CITGO Petroleum `BBB' Senior Debt Affirmed By Fitch IBCA.

NEW YORK--(BUSINESS WIRE)--Nov. 15, 1999--

CITGO Petroleum Company's `BBB' rating on its outstanding senior debt and shelf registration are affirmed by Fitch IBCA.

CITGO's most distinguishing financial characteristic is its solid and stable cash generation relative to most of its independent oil marketing and refining peer companies. These cash flows arise from CITGO's steady volume growth and dependable gross margins achieved through provisions in its crude supply contracts with PDVSA. The company's products, marketed by independent wholesalers, enjoy strong market shares and consumer recognition. CITGO's two largest refineries are among the most complex in the U.S., giving its operational flexibility.

With relatively predictable cash flows, CITGO generates surplus cash except when it undertakes large investment projects, such as the refinery upgrading project in its partnership with Lyondell Petrochemical Company, completed in 1997. Because CITGO borrowed some of the funds for this investment, its credit protection measures were temporarily eroded. However, these have recovered: EBITDA interest cover was 5.17x for the twelve months ended June 30, 1999, up from the 1995 low of 4.3x. Similarly, debt/EBITDA declined to 2.80x at mid-year 1999, from its peak of 3.63x in 1996. In the absence of major projects in the near term, CITGO's credit protection measures and financial flexibility should continue to strengthen.

Looking ahead, CITGO aims to generate growth by increasing volumes, while improving its returns. This is a challenging task, given the relative maturity of US gasoline demand, a highly competitive gasoline marketing environment, and no marketing presence in the more profitable markets west of the Rockies. Further, changing regulatory mandates for gasoline specifications will require compliance spending to modify refineries, with no assurance that these investments will earn a return. Finally, as its volumes grow, CITGO needs to purchase a higher portion of its gasoline requirements from third parties at market prices under long term contracts. These contracts do not allow CITGO to earn the refining margins from upgrading crude oil.

Creditors benefit from a suite of covenants designed to preserve CITGO's operational and financial integrity. The most important restrict dividend payments and prohibit any changes to the supply contracts that would impair creditor protection. With these strong protections, which insulate CITGO's cash flows, Fitch considers the Venezuelan risk associated with PDVSA's ownership to be de minimis. However, CITGO still remains exposed to Venezuela's production cutbacks in the agreement with other OPEC members; PDVSA invoked force majeure provisions this year, forcing CITGO to pay more for crude supplies and exposing it to margin risk.

CITGO Petroleum, based in Tulsa, Okla., is a major US refining and marketing company, and operates primarily east of the Rocky Mountains. The company is a wholly owned subsidiary of PDV America, Inc., an indirect wholly owned subsidiary of Petroleos de Venezuela, S.A. (PDVSA), the national oil company of Venezuela. PDV America is PDVSA's holding company for its US assets and operations, which are primarily 100% of CITGO and 100% of PDV Midwest Refining Co. (PDVMR) a refining and marketing company which CITGO operates.