental plans, funerary insurance and an
electronic card for meals. These benefits are funded on the cash basis.
An analysis of the accrual for pension plans and other retirement benefits follows (in millions of
dollars):
December 31,
2007
2006
2007
2006
Pension
Other retirement
plans
benefits
Present value of obligation based on
actuarial study
Fair value of plan assets
3,998
(2,677)
2,992
(2,375)
6,906
(1)
3,867
(1)
Present value of net obligation
Unrecognized actuarial gains (losses)
Unrecognized past service cost
1,321
553
(794)
617
175
(25)
6,905
(4,218)
(905)
3,866
(2,636)
(42)
1,080
767
1,782
1,188
Accrual in financial statements
The movement of the accrual for pension plans and other retirement benefits follows (in millions of
dollars):
Years ended December 31,
2007
2006
2007
2006
Pension
Other retirement
plans
benefits
Accrual at beginning of year
Expense for the year
Benefits paid by employer
Effect of disincorporation of Pequiven
767
540
(227)
1,080
72
829
330
(357)
(35)
1,188
734
(140)
-
767
1,782
911
443
(124)
(42)
1,188
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
An analysis of the expense for pension plans and other retirement benefits, recorded in the
consolidated statements of income, follows (in millions of dollars):
Years ended December 31,
2007
2006
2007
2006
Pension
Other retirement
plans
benefits
Service cost for the year
Interest cost on obligations
Expected return on plan assets
Past service cost
Adjustment on benefits paid
Recognized actuarial losses
140
292
(213)
96
206
19
126
253
(226)
25
152
77
427
(4)
50
184
78
247
8
110
540
330
734
443
The expense is recorded in the following items of the consolidated statements of income as follows
(in millions of dollars):
Years ended December 31,
2007
2006
2007
2006
Pension
Other retirement
plans
benefits
Operating expenses
Selling, administrative and general
expenses
73
378
211
514
178
162
119
220
265
540
330
734
443
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
A reconciliation of the present value of obligations based on the actuarial study follows
(in millions of dollars):
Years ended December 31,
2007
2006
2007
2006
Pension
Other retirement
plans
benefits
Present value at beginning of year
Past service cost for the year
Interest cost
Actuarial (gains) losses
Restricted (gains) losses
Benefits paid
Past service cost
Employees’ contributions
Effect of disincorporation of Pequiven
2,992
140
292
(52)
(227)
834
19
3,998
3,097
74
253
(36)
(4)
(375)
142
14
(173)
2,992
3,867
77
427
2,562
(141)
114
6,906
2,904
78
247
944
(112)
(8)
(186)
3,867
A reconciliation of the fair value of assets of the pension plans and other postretirement benefits
follows (in millions of dollars):
Years ended December 31,
2007
2006
2007
2006
Pension
Other retirement
plans
benefits
Plan assets at beginning of year
Expected return
Actuarial (gains) losses
Contributions made by the Company
Contributions made by employees
Effect of disincorporation of Pequiven
Benefits paid
74
2,375
212
8
215
94
(227)
2,632
243
(79)
123
44
(213)
(375)
1
13
(13)
1
11
(11)
2,677
2,375
1
1
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
The trends of the rates for medical plans affect the amounts reported. A change in a percentage point
in the rates used may give rise to the following effects (in millions of dollars):
One percentage
increase
decrease
Effect on cost components
of total service and interest
Effect on benefit obligation
119
958
(33)
(715)
The Company expects to pay approximately $89 million as contributions to pension plans and other
postretirement benefits in 2008.
A summary of the composition of the pension plan assets portfolio follows (in millions of dollars):
December 31,
2007
2006
Cash and cash equivalents
Fixed income instruments
Mixed income instruments
Other
917
1,397
363
18
751
1,299
307
2,677
2,375
The historical information of pension plans and other postretirement benefits for the four previous
years follows (in millions of dollars):
2007
2006
2005
2004
3,998
(2,677)
2,992
(2,375)
3,097
(2,632)
2,738
(2,250)
2003
Pension Plans Present value of obligation
Fair value of plan assets
Plan deficit
2,670
(2,087)
1,321
617
465
488
583
Present value of obligation
Fair value of plan assets
6,906
(1)
3,867
(1)
2,904
(1)
1,646
(1)
1,348
(1)
Plan deficit
6,905
3,866
2,903
1,645
1,347
Other retirement benefits -
75
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Actuarial assumptions used follow:
Years ended December 31,
2007
2006
2007
2006
Pension
Other retirement
plans
benefits
%
%
%
%
Venezuela:
Discount rate
Rate of compensation increase
Return on seniority adjustment
Medical inflation rate
Inflation rate
Expected return on plan
assets
9.0
11.0
12.0
10.0
10.0
7.0
12.0
6.0
9.0
11.0
11.0
10.0
10.0
7.0
8.0
6.0
9.0
10.0
-
-
Foreign:
Discount rate
Rate of compensation increase
Expected return on plan
assets
6.5
4.5
5.5
4.5
6.5
4.5
5.8
4.5
8.0
8.3
6.0
6.0
The assumptions relating to future death rates are based on published statistics and mortality indexes,
which establish that the average life expectancy in Venezuela of a retired person aged 65 is 13 years
for women and 11 years for men.
The long-term expected rate of return on plan assets in Venezuela is 9% and abroad is 8% for
pensions and 6% for other postretirement benefits. The return is based exclusively on the
expectancy of the return on investments that PDVSA has made in foreign funds to finance future
pensions according to the retirement plan. This rate is determined based on the entire investment
portfolio.
76
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(23) Accruals and Other Liabilities
Accruals and other liabilities are summarized as follows (in millions of dollars):
December 31,
2007
2006
Withholding taxes
Value added tax (VAT)
Production tax and other taxes payable
Financial lease (see note 26)
Provision for litigation and other claims (see note 27)
Accounts payable to employees
Environmental accrual (see note 27)
Accrual for refining work
Accrual for asset retirement obligations (see
notes 3-e and 13)
Premium on issues of bonds (see note 21)
Interest payable
Dividends payable
Accrued expenses of foreign affiliates
Advances from contractors
Accounts payable to related entities (see notes 9-a and 28)
Other
397
297
3,372
605
1,810
783
1,126
94
214
369
1,715
239
860
515
709
115
1,248
393
183
154
317
74
8,484
1,404
1,024
46
154
241
91
4,700
460
20,741
11,452
Less current portion of accrued and other liabilities
17,646
9,263
Long-term portion
3,095
2,189
As of December 31, 2007 and 2006, accrued and other liabilities include $1,248 million and $1,024
million, respectively, of accruals for obligations for the retirement of exploration and production assets.
The cost and obligations for the retirement of assets associated with refining, trade and supply activities
were not estimated, as these assets are considered of indefinite use, as a result of major maintenance and
repairs; also, there is no information available to determine the date when these assets will be disposed of.
Accounts payable to related parties include $6,000 million and $4,700 million corresponding to promissory
notes due to the National Treasury Office (ONT) issued in December 2007 and 2006, respectively, and due
between February and June 2008, and January and April 2007, at an annual interest rate from 4.71% to
4.86% and from 5.35% to 5.37%, for 2007 and 2006, respectively. In February 2008, the Company paid
$1,400 million corresponding to promissory notes issued in December 2007. Between January and April
2007, the Company paid $4,700 million corresponding to promissory notes issued in December 2006.
As of December 31, 2007 and 2006, accruals and other liabilities include $739 million and $20 million,
respectively, corresponding to taxes withheld by PDVSA for its contractors for the social fund established
in the Social Production Enterprise (EPS-Empresas de Producción Social) Program. These contributions
are required under PDVSA’s new service and contracting plan for works and services and are aimed at
developing social projects or work for the benefit of communities.
77
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
The movement of accrued and other liabilities in 2007, follows (in millions of dollars):
Withholding taxes
VAT
Production tax and other taxes payable
Financial leases
Provision for litigation and other claims
Accounts payable to employees
Environmental accrual
Accrual for refinery work
Accrual for asset retirement
obligations
Premium on issue of bonds
Interest payable
Dividends payable
Accrued expenses of foreign affiliates
Advances from contractors
Accounts payable to related entities
Other
Total accruals and
other liabilities
Balance at
December 31,
2006
Decrease
Balance at
December 31,
2007
Current
portion
Long term
portion
Increase
214
369
1,715
239
860
515
709
115
361
847
19,201
568
1,153
299
482
1,105
(178)
(919)
(17,544)
(202)
(203)
(31)
(65)
(1,126)
397
297
3,372
605
1,810
783
1,126
94
397
297
3,372
100
1,501
741
547
94
505
309
42
579
-
1,024
46
154
241
91
4,700
460
485
413
811
690
8,484
2,091
(261)
(20)
(674)
(614)
(17)
(4,700)
(1,147)
1,248
393
183
154
317
74
8,484
1,404
390
28
183
154
317
10
8,484
1,031
858
365
64
373
11,452
36,990
(27,701)
20,741
17,646
3,095
(24) Accounts Payable to Suppliers
Accounts payable to suppliers include the following (in millions of dollars):
December 31,
2007
2006
Related parties (see note 28)
Trade
Operating agreements (see note 9-b)
278
5,173
199
247
5,585
547
5,650
6,379
Exposure to currency and liquidity risk related to accounts payable to suppliers is presented in note 25.
78
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(25) Financial Instruments
Credit Risk
Exposure to Credit Risk
The carrying value of financial assets represents the maximum credit risk exposure as follows (in millions
of dollars):
December 31,
2007
2006
Long-term accounts receivable (see note 15)
Recoverable value-added tax (see note 12-f)
Notes and accounts receivable (see note 18)
Restricted cash (see note 16)
Cash and cash equivalents
3,828
5,576
11,687
3,298
3,325
3,072
4,236
9,546
2,369
2,282
27,714
21,505
The maximum exposure to credit risk for notes and accounts receivable by geographic region follows
(in millions of dollars):
December 31,
2007
2006
United States and Canada
Central America and the Caribbean
Europe
Asia
South America
Venezuela
2,284
2,114
1,249
883
421
613
1,891
2,566
1,693
290
320
1,358
7,564
8,118
The maximum exposure to credit risk for notes and accounts receivable by type of client follows
(in millions of dollars):
December 31,
2007
2006
Trade
Energy agreements
79
6,431
1,133
6,984
1,134
7,564
8,118
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Impairment Losses
The aging of notes and trade receivable follows (in millions of dollars):
Gross
December 31,
2007
Impairment
Gross
5,549
594
985
286
150
150
6,808
394
610
171
135
135
7,564
150
8,118
135
Current
Past due 30 days
Past due 31 to 180 days
Past due 181 days
More than one year
2006
Impairment
The maximum exposure to credit risk is concentrated in trade accounts receivable. PDVSA makes an
allowance for doubtful accounts based on the aging of the balances and the results of the evaluations of the
client portfolio.
Changes in the allowance for doubtful accounts in 2007 and 2006 follow (in millions of dollars):
December 31,
2007
2006
Balance at January 1
135
147
Increase
Decrease
43
(28)
20
(32)
Balance at December 31
150
135
80
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Liquidity Risk
A summary of the contractual maturities of financial liabilities, including estimated payments of interest
and excluding the impact of netting agreements follows (in millions of dollars):
Carrying
value
Contractual
cash flows
6 months
or less
6 - 12
months
1-2
years
2-5
years
More
than
5 years
5,650
16,006
5,650
25,880
5,082
3,008
568
758
1,162
4,018
16,934
605
999
50
50
188
155
556
22,261
32,529
8,140
1,376
1,350
4,173
17,490
6,379
2,914
6,379
3,826
3,261
309
3,118
306
580
839
1,792
239
408
20
21
71
62
234
9,532
10,613
3,590
3,445
651
901
2,026
December 31, 2007 Non-derivative financial liabilities
Accounts payable to suppliers
(see note 24)
Long-term debt (see note 21)
Financial leasing liabilities
(see note 26)
December 31, 2006 Non-derivative financial liabilities
Accounts payable to suppliers
(see note 24)
Long-term debt (see note 21)
Financial leasing liabilities
(see note 26)
Interest Rate Risk
An analysis by the type of interest on financial instruments of the Company follows
(in millions of dollars):
December 31,
2007
2006
Fixed rate instruments
Fixed-term deposits
Long-term debt
622
(8,489)
1,229
(298)
(7,517)
(2,616)
(15,384)
(1,685)
Variable rate instruments
Long-term debt
81
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Fair Value Sensitivity Analysis for Fixed Rate Instruments
PDVSA does not use the fair value hedge accounting model for its fixed rate financial assets nor has it
designated derivates as hedging instruments. Therefore, a change in interest rates as of the reporting date
would not affect the consolidated results of the Company.
A variation of one percent in the interest rate as of the date of the consolidated financial statements would
have increased or decreased the consolidated results by $440 million and $15 million, respectively.
Cash Flow Sensitivity Analysis for Long-Term Debt at Variable Rates
A change of one percent in the interest rate as of the reporting date would have increased or decreased the
consolidated results by the amounts presented below. The analysis performed using the same basis as for
2006 follows (in millions of dollars).
Results Operations
One percent
increase
decrease
December 31, 2007 Long-term debt
65
65
14
14
December 31, 2006 Long-term debt
82
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Fair Value of Financial Instruments
The estimated amounts presented are not necessarily and indication of the amounts that PDVSA could
realize in a current market exchange. The use of different market assumptions and/or methodologies to
determine estimates may significantly affect the estimated fair values. Fair values determined using the
bases disclosed in note 6 follows (in millions of dollars):
December 31,
2007
2006
Carrying
Fair
Carrying
Fair
value
value
value
value
Assets:
Long-term accounts receivable
Recoverable valued-added tax
Notes and accounts receivable
Derivative assets (included in prepaid
expenses and other assets)
Restricted cash
Cash and cash equivalents
Liabilities:
Long-term debt
Accounts payable to suppliers
Other liabilities (included in accruals
and other liabilities)
Derivative liabilities (included in accruals
and other liabilities)
3,828
5,576
11,687
3,828
5,576
11,687
3,072
4,236
9,546
3,072
4,197
9,546
39
3,298
3,325
39
3,298
3,325
52
2,369
2,282
52
2,369
2,282
(16,006)
(5,650)
(16,006)
(5,650)
(2,914)
(6,379)
(2,914)
(6,379)
(9,754)
(9,754)
(5,812)
(5,812)
(44)
(44)
(42)
(42)
(26) Financial and Operating Leases
As of December 31, 2007 and 2006, there are certain assets of refining and gas compression plants and
related equipment acquired under capital lease agreements, recorded under property, pant and equipment of
approximately $668 million and $275 million, net of accumulated depreciation of approximately $215
million and $190 million, respectively. The depreciation expense for the years 2007 and 2006,
corresponding to leased assets amounted to approximately to $39 million and $29 million, respectively.
83
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
As of December 31, 2007, future lease payments are as follows (in millions of dollars):
Leases
Financial
Operating
Years
2008
2009
2010
2011
2012
More than five years
Future estimated lease payments
360
257
192
179
167
167
100
96
92
84
71
556
1,322
999
Less interest
(394)
Present value, included in accruals
and other liabilities (see note 23)
605
Rental expense incurred under operating leases in 2007 and 2006 was approximately $539 million and
$409 million, respectively, included in operating expenses.
(27) Commitments and Contingencies
Guarantees
As of December 31, 2007, some of PDVSA’s subsidiaries have construction completion guarantees related
to debt and financing arrangements of joint venture projects. The subsidiaries, projects, guarantees
obligations and year of termination follow (in millions of dollars):
Guarantee
obligations
Year of
termination
Subsidiaries
CITGO
PDVSA Petróleo
8
93
2012
2012
As of December 31, 2007 and 2006, PDVSA has not recorded liabilities for these concepts; historically
claims as a result of guarantees have not been significant.
As of December 31, 2007, CITGO has guaranteed debts of subsidiaries and affiliates, including letters of
credit and borrowings for the acquisition of commercialization equipment.
PDVSA Petróleo has a global environmental guarantee undertaken with the Ministry of Popular Power for
the Enviroment and Natural Resources (MARN), which guarantees the performance of environmental
compliance in accordance with current legislation.
84
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Litigation and Other Claims
On December 26 and 27, 2007, Mobil Cerro Negro Ltd. filed a request for seizure of assets to be ordered
by the South District Court of New York. The seizure requested affected $300 million deposited in the
accounts of PDVSA Cerro Negro S.A., held in the Bank of New York Mellon and corresponded to funds
released in favor of PDVSA Cerro Negro, as a result of the repurchase of debt undertaken to finance the
Cerro Negro Project. The order was issued without giving prior notice of the request to PDVSA Cerro
Negro of the request and was confirmed on February 13, 2008. This procedure has concluded upon
confirmation. The sum in question will remain withheld until an arbitration award is produced.
On November 2, 2007, Conoco Phillips Company, ConocoPhillips Petrozuata B.V., Conoco Phillips
Hamaca, B.V., ConocoPhillips Gulf of Paria B.V. and ConocoPhillips Company, hereinafter referred to as
ConocoPhillips, filed an arbitration request against the Bolivarian Republic of Venezuela before the
International Center for Resolution of Investment-Related Disputes (CIADI), seeking payment of damages
resulting from breach of agreements, infringement of international and Venezuelan laws regarding
investment protection. This request was recorded on December 13, 2007. PDVSA is not a party to this
process.
In September 2007, Mobil Corporation and its subsidiaries related to the Cerro Negro and La Ceiba
projects filed for arbitration procedures before CIADI in Washington D.C., United States of America,
against the Bolivarian Republic of Venezuela, seeking payment of damages resulting from breach of
agreements, infringement of international and Venezuelan laws regarding investment protection. This
request was recorded on October 10, 2007 by CIADI and formally notified to the Republic.
On July 30, 2007, the 9 Superior Tax Contentious Court issued its ruling for an appeal filed by PDVSA
Petróleo, S.A. against tax assessments issued by the Tax Administration, objecting the deductibility of a
contribution made, in accordance with Article 6 of the Organic Hydrocarbons Law. This ruling concludes
that only exports of “oil” and no other products or byproducts of hydrocarbon are deductible. This must be
construed restrictively since it involves a tax benefit (deduction). The management of PDVSA and its
legal counsel have expressed that such ruling is based on legal provisions, but they uphold deductibility
through an appeal before the Political-Administrative Court of the Supreme Tribunal of Justice (TSJ). As
of December 31, 2007, the provision for litigation and other claims includes $338 million in this
connection.
On July 25, 2007, the Company paid $110 million in favor of the New Brunswick Power Corporation
(“NB Power”) as an out-of-court settlement, which ends the claim filed in September 2005, wherein NB
Power sued before a Canadian court and sought arbitration before the International Council for Dispute
Resolution of the American Arbitration Association of New York, against PDVSA, Bitúmenes Orinoco,
S.A. (BITOR) and the Bolivarian Republic of Venezuela, alleging among other things, the failure to
comply with an Orimulsión® supply agreement.
85
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
On June 25, 2007, the Constitutional Chamber of TSJ declared without merit the review appeal filed by the
legal counsel of PDVSA Petróleo, S.A. against the decision dated February 16, 2006 of the Political
Administrative Chamber of TSJ, which declares without merit the appeal filed by PDVSA Petróleo, S.A.
against resolution of the National Integrated Tax and Customs Administration (SENIAT), dated November
17, 1999, relating to tax obligations corresponding to 1994, 1995 and 1996, of $839 million. As of
December 31, 2007, the provision for litigation and other claims includes $839 million for this concept.
The Company is involved in other claims and legal actions in the normal course of business of $3,500
million. In the opinion of management and its legal advisors, the outcome of these claims will not have a
material adverse effect on the Company’s financial position, results operations or liquidity.
Based on an analysis of the available information, a provision, as of December 31, 2007 and 2006, of
$1,810 million and $860 million, respectively, is included in accruals and other liabilities relating to all the
contingencies described above. If known lawsuits and claims were to be determined in a manner adverse
to the Company, and in amounts greater than the Company’s accruals, then such determinations could have
a material adverse effect on the Company’s results of operations in a given reporting period. Although it is
not possible to predict the outcome of these matters, management, based in part on advice of its legal
counsel, does not believe that it is probable that losses associated with the proceedings discussed above,
that exceed amounts already recognized, will be incurred in amounts that would be material to the
Company’s financial position or results of operations.
Environmental Compliance
The majority of PDVSA’s subsidiaries, both in Venezuela and abroad, are subject to various environmental
laws and regulations which may require significant expenditures to modify facilities and prevent or remedy
the environmental effects of waste disposal and spills of pollutants. In the United States and Europe,
PDVSA’s operations are subject to various federal, state and local environmental laws and regulations,
which may require them to take action to remedy or alleviate the effects on the environment of earlier plant
decommissioning or leakage of pollutants.
PDVSA is taking important steps to prevent risks to the environment, people’s health, and the integrity of
its facilities. In 2007, PDVSA continued implementing its Integral Risk Management System (SIRPDVSA®) throughout the company, which is expected to be completed in 2009. This management system
is based on international practices and standards, such as ISO 9000 for control of documentation; ISO
14001 for environmental compliance; ISO 18000 and British Standard BS8800 for occupational health;
and the guidelines of the American Petroleum Institute (API) for safety process. PDVSA has invested
approximately $42 million and plans to invest an additional $5 million to complete implementation of SIRPDVSA. In addition, PDVSA implemented an investment plan to meet environmental regulations in
Venezuela, which contemplates approximately $2,255 million in capital disbursements from 2004 to 2009
including the following: $1,150 million for product quality; $911 million for risk control at operation sites;
$162 million for environmental compliance projects; and $32 million for other environment-related
projects.
CITGO estimates expenses of approximately $1,100 million for projects regulating
environmental risks from 2005 to 2009.
86
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Additionally and as part of the environmental responsibility of PDVSA, there is a plan for environmental
remediation and restoration of environmental liabilities generated until 2004. The plan has an expected
duration of 12 years and started in 2001 and addresses remediation of pits and unspecified crude oil,
hazardous materials and waste, facilities, abandoned equipment and dismantlement, areas impacted by oilrelated activities and radioactive sources. As of December 31, 2007, remediation has been performed on
2,554 hydrocarbons pits of the existing 13,460 pits, thus 10,906 pits are still pending sanitation. Based on
the analysis of detailed information available, PDVSA estimated liabilities relating to remediation and
restoration of environmental liabilities and recorded expenses in the results of 2007 and 2006 of $482
million and $193 million, respectively. The balances of the accruals for environmental matters, as of
December 31, 2007 and 2006, amount to $1,126 million and $709 million, respectively (see note 23).
CITGO has received various notices of violation from the Environmental Protection Agency (EPA) and
other regulatory agencies, which include notices under the federal Clean Air Act, and could be designated
as Potentially Responsible Parties (“PRPs”) jointly with other industrial companies with respect to sites
under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). These
notices are being reviewed and, in some cases, remedial action is being taken or CITGO is engaged in
settlement negotiations.
Conditions that require additional expenditures may exist at various sites including, but not limited to, the
Company’s operating complexes, service stations and crude oil and petroleum storage terminals.
Management believes that these matters, in the normal course of operations, will not have a material effect
on the consolidated financial position, liquidity or operations of PDVSA.
Agreements with the Organization of Petroleum Exporting Countries (OPEC)
The Bolivarian Republic of Venezuela is a member of OPEC, an organization mainly aimed at establishing
agreements to maintain stable crude-oil prices through production quotas. To date, the reduction in the
production of crude oil as a result of changes in the production quotas established by OPEC or variation in
prices has not had a significant effect on the Company’s consolidated financial position, results of
operations and cash flows.
(28) Related Party Transactions
PDVSA considers its non-consolidated investees, jointly controlled companies, the Company’s directors
and executives, other companies that are also property of the stockholder and other government institutions
as related parties.
87
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
A summary of transactions and balances with related parties follows (in millions of dollars):
Years ended
December 31,
2007
2006
Activities of the year:
Income Sales
Equity interest in earnings of non-consolidated
investees (see note 14)
Other income
Cost and expenses Purchase of crude oil and refined products
Production tax and other taxes (see note 12)
Other
Income tax expense in Venezuela (see note 12-a)
Social development expenses
11,399
13,450
733
97
1,120
212
5,187
21,981
55
10,301
18,435
92
4,953
3,518
14,102
13,784
December 31,
2007
2006
Balances at year end:
Investments in non-consolidated investees (see note 14)
Buildings used by government entities (see note 15)
Long-term accounts receivable (see note 15)
Recoverable tax credits (see note 12-f)
FONDESPA project executing entities (see notes 15 and 16)
FEM contributions (see notes 4 and 16)
Trust funds with BANDES (see note 16)
Trust funds with BANFOANDES (see note 16)
Notes and accounts receivable (see note 18)
Income tax overpayments (see note 19)
Income tax payable in Venezuela (see note 12)
Accruals and other liabilities (see note 23)
Accounts payable to suppliers (see note 24)
88
2,088
82
2,013
5,576
836
805
698
14
2,824
6,100
3,427
13,021
278
2,503
87
1,483
4,236
882
766
996
16
1,132
2,240
2,369
7,393
247
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
During 2007 and 2006, PDVSA made sales to affiliated companies and related parties, which are
summarized as follows (in millions of dollars):
Years ended
December 31,
2007
2006
Hovensa
LYONDELL-CITGO
Nynäs
Chalmette Refining
Ruhr
MC Bitor LTD
Mount Vernon Phenol Plant (Mt. Vernon)
Thyssen Citgo Petcoke Corporation
C.A. de Administración y Fomento Eléctrico (CADAFE)
Siderúrgica del Orinoco, C.A.
C. A. Energía Eléctrica de Venezuela (Enelven)
Metanol de Oriente, S.A. (Metor)
Fertilizantes Nitrogenados de Venezuela, C.E.C. (Fertinitro)
Petroquímica de Venezuela, S.A. (Pequiven)
Other
7,268
1,023
1,164
557
467
333
188
50
39
47
49
83
44
87
5,979
4,602
802
599
371
260
218
135
66
41
50
92
114
61
60
11,399
13,450
PDVSA Petróleo has entered into several agreements for supplies to related parties, which are summarized
as follows (in millions of dollars):
Company
Supply
Agreement
(MBPD)
Ruhr
Nynäs
LYONDELL- Houston
Refining L.P. (formerly LYONDELL-CITGO)
Chalmette Refining
ConocoPhillips
Hovensa
Hamaca Marketing Company
237
57
230
90
190
270
129
Year of termination
Term of association, plus 3 additional years
Term of association, plus 3 additional years
2011
Term of association
2020
From 2014 to 2022
Term of association
1,203
As a result of the sale of the investment in LYONDELL-CITGO in 2006 (see note 14), the supply
agreement was rendered without effect and PDVSA received a settlement payment for this agreement of
$300 million included under other (income) expenses, net in 2006. Also, a new agreement with similar
conditions was suscribed between LYONDELL Houston Refining L.P. and PDVSA Petróleo.
89
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
During 2007 and 2006, CITGO sold to affiliated companies, mainly at market prices, raw material and
other products for $521 million and $410 million, respectively. Outstanding balances relating to these
operations as of December 31, 2007 and 2006, of $85 million and $63 million, respectively, are included in
notes and accounts receivable from related parties.
During 2007 and 2006, CITGO purchased refined products from various affiliated companies
(LYONDELL-CITGO - until June 30, 2006, Chalmette Refining and Mt. Vernon) under long-term
agreements. These purchases of $5,060 million in 2007 and $9,896 million in 2006, are included in the
consolidated statements of income as crude oil and products purchases. As of December 31, 2007 and
2006, accounts payable to suppliers include $262 million and $234 million, respectively, relating to these
transactions.
During the nine-month period ended September 30, 2007 and the year 2006, PDVSA purchased upgraded
crude oil from Petrozuata, for $126 million and $405 million, respectively, included in purchases of crude
oil and products in the consolidated statements of income. In addition, Petrozuata reimbursed PDVSA
Petróleo for operating expenses of $24 million and $14 million, corresponding to the nine-month period
ended September 30, 2007 and the year 2006, respectively (see notes 9-a and 14).
As of December 31, 2007 the balance of production tax payable is disclosed net of $500 million
corresponding to a payment made to the Bolivarian Republic of Venezuela for production tax advances
(see note 23).
In 2007 and 2006, payments made by PDVSA to its directors, for salaries and social security payments
amounted to approximately $2.53 million and $2.90 million, respectively.
In addition to salaries and social security payments, the Company also grants non-monetary benefits to its
directors and makes contributions for contractual benefits and postretirement benefits. According to the
terms of the collective agreement of PDVSA, directors have the same rights as the rest of the staff
regarding eligibility conditions to opt for the retirement plan and other postretirement benefits other than
those of the retirement plan.
Certain directors of the Company hold key positions in other related entities, and some of their powers
include influencing the operating and financial policies of such companies.
The operations with related entities as of December 31, 2007 and 2006, do not necessarily indicate the
results that would have been obtained if such transactions had been carried out with third parties.
90
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
In support of social projects carried out by the National Government (see note 1), PDVSA incurred the
following expenses in 2007 and 2006 (in millions of dollars):
Years ended
December 31,
2007
2006
Expenses for social development incurred through trust funds
in BANDES and other government financial institutions
(see notes 15 and 16):
Programs and Projects for Housing Development and
Infraestructure
FONDESPA (see note 16)
Sustainable Development of the Country's Eastern and
Western Regions
Sowing and production 2005
Integral Cooperation Agreement Bolivia - Venezuela
Integral Cooperation Agreement Argentina - Venezuela
Integral Cooperation Agreement Uruguay - Venezuela
Alba Caribe fund
Hydraulic Works
Plan Vialidad 2006
Expenses incurred for missions, contributions to communities and other:
Ribas Mission
Vuelvan Caras Mission
Barrio Adentro I, II and III Mission
Sucre Mission
Mercal Mission
Árbol Mission
Música Mission
Ciencia Mission
Vivienda Mission
Energy Efficiency System
Support to missions and communities
Other
Contributions to FONDEN (see note 4)
91
558
195
447
939
837
66
172
72
62
169
102
697
5
185
150
50
67
181
2,131
2,823
133
40
3,091
13
904
24
43
939
23
280
234
1,471
279
230
458
178
920
55
5,210
4,105
6,761
6,856
14,102
13,784
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
The contributions of PDVSA to trust funds, except for those corresponding to FONDESPA, are recorded
directly as social development expenses, at the time the disbursements are made, thus the administrative
responsibility lies with the trustee and beneficiaries of the funds. Contributions to FONDESPA are
recorded as restricted cash, long-term accounts receivable from FONDESPA project executing entitites
(see notes 15 and 16) or as expenses for development in accordance with the conditions set forth in the
respective agreements.
Part of the products received for social projects are paid for for offsetting accounts receivable from the sale
of crude oil under the Energy Cooperation Agreement of Caracas (see note la 9-d).
Notes and accounts receivable from related parties comprise the following (in millions of dollars):
December 31,
2007
2006
CADAFE
Hovensa
Nynäs
Enelven
Mt. Vernon
National Armed Forces
Pequiven
PDV Cupet
Civil Association "Administradora de los Fondos de Pensiones
de los Jubilados de Petróleos de Venezuela, S.A."
Accounts receivable employees
Other
1,090
780
105
140
53
20
164
72
15
563
115
93
51
43
53
-
7
154
239
5
126
68
2,824
1,132
In 2007, accounts receivable from CADAFE include, mainly, light-diesel supply transactions undertaken
by PDVSA Petróleo, which do not bear interest and have no stipuled maturities, and may be offset against
the energy supply service provided by CADAFE. In this connection, in 2007 and 2006, PDVSA Petróleo
offset accounts receivable from CADAFE of $25 million and $29 million, respectively. As of December
31, 2006, a portion of accounts receivable from CADAFE of $503 million was classified as non-current.
Long-term accounts receivable as of December 31, 2007 and 2006, include accounts receivable from
employees of $226 million and $160 million, respectively, corresponding to loans on contractual benefits.
Furthermore, at December 31, 2006, the balances with Petrozuata include $41 million, corresponding to
debts for cash advances.
92
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
At the extraordinary Stockholder’s meeting of PDVSA held on January 20, 2006, it was approved to
transfer, for no consideration, all of the shares of Pequiven to the Bolivarian Republic of Venezuela, in
order to comply with the provisions of the Law Fostering Development of Petrochemical, Carbochemical
and Similar Activities, enacted in December 2005. To meet the guidelines established by the Ministry of
Popular Power for Energy and Oil and strategic plans of PDVSA, the Company will continue temporarily
to support financially the actvities of Pequiven. This support includes loans for working capital to carry
out the investment plan for 2006, discounts on methane gas prices and financing of accounts receivable up
to 180 days. In 2007 and 2006, PDVSA supplied Pequiven funds of $15 and $88 million, respectively, to
be used as working capital, which is included under long-term accounts receivable.
As of December 31, 2007 and 2006 PDVSA, through its subsidiary BITOR, has supplied SINOVENSA
(affiliate of BITOR) funds of $88 million and $121 million, respectively, for construction and operation of
a production and emulsification module for extra-heavy crude oil to produce Orimulsión® (MPE-3),
included in long-term accounts receivable (see note 9-a).
As of December 31, 2007 and 2006, certain assets with a net carrying amount of $82 million and $87
million, respectively, have been identified, which correspond to buildings owned by PDVSA used by
entities attached to governmental organizations. In 2004, usage agreements were signed for some of these
buildings. The agreements in relation to the conditions for their use and the possible transfer of such assets
are in the process to being determined and legally formalized. Maintenance and other expenses for these
facilities are assumed by PDVSA, which does not receive any consideration for the use of these assets. As
of December 31, 2007 and 2006, the value of such asset is presented under other asset (see note 15).
93
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(29) Production, Refining and Exports Activities
A summary of operating data, relating to production, refining and export of crude oil based on sub-ledgers
of the Company and production reports prepared by the Ministry of Popular Power for Energy and Oil is
presented below (expressed in MBPD):
Years ended
December 31,
2007
2006
Own crude-oil production (1)
Operating agreements (2)
Empresas mixtas (2)
Risk exploration agreements
PDVSA's participation in the Orinoco Oil Belt
Associations (3) (see notes 9-a and 33-a):
PDVSA Sincor
PDVSA Cerro Negro
Corpoguanipa
Petrozuata
Extra-heavy crude oil (less than 8 degrees API)
Total production of PDVSA
Production of the nation
(4)
Refining capacity (unaudited information):
Domestic sector (5)
Foreign sector (6)
Total refining capacity
Volume of crude oil processed in refineries:
Domestic sector
Foreign sector (unaudited information) (7)
Total volume of crude oil processed in refineries
Own exports:
Crude oil
Products
Total exports of PDVSA
Exports of the nation
(8 and 9)
94
2,292
316
-
2,315
116
241
1
62
61
81
63
65
48
47
59
267
29
219
15
2,904
2,907
3,150
3,250
1,303
1,795
1,303
1,795
3,098
3,098
1,004
1,517
1,022
1,625
2,521
2,647
1,874
622
1,917
698
2,496
2,615
2,789
2,975
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(1)
Includes condensed crude oil of 7 MBPD in 2007 and 5 MBPD in 2006.
(2)
Operating Agreements were effective until March 31, 2006 and, after that date, the activities were migrated to “Empresas
Mixtas” (see note 9-b).
(3)
As a result of the migration process of Joint Ventures of the Orinoco Oil Belt to “Empresas Mixtas”, beginning in July
2007, the interest of PDVSA Cerro Negro went from 41.67% to 83.33%; the interest of Corpoguanipa went from 30% to
70% and the share of PDVSA in Petrozuata became 100% since October 2007 (see note 9-a). The financial statements of
companies involved in the Joint Ventures of the Oil Belt were audited by independent public accountants other than those
of PDVSA.
(4)
Includes 246 MBPD in 2007 and 343 MBPD in 2006, corresponding to third parties interest in the Orinoco Oil Belt
Associations. The financial statements of the Orinoco Oil Belt Associations were audited by independent public
accountants other than those of PDVSA.
(5)
Includes refineries of the domestic sector: Centro de Refinación Paraguaná – CRP (Amuay, Cardón and Bajo Grande), El
Palito, Puerto la Cruz and San Roque.
(6)
Includes the portion corresponding to PDVSA of foreign-sector refineries (Refinería Isla, Nynas, Ruhr Oel, Hovensa, Lake
Charles, Lemont, Corpus Christi, Chalmette).
(7)
PDVSA’s interest in the refineries of processed crude oil includes the total Venezuelan crude oil processed in the following
refineries: (Isla, Nynas, Ruhr Oel, Hovensa, Lake Charles, Lemont, Corpus Christi, Chalmette). Crude oil processed by
Refinería Isla amounted to 209 MBPD in 2007 and 205 MBPD in 2006.
(8)
Includes 293 MBPD in 2007 and 360 MBPD in 2006 corresponding to the interest of third parties in the Orinoco Oil Belt
joint ventures.
(9)
Includes sales of 25 MBPD to Petroecuador, which are included in the consolidated financial statements, offset with
purchases under the existing energy agreement between PDVSA and Petroecuador.
95
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(30) Financial Information for Domestic and Foreign Sectors
A consolidated summary of financial information of PDVSA, according to sectors and activities is presented below, to comply with
Article 20 of the Organic Hydrocarbons Law (in millions of dollars):
Domestic Sector
Eliminations,
adjustments and
reclassifications (1)
2007
2006
Exploration and
production
2007
2006
2007
2006
33,503
1,639
5,296
3,498
917
26,990
314
1,389
3,081
2,701
1,045
6,977
100
235
371
-
4,566
89
90
1,675
-
7,046
2,215
2,612
548
520
819
5,921
150
1,624
2,045
759
785
47,526
2,315
4,486
6,215
4,018
1,736
37,477
553
3,103
6,801
3,460
1,830
4,910
2,269
653
7
5,026
2,363
314
98
(2,496)
857
(2,385)
(1,788)
-
(413)
340
(3,456)
-
52,436
2,088
5,343
4,483
2,230
1,743
42,503
2,503
3,443
3,659
3,460
1,928
Total not current assets
44,853
35,520
7,683
6,420
13,760
11,284
66,296
53,224
7,839
7,801
(5,812)
(3,529)
68,323
57,496
Inventories
Recoverable value-added tax
Notes and accounts receivable
Prepaid expenses and other assets
Restricted cash
Cash and cash equivalents
Assets held for sale
677
204
1,714
1,241
1,497
314
-
300
69
1,610
130
356
70
-
213
77
994
176
17
-
105
16
852
59
5
-
3,477
1,273
10,582
5,545
14
1,709
2,768
2,722
690
3,849
2,198
74
1,074
-
4,367
1,554
13,290
6,962
1,511
2,040
2,768
3,127
775
6,311
2,387
430
1,149
-
5,058
4
3,362
3,320
44
1,285
477
4,598
1
3,676
1,772
11
1,133
-
(955)
1,788
(4,965)
(2,561)
-
(722)
(441)
(1,174)
-
8,470
3,346
11,687
7,721
1,555
3,325
3,245
7,003
776
9,546
2,985
441
2,282
-
Assets:
Property, plant and equipment, net
Investment in non-consolidated investees
Deferred income tax
Long-term accounts receivable and other assets
Recoverable value-added tax, net of current portion
Restricted cash, net of current portion
Total current assets
Total assets
Stockholder's Equity
Liabilities:
Long-term debt, net of current portion
Employee benefits and other postretirement benefits,
net of current portion
Deferred income tax
Accrued and other liabilities, net of current portion
Gas
Refining, trade
supply and other
2007
2006
Total domestic
Sector
2007
2006
Foreign
Sector
2007
2006
Global
Consolidated
2007
2006
5,647
2,535
1,477
1,037
25,368
10,607
32,492
14,179
13,550
11,191
(6,693)
(2,337)
39,349
23,033
50,500
38,055
9,160
7,457
39,128
21,891
98,788
67,403
21,389
18,992
(12,505)
(5,866)
107,672
80,529
20,894
21,780
4,842
6,086
24,780
17,580
50,516
45,446
9,077
8,096
(3,531)
(439)
56,062
53,103
5,880
808
16
1,045
535
529
192
1,027
1,597
665
1
385
116
1
-
4,367
698
863
365
550
606
491
399
11,844
2,171
880
1,795
1,085
1,251
684
1,426
1,285
745
1,208
4,045
1,177
480
1,405
4,182
(408)
314
(2,745)
(3,419)
13,129
2,508
2,402
3,095
2,262
1,731
2,089
2,189
7,749
2,283
2,648
117
6,293
2,046
16,690
4,446
7,283
7,244
(2,839)
(3,419)
21,134
8,271
1,237
162
4,354
2,840
9,766
-
305
131
3,360
1,508
5,987
-
350
1
649
154
516
-
2
256
380
616
-
216
321
4,512
5,769
735
134
245
769
481
3,337
-
1,803
484
9,515
2,994
16,051
735
439
378
4,385
2,369
9,940
-
1,074
18
2,390
55
1,462
30
213
16
1,744
118
1,561
-
(12)
(6,255)
(1)
133
-
(20)
250
(2,238)
-
2,877
490
5,650
3,048
17,646
765
652
374
6,379
2,487
9,263
-
Total current liabilities
18,359
11,291
1,670
1,254
11,553
4,966
31,582
17,511
5,029
3,652
(6,135)
(2,008)
30,476
19,155
Total liabilities
26,108
13,574
4,318
1,371
17,846
7,012
48,272
21,957
12,312
10,896
(8,974)
(5,427)
51,610
27,426
Total liabilities and stockholder's equity
47,002
35,354
9,160
7,457
42,626
24,592
98,788
67,403
21,389
18,992
(12,505)
(5,866)
107,672
80,529
Total non-current liabilities
Current portion of long-term debt
Employee benefits and other postretirement benefits
Accounts payable to suppliers
Income tax payable
Accruals and other liabilities
Liabilities held for sale
(1) Represents write offs, adjustments and reclassifications between domestic and foreign sectors for the consolidated financial statements
96
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Exploration and
production
2007
2006
Continuing operations Sale of crude oil and its products:
Exports to international markets
In Venezuela
Other sales
Cost and expenses:
Purchase of crude oil and products
Operating expenses
Exploration expenses
Depreciation and amortization
Selling, administrative and general expenses
Production, extraction tax and other taxes
Financing expenses
Other (income) expenses, net
Domestic Sector
Refining, trade
Gas
supply and other
2006
2007
2006
2007
Eliminations (1)
2007
2006
Total Domestic
Sector
2007
2006
2007
2006
Eliminations,
adjustments and
reclassifications (2)
2007
2006
Global
Consolidated
2007
2006
Foreign
Sector
41,163
10,173
-
34,924
8,699
-
1,497
3,235
-
1,340
2,461
-
21,212
10,189
25
18,097
7,348
308
(2,141)
(21,276)
(25)
(1,574)
(16,275)
(54)
61,731
2,321
-
52,787
2,233
254
50,238
5,650
-
59,107
5,879
-
(18,149)
(5,614)
65
(15,130)
(5,879)
1
93,820
2,357
65
96,764
2,233
255
51,336
43,623
4,732
3,801
31,426
25,753
(23,442)
(17,903)
64,052
55,274
55,888
64,986
(23,698)
(21,008)
96,242
99,252
6,798
4,822
154
2,446
723
21,248
402
3,012
5,656
5,161
100
2,269
924
18,051
289
2,335
538
948
219
179
511
1
1,227
21,042
1,784
759
862
222
47
(3,917)
15,086
2,233
759
643
98
15
(2,397)
(21,276)
-
(16,274)
-
7,102
7,554
154
3,424
1,764
21,981
450
322
5,002
8,093
100
3,189
1,687
18,435
304
(90)
44,640
7,013
515
584
134
484
53,670
6,724
465
503
116
474
(23,605)
391
79
354
(1,016)
(19,894)
(38)
(14)
(6)
(153)
(10)
28,137
14,958
154
4,018
2,702
21,981
584
(210)
38,778
14,779
100
3,640
2,184
18,435
267
374
534
699
161
120
286
(28)
39,605
34,785
3,623
1,772
20,799
16,437
(21,276)
(16,274)
42,751
36,720
53,370
61,952
(23,797)
(20,115)
72,324
78,557
Equity in earning of non-consolidated
investees
Net income from investment in non-consolidated
-
-
33
-
-
61
-
202
-
-
-
94
-
202
-
630
-
870
1,432
9
641
48
-
733
641
1,120
1,432
Income before social development
expenses and income tax
11,731
8,838
1,142
2,029
10,688
9,518
(2,166)
(1,629)
21,395
18,756
3,148
5,336
749
(845)
25,292
23,247
4,803
5,396
125
87
9,171
8,298
-
-
14,099
13,781
3
3
-
14,102
13,784
Social development expenses
Income before
income tax
Income tax
Net income from continuing operations
Discontinued operation - income, net of tax
Net income
-
6,928
3,442
1,017
1,942
1,517
1,220
(2,166)
(1,629)
7,296
4,975
3,145
5,333
749
(845)
11,190
9,463
2,600
1,525
402
644
1,105
823
-
-
4,107
2,992
1,403
1,661
(493)
(622)
5,017
4,031
4,328
1,917
615
1,298
412
397
(2,166)
(1,629)
3,189
1,983
1,742
3,672
1,242
(223)
6,173
5,432
-
-
-
-
71
-
-
-
71
-
29
-
-
4,328
1,917
615
1,298
483
397
(2,166)
(1,629)
3,260
1,983
1,771
3,672
1,242
20
(203)
100
20
6,273
5,452
(1) Represents write offs of sales, purchases and cost of activities.
(2) Represents write offs, adjustments and reclassifications between domestic and foreign sectors for the consolidated financial statements
(Continued)
97
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(31) Legal Contributions
(a)
Organic Law for Science, Technology and Innovation
In August 2005, the Organic Law on Science, Technology and Innovation was enacted. Under this
law, beginning on January 1, 2006, large corporations of the country must pay on an annual basis a
sum equivalent to 0.5% of the gross income obtained within the national territory on any investment
activities relating to science, technology and innovation. According to the law, large companies are
those with gross annual income greater than 100,000 tax units (TU). Also, this law establishes large
corporations carrying out activities established in the Organic Hydrocarbons Law and Hydrocarbon
Gas Law must pay on an annual basis a sum equivalent to 2% of the gross income obtained in
national territory from investment activities for science, technology and innovation. For the year
ended December 31, 2007 and 2006, the Company applied the principle of economic unit and
determined a payment of $1,287 million and $1,077 million, respectively, on a consolidated basis
with its subsidiaries domiciled in Venezuela, which was offset with disbursements relating to
investment activities for science, technology and innovation during those years.
(b)
Organic Law against Illegal Trafficking and Consumption of Stupefacient and Psychotropic
Substances
On December 16, 2005, Official Gazette 38,287 was published containing the Organic Law against
Illegal Trafficking and Consumption of Stupefacient and Psychotropic Substances, which supersedes
the previous law dated September 30, 1993. The aforementioned Law establishes that all legal
entities, private or public, with fifty or more employees must use 1% of the annual net income for
integral social prevention programs against trafficking and consumption of illegal drugs, and from
this percentage, 0.5% will be used for integral protection programs for children and adolescents.
During the years ended December 31, respectively, 2007 and 2006, the Company recorded expenses
of approximately $19 million and $33 million in this connection, respectively, under other (income)
expenses net in the consolidated statements of income.
(32) New Laws
(a)
Financial Transactions Tax Law
On October 5, 2007, National Government issued Decree Law on Financial Transaction Tax of
Legal Entities and Economic Entities without Legal Personality. This law establishes that legal
entities and economic entities without legal personality must pay a sum equivalent to 1.5% of the
amount of financial transactions undertaken. This law is effective from November 1, 2007 to
December 31, 2008.
98
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
(b)
Organic Law on Reorganization of the Electricity Sector
Official Gazette 38,736, dated July 31, 2007, was published a Decree Law for Reorganization of the
Electricity Sector, which creates company Corporación Eléctrica Nacional, S.A. attached to the
Ministry of Popular Power for Energy and Oil, the purpose of which is the generation, transmission,
distribution and marketing of power and electricity. Its capital stock will be subscribed in 75% by
the Republic, through the Ministry of Popular Power for Energy and Oil, and 25% by PDVSA. This
Law orders the Republic, Corporación Venezolana de Guayana (CVG) and PDVSA, to transfer the
shares they own in public electricity companies to Corporación Eléctrica Nacional, S.A. (see note
10).
(c)
Enabling Law
On February 1, 2007, the National Assembly approved the Law Authorizing the President of the
Republic to Enact Decree Laws for a series of matters for a term of 18 months after its publication.
In accordance with this law, the eleven areas approved are related to the transformation of
government institutions, popular participation, economic, financial, tax and energy matters.
(d)
Monetary Conversion Law
On March 6, 2007, National Government enacted a Decree Law for Monetary Conversion, which
establishes beginning on January 1, 2008 that the unit for the monetary system of the Bolivarian
Republic of Venezuela is stated in the equivalent of one thousand current bolivars. Consequently,
existing bolivars as of that date will be converted into the new monetary unit by dividing them by
one thousand and rounding them off to the nearest cent.
On June 21, 2007, the Board of Directors of BCV issued Resolution 07-06-02, publishing “Standards
Governing Monetary Conversion and Rounding”. Article 6 of this Resolution establishes that the
preparation and presentation of financial statements corresponding to years ended before January 1,
2008, approved after that date must be prepared in current bolivars in accordance with generally
accepted accounting principles. For the purpose of comparison with previous years, the accounting
balances of such financial statements will be converted in accordance with the provisions of article 1
of the Decree Law on Monetary Conversion.
PDVSA, in compliance with the aforementioned law, has applied technological and administrativefinancial means to ensure compliance therewith, and Company management estimates that the
process and costs involved in adjusting to this Law will not significantly affect the consolidated
financial statements as of December 31, 2007.
(33) Subsequent Events
(a)
“Empresas Mixtas”
On January 31, 2008, CVP and Veba Oil & Gas Cerro Negro GmbH (subsidiary of British
Petroleum), entered into the Agreement for Conversion into “Empresas Mixtas” of Petromonagas,
S.A. In March 2008, transfer decrees were published in Official Gazette 38,884 for Petrolera Guiria,
S.A. and Petromonagas, S.A.
99
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
In January 2008, Official Gazettes 38,846 and 38,847 were published including transfer decrees for
Petropiar, S.A. and Petrocedeño, S.A., respectively; in Official Gazette 38,851 for Petrosucre, S.A.
and Petrolera Paria, S.A. and in Official Gazette 38,852 for Petrolera Sinovensa, S.A. (see note 9-a).
(b)
Renewal of BNP Paribas Credit Line
On January 25, 2008, a credit facility of $1,124 million, originally undertaken in 2007, was renewed
with a group of banks led by BNP Paribas, due on January 30, 2008. This loan was extended for an
additional year and bears interest at LIBOR rate plus 150 basis points (see note 21).
(c)
New PDVSA Subsidiaries
Based on MENPET guidelines and PDVSA’s strategic plans, in February 2008, the Board of
Directors of PDVSA approved the incorporation of the following subsidiaries:
ƒ
PDVSA Desarrollos Urbanos, S.A.
ƒ
PDVSA Ingeniería y Construcción, S.A.
ƒ
PDVSA Naval, S.A.
ƒ
Productora y Distribuidora Venezolana de Alimentos, S.A. (PDVAL)
These subsidiaries were created for the sole purpose of performing development activities and work
for social infrastructure, engineering services and construction of major projects, construction, repair
and maintenance of vessels, production, supply and marketing of food, exploration and production,
refining, trade and supply, directly or indirectly related with hydrocarbons, as well as to perform
social, cultural, technological and educational programs.
(d)
Settlement agreement with ENI for Campo Dación
In February 2008, PDVSA entered into a settlement agreement with the Italian company ENI, which
enabled the former to takeover 100% control of the related “Empresas Mixtas” in the operating
agreement of Campo Dación, located in Anzoátegui State. The final consideration was $700 million
to be paid in seven years and secured by the cash flows of Petrosucre, S.A. an “Empresas Mixtas” in
which ENI is a minority stockholder (see note 9-b).
(e)
Arbitration before the International Chamber of Commerce (ICC)
Mobil Cerro Negro, Ltd. filed a request to freeze assets and deliver information at a global level.
This request was approved by the Supreme Court of England and Wales on January 24, 2008. This
order prohibits PDVSA from freely disposing of its assets in England and Wales and compels it to
keep, at a global level, unencumbered assets of no less than $12,000 million. This order establishes
that PDVSA is not restricted from disposing of any of its assets in the proper course of business.
PDVSA defended its position on February 14, 2008. On March 18, 2008, the Supreme Court of
England and Wales made a pronouncement in favor of PDVSA, rejecting the aforementioned order.
100
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
On January 25, 2008, Mobil Cerro Negro Ltd. (subsidiary of ExxonMobil) filed an arbitration
request before the International Arbitration Court of the International Chamber of Commerce in New
York against PDVSA and PDVSA Cerro Negro, indicating default on the contractual obligations
undertaken under the Joint Venture Proyecto Cerro Negro by PDVSA Cerro Negro, as well as
default on the terms of collateral by PDVSA.
On March 5, 2008, OPEC issued a resolution stating its support for the Bolivarian Republic of
Venezuela and PDVSA, in exercising its sovereign right over its natural resources in accordance
with international laws, a right upheld by the Declaration of the Summit of Heads of States and the
Governments of Argel, Caracas and Riyadh.
PDVSA believes that resolution of this dispute will not have a significant effect on its operations and
financial position.
(f)
Recently Issued Accounting Standard and Pronouncements
In January 2008, the IASB issued International Financial Reporting Standard 3 revised, Business
Combinations (IFRS 3). In addition, the IASB amended International Accounting Standard 27 (IAS
27), Consolidated and Separate Financial Statements. These standards will be effective for fiscal
years beginning on or after July 1, 2009. These standards are being evaluated by the Company’s
management.
(34) Supplementary Information on Oil and Gas Exploration and Production Activities (unaudited)
The following tables provide supplementary information on the oil and gas exploration, development and
production activities. All exploration and production activities are located in Venezuela, principally
represented by PDVSA Petróleo, CVP and PDVSA Gas.
Table I - Crude Oil and Natural Gas Reserves
All the crude oil and natural gas reserves located in Venezuela are owned by the Bolivarian Republic of
Venezuela. Crude oil and natural gas reserves are estimated by PDVSA and reviewed by the Ministry of
Popular Power for Energy and Oil, using reserve criteria which are consistent with those prescribed by the
American Petroleum Institute (API) of the United States of America.
Proved reserves are the estimated quantities of crude oil and natural gas which, with reasonable certainty,
are recoverable in future years from known deposits under existing economic and operating conditions.
Due to the inherent uncertainties and limited nature of the data relating to deposits, estimates of
underground reserves are subject to change over time, as additional information becomes available.
Proved reserves do not include additional quantities which may result from the extension of currently
explored areas, or from the application of secondary recovery processes not yet tested and determined to be
economically feasible.
Proved developed reserves are the quantities that can be expected to be recovered from existing wells with
existing equipment and operating methods. Proved undeveloped reserves are those volumes which are
expected to be recovered from new wells on undrilled acreage, or from existing wells.
101
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Proved crude oil reserves have been separated between conventional crude oils, consisting of light,
medium and heavy grade crude oils, and extra-heavy crude oil.
A summary of the annual changes in the proved reserves of crude oil and natural gas follows:
(a)
Conventional and Extra-Heavy Crude Oil Reserves (in millions of barrels)
Years ended
December 31,
2007
2006
Proved developed and undeveloped reserves of conventional
crude oil as of January 1
Revisions
Extensions and new discoveries
Production
41,341
228
520
(885)
41,572
571
117
(919)
Proved developed and undeveloped reserves of conventional
crude oil as of December 31
41,204
41,341
Proved developed and undeveloped reserves of extra-heavy
crude oil as of December 31
58,173
45,983
Total proved developed and undeveloped
reserves as of December 31
99,377
87,324
Total proved developed reserves, submitted to
production, including extra-heavy crude oil as
of December 31 (included in the previous total)
15,537
19,620
In the quarter ended March 31, 2006, the date for migration to “Empresas Mixtas” (see note 9-b) the
production subject to tax, under Operating Agreements was 42 million barrels. From April 1, to
December 31, 2006, the production of crude oil subject to tax for the “Empresas Mixtas” of crude oil
was 88 million barrels. As a result of such migration, proved reserves of crude oil transferred was
750 million barrels. As of December 31, 2007 and 2006, the certified reserves assigned to
“Empresas Mixtas” amounted to 5,609 million and 4,534 million barrels, respectively. Production
for the year ended December 31, 2007 reached 115 million barrels.
(b)
Extra-Heavy crude oil (in millions of barrels)
Venezuela has significant reserves of extra-heavy crude (less than 8 degrees API), which are being
developed in conjunction with several foreign companies, through operating agreements which apply
new technologies for refining and improvement of the crude oil aimed at the economic viability of
production (see note 9-a).
102
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
In 2007 and 2006, changes in proved developed and undeveloped extra-heavy crude oil reserves
related to these projects and total proved developed and undeveloped extra-heavy crude oil reserves
at those dates, reflecting the full amount of the reserves, are summarized below (in millions of
barrels):
Years ended December 31,
2007
2006
Total
Total
including
including
Projects
projects
Projects
projects
Proved developed and undeveloped
reserves of extra-heavy crude oil
as of January 1
Revisions
Transfers (2)
Development and new discoveries
Production
12,670
(2,395)
(190)
45,983
12,450
(260)
12,875
(205)
38,440
7,815
1
(273)
Proved developed and undeveloped
reserves of extra-heavy crude oil
as of December 31
10,085
58,173
12,670
45,983
1,608
4,355
2,128
6,300
Proved developed reserves
of extra-heavy crude oil as of
December 31
Proved developed and undeveloped
reserves of extra-heavy crude oil
in unincorporated joint ventures as of
December 31
10,085
10,236
Proved developed and undeveloped
reserves of extra-heavy crude oil
in equity interest as of December 31 (1)
-
2,434
10,085
12,670
(1)
Represents the equity interest of PDVSA in Petrozuata (see note 9-a).
(2)
Beginning on October 1, 2007, proved reserves allocated to Petrozuata were transferred to own operations.
PDVSA produced 25 million and 29 million barrels of extra heavy crude oil, of which 11 million and
5 million barrels were used for production of Orimulsión® in 2007 and 2006, respectively
(see note 9-a).
According to official letter N° 1,036 dated June 2005, the Ministry of Popular Power for Energy and
Oil allocated Proyecto Magna Reserva to CVP to quantify and certify the reserves of the Orinoco Oil
Belt. The strategic guidelines are aimed at converting such belt into a generator of economic, social,
industrial, technological and sustainable development of the country, through valuation and optimal
development of its hydrocarbon resources with the current legal framework and the development
plan of the nation.
103
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
To quantify and certify the reserves, the Orinoco Oil Belt was divided into 4 large areas: Boyacá,
Junín, Ayacucho and Carabobo and, these were in turn divided into 28 blocks (excluding the area of
the Association Agreements and BITOR-Sinoven, S. A.), of which 16 blocks will be quantified in a
joint effort between CVP and the professionals of 18 companies of countries signing Memoranda of
Understanding Agreements with the National Government.
Based on the technical and informational support provided by Petróleos Brasileiros (PETROBRAS)
and PDVSA, the Ryder Scott Company, in November 2006 certified the Original Oil on Site (POES)
of the block Carabobo 1 with 45,500 million barrels. The Ministry of Popular Power for Energy and
Oil, taking into account preexisting official figures in this block determined that the final figure to be
recorded is 7,800 million barrels of proved reserved as a revisions to proved developed and
undeveloped reserves of extra-heavy crude oil and 37,000 million barrels for POES.
Also, in May 2007 the Ryder Scot Company certified the POES of Carabobo block 2, 3 and 4 of
84,069 million barrels. The Ministry of Popular Power for Energy and Oil, taking into account the
preexisting official figures in such blocks, determined that the final figures to be incorporated are
12,450 million barrels of oil and 2,530 billion cubic feet of proved gas reserves as revised amounts
of developed and undeveloped proved reserves of extra heavy crude oil and natural gas, respectively,
and established as official 87,049 million barrels for POES and 7,212 billion cubic feet for GOES
(see note 9-a).
(c)
Natural Gas Reserves (billions of cubic feet)
Years ended
December 31,
2007
2006
Proved developed and undeveloped reserves of
natural gas as of January 1
Revisions
Extensions and new discoveries
Production
149,802
1,824
1,800
(1,405)
138,445
12,349
399
(1,391)
Prove developed and undeveloped reserves of
natural gas as of December 31
152,021
149,802
18,899
16,447
Total proved developed and undeveloped reserves
of natural gas as of
December 31
170,920
166,249
Total proved developed reserves of natural gas
submitted to production,
including those relating to extra-heavy
crude oil as of December 31
(included in the previous total)
105,154
110,108
Proved developed reserves of natural gas relating to
extra-heavy crude oil as of December 31
104
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Proved natural gas reserves include the portion of liquefiable natural hydrocarbons recoverable in
PDVSA’s processing plants. In 2007 and 2006, liquids natural gas recovered amounted to
approximately 63 million and 65 million equivalent barrels, respectively.
Production of natural gas is presented on the basis of actual volumes before the extraction of
liquefiable hydrocarbons. In 2007 and 2006, natural gas utilized in reinjection operations amounted
to approximately 1,060 billion and 1,102 billion cubic feet, respectively.
At the Mariscal Sucre Project large accumulations of offshore natural gas were discovered in the
north of the Paria Peninsula, Northeast of Venezuela. This project is divided into 4 fields: Dragón,
Mejillones, Patao and Río Caribe northeast, which encompass a total area of 2,084 square
kilometers. Recent studies correspond to reevaluation in the Carupano Basin by PDVSA and the
involvement of Mitsubishi and Shell International Exploration and Production, which allow for
incorporation of significant volumes of proved reserves as well as possible and probable reserves.
On October 23, 2006, the Ministry of Popular Power for Energy and Oil approved the incorporation
of proved natural gas reserves in the reservoirs of these 4 fields of 10,963 billion cubic feet.
In 2007, the Ministry of Popular Power for Energy and Oil, officialized 3,624 billion cubic feet of
associated and unassociated gas reserves, the most notable incorporation being 1,278 billion cubic
feet, generated from the revision of proved natural gas reserves in the reservoirs of Campo Lorán,
corresponding to the Unassociated Hydrocarbon Gas Exploration License in Block 2 of the Deltana
Platform.
Table II – Costs Incurred in Exploration and Development Activities
Exploration costs include the costs of geological and geophysical activities and drilling and equipping
exploratory wells. Development costs include those of drilling and equipping development wells,
enhanced recovery projects and facilities to extract, treat and store crude oil and natural gas. Annual costs,
summarized below, include amounts both expensed and capitalized for PDVSA’s conventional and extraheavy crude oil reserves (in millions of dollars):
Conventional
crude oil
Exploration costs
Development costs
Equity
interest (1)
2007
Extra heavy
crude oil
Conventional
crude oil
Total
2006
Extra heavy
crude oil
Total
154
10,098
979 (2)
154
11,077
100
5,199
211 (2)
100
5,410
10,252
979
11,231
5,299
211
5,510
-
10
10
-
64
64
10,252
989
11,241
5,299
275
5,574
(1)
Represents PDVSA’s equity interest in Petrozuata for the nine month period ended September 30, 2007 and for the year ended December 31, 2006,
respectively (see note 9-a).
(2)
Represents PDVSA’s proportional interest in unincorporated joint ventures.
105
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Table III –Costs Recorded as Assets in Oil and Gas Producing Activities
The following table summarizes costs recorded as assets in oil and gas producing activities and the related
accumulated depreciation and depletion at December 31, for PDVSA’s conventional and extra-heavy crude
oil reserves (in millions of dollars):
Assets used in
(1)
production
Support facilities
Accumulated depreciation and
amortization
Construction in progress
Net capitalized cost
(2)
Equity interest
Total
Conventional
crude oil
2007
Extra heavy
crude oil
Conventional
crude oil
2006
Extra heavy
crude oil
39,725
17,710
3,386
6,340
43,111
24,050
37,107
17,263
1,445
2,570
38,552
19,833
57,435
9,726
67,161
54,370
4,015
58,385
(36,804)
12,702
(3,084)
505
(39,888)
13,207
(34,094)
8,205
(1,122)
181
(35,216)
8,386
33,333
-
7,147
1,016
40,480
1,016
28,481
-
3,074
1,378
31,555
1,378
33,333
8,163
41,496
28,481
4,452
32,933
Total
Total
(1)
Includes land of $137 million as of December 31, 2007 and 2006, respectively.
(2)
Represents PDVSA’s equity interest in Petrozuata for the nine-month period ended September 30, 2007 and for the year ended December 31, 2006,
respectively (see note 9-a).
106
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Table IV – Results of Operations for Oil and Gas Producing Activities for Each Year (in millions of
dollars):
Years ended December 31,
Net production income
Sales
Transfers
Production costs
Producction tax
Depreciation and amortization
Exploration cost
Income before
income
tax
Income tax
Results of
production
operations
Equity interest
(1)
(1)
Conventional
crude oil
2007
Extra heavy
crude oil
Conventional
crude oil
2006
Extra heavy
crude oil
53,236
11,311
(6,052)
(18,258)
(2,172)
(154)
5,343
(419)
(1,614)
(493)
-
58,579
11,311
(6,471)
(19,872)
(2,665)
(154)
45,417
12,446
(6,033)
(16,470)
(2,174)
(100)
2,886
(430)
(684)
(256)
-
48,303
12,446
(6,463)
(17,154)
(2,430)
(100)
37,911
2,817
40,728
33,086
1,516
34,602
(18,842)
(1,477)
(20,319)
(16,327)
(586)
(16,913)
19,069
1,340
20,409
16,759
930
17,689
Total
Total
-
73
73
-
340
340
19,069
1,413
20,482
16,759
1,270
18,029
Represents PDVSA’s equity interest in Petrozuata for the nine-month period ended September 30, 2007 and for the year ended December 31, 2006,
respectively (see note 9-a).
Revenues from crude oil production are calculated using market prices as if all production were sold.
The difference between the results before income taxes referred to above and the operating income
reported for the upstream segment (see note 8) for 2007 and 2006 is mainly due to: 1) the use of production
at market value versus sales to third parties and between-segment; of approximately $4,392 million and
$4,054 million, respectively; 2) the inclusion in the business segment of general and other expenses of
approximately $1,315 million and $3,795 million, respectively.
Production costs are lifting costs incurred to operate and maintain productive wells and related equipment
and facilities, including such costs as operating labor, materials, supplies, fuel consumed in operations and
the costs of operating natural liquid gas plants. Production costs also include administrative expenses and
operating fees for certain fields operated by specialized companies under operating agreements.
In 2006 production costs include $1,657 million paid to independent contractors under service contracts,
relating to the production of 42 million barrels of crude oil.
The costs of extra-heavy crude production include the expenses incurred to operate and maintain the
productive wells, as well as transportation and handling expenses.
107
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Exploration costs include those related to the geological and geophysical activities and non-productive
exploratory wells.
Depreciation and depletion expenses relate to assets employed in exploration and production activities.
Income tax expense is calculated using the statutory rate for the year. For these purposes, results of
operations do not include borrowing expenses and corporate overhead no their associated tax effects.
The following table summarizes average per unit sales prices and production costs (in dollars):
Years ended
December 31,
2007
2006
Average sales price:
Crude oil per barrel
Liquid natural gas, per barrel
Natural gas, per barrel
62.68
22.13
7.04
55.21
17.96
6.53
Average production cost, per barrel of oil
equivalent
4.93
4.34
Average production cost, per barrel of oil
equivalent, excluding operating
agreements and "Empresas Mixtas"
4.88
4.01
Table V - Standardized Measure of Discounted Future Net Cash Flows Related to Proved Oil and Gas
Reserves
As a result of uncertainties surrounding the timing of the ultimate development of the country’s extraheavy crude oil reserves, only the conventional proved reserves and those reserves related to PDVSA’s
share in the extra-heavy crude oil projects have been used in the calculation of discounted future net cash
flows.
Estimated future cash inflows from production are computed by applying year-end prices for oil and gas to
year-end quantities of estimated proved reserves. Future income from extra-heavy crude oil production is
determined using prices and quantities of the upgraded crude that will be produced in the upgrading
facilities. Upgraded crude oil prices approximate those of conventional crude oil with similar
characteristics at year-end. Future development and production costs are those estimated future
expenditures necessary to develop and produce year-end estimated proved reserves, assuming continuation
of year-end economic conditions. Estimated future income tax expense is calculated by applying the
appropriate year-end statutory tax rates. These rates reflect allowable deductions and tax credits and are
applied to estimated future pre-tax net cash flows. This calculation requires a year-by-year estimate of
when future expenditures will be incurred and when the reserves will be produced.
108
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
The information provided below does not represent certified estimates of PDVSA’s expected future cash
flows or a precise value of its proved measured crude oil and gas reserves. Estimates of proved reserves
are imprecise and may change over time as new information becomes available. Furthermore, probable
and possible reserves, which may become proved in the future, are excluded from the calculation. The
valuation method requires assumptions as to the timing of future production from proved reserves and the
timing and amount of future development and production costs. The calculations are made as of December
31 of each year and should not be relied upon as an indication of PDVSA’s future cash flows or the value
of the oil and gas reserves (in millions of dollars):
Conventional
crude oil
2007
Extra
heavy
crude oil
Total
3,039,998
(228,199)
(841,522)
(119,143)
(855,253)
(3,854)
510,660
(13,600)
(85,127)
(47,057)
(118,905)
-
992,027
245,971
(667,695)
(128,709)
Future discounted cash
flows
324,332
Total
324,332
Future cash flows
Future production costs
Future royalties
Future develpment costs
Future income tax expense
Asset retirement cost
Future net cash flows
Effect of discounting net cash flows
at 10%
Equity interest
(1)
(1)
Conventional
crude oil
2006
Extra
heavy
crude oil
3,550,658
(241,799)
(926,649)
(166,200)
(974,158)
(3,854)
2,651,533
(125,758)
(747,972)
(77,340)
(800,842)
(3,269)
457,368
(35,506)
(76,243)
(40,929)
(98,526)
-
3,108,901
(161,264)
(824,215)
(118,269)
(899,368)
(3,269)
1,237,998
896,352
206,164
1,102,516
(796,404)
(680,295)
(168,439)
(848,734)
117,262
441,594
216,057
37,725
253,782
117,262
441,594
216,057
12,323
50,048
12,323
266,105
Total
Represents PDVSA’s equity interest in Petrozuata (see note 9-a).
109
(Continued)
PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)
(Wholly-owned by the Bolivarian Republic of Venezuela)
Notes to the Consolidated Financial Statements
December 31, 2007 and 2006
Table VI - Analysis of Changes in Standardized Measure of Discounted Future Net Cash flows Related
to Proved Crude Oil and Natural Gas Reserves
The following table analyzes the changes of December 31 of each year as (in millions of dollars):
Present value as of 1 January:
Sales, net of production costs and taxes
Value of additional reserves during the year,
due to extensions and discoveries
Changes in the value of reserves of the previous year
resulting from:
Development costs incurred in the year
Changes in future development costs
Net changes in production prices and
costs
Reviews of prior estimates of
reserves
Net changes in income tax
expenses
Net changes in production tax and other
Total changes in the year
Equity interest
(1)
Conventional
crude oil
2007
Extra
heavy
crude oil
(37,174)
(2,817)
5,130
-
Total
(39,991)
5,130
Conventional
crude oil
2006
Extra
heavy
crude oil
Total
(32,799)
(1,772)
(34,571)
747
-
747
(32,044)
(2,817)
(34,861)
(32,052)
(1,772)
(33,824)
10,098
16,968
979
4,780
11,077
21,748
3,131
(2,133)
211
(2,573)
3,342
(4,706)
340,781
31,185
371,966
193,990
14,422
208,412
15,246
-
15,246
17,168
-
17,168
(17,789)
(224,985)
909
44,501
(16,880)
(180,484)
(40,987)
(98,715)
804
6,488
(40,183)
(92,227)
108,275
79,537
187,812
40,402
17,580
57,982
(1)
-
-
-
-
7,074
7,074
108,275
79,537
187,812
40,402
24,654
65,056
Represents PDVSA’s equity interest in Petrozuata (see note 9-a).
In 2006, a 20-year business plan for the Company was used as basis to determine the changes and net
future discounted cash flows related to proved oil and gas reserves. In 2007, this plan was restructured in
accordance with the changes experience in the oil industry. Therefore, a new business plan was prepared
from 2008 to 2021. The effect of the decrease of years used for the preparation of such plan was not
significant when compared with the figures used in the 2006 plans due to the high prices of oil and
increased oil and gas reserves in 2007.
110