VENEZUELA - The US Operations.

USA is PDVSA M&M's main market, accounting for 60% of the country's oil exports. Until President Chavez was elected in Dec. 1998, as he had warned he may sell all or part of the overseas holdings, PDVSA M&M used to aggressively widen and consolidate its presence in the US market through PDVSA America and its operating arm GITGO. The Chavez government appointed a new leadership for PDVSA which ceased to expand in the US.

PDVSA M&M already had a strong position in this market, with five fully-owned refineries and four joint ventures. Two of the JVs are linked to upstream partnerships in Venezuela with Phillips and Mobil.

In late July 1996, a deal was reached with Mobil to take a 50% share in its 160,000 b/d refinery in Chalmette, Louisiana. Mobil is the operator in the strategic association (SA) for extra-heavy crude oil development in the Orinoco Belt called Cerro Negro, which began producing 60,000 b/d in November 1999. The crude, to be converted into 16[degree sign] API synthetic oil, is being processed at the Chalmette refinery. The refinery is to process 100,000 b/d of Cerro Negro oil by late 2000 or early 2001. PDVSA E&P is a partner of Mobil and Veba in the Cerro Negro SA (see GMT 24).

PDVSA in November 1998 took a 50% share from Phillips in the 58,000 b/d coker being built at the US company's 205,000 b/d refinery in Sweeny, Texas, under a deal signed in August 1997. The coker will be on stream in 2000. As part of the deal, worth $500m, PDVSA M&M was to supply 165,000 b/d of heavy crude to the refinery through a long-term contract and this should lower the feedstock cost at the refinery by $2/b. Building of the coker began in 1998. The coker was later included in Phillips' downstream merger with Ultramar Diamond Shamrock. Phillips, Texaco and PDVSA E&P are partners in the Hamaca project to develop extra heavy crude oil in the Hamaca region of Orinoco.

In February 1996, then PDVSA unit Maraven and Chevron agreed to form a 20-year partnership (with a 10-year extension option) to develop Venezuela's Boscan oilfield. This upstream venture now supplies heavy crude oil for Chevron's US operations. As part of the deal, PDVSA was to get a stake in a US West Coast asphalt business, Chevron Ven Asphalt Alliance. This was to supply crude feedstock to Chevron's refinery in Pascagoula (Mississippi) and asphalt plants at Perth Amboy (New Jersey), Portland (Oregon) and Richmond Beach (Washington). A memorandum of understanding was signed in November 1997 with Coastal under which PDVSA was to acquire a share in its 100,000 b/d Corpus Christi refinery in Texas. The MOU envisaged a PDVSA-Coastal SA to develop extra- heavy crude oil reserves in the Zuata region of the Orinoco belt. But that project was cancelled in 1998. In 1997 PDVSA was in talks with Clark on building a $400m coker at its 210,000 b/d Port Arthur refinery as a JV. PDVSA was interested in swapping its fully owned Lemont refinery for a share in the Port Arthur plant, but that fell through. PDVSA continues to sell to Clark crudes on term basis. Talks with Murphy in 1997 for a share in its 95,000 b/d plant at Meraux (Louisiana) and a smaller facility in Wisconsin fell through.

CITGO Petroleum Corp., based in Tulsa, Oklahoma., is a 100% owned operating arm of PDVSA America and is an integrated refiner, transporter and marketer of transportation fuels, lubricants, petrochemicals, refined waxes, asphalt and other industrial products. CITGO has a fully owned oil refining capacity of 752,000 b/d, over 15,000 retail outlets covering the whole of the US, and stakes in 518,000 b/d of refining ventures. With more than 15,000 retail stations, it is the third biggest downstream entity in the US next to ExxonMobil and the Shell-Texaco-Saudi Aramco alliances.

CITGO purchases a major part of Venezuela's crude oil exports. It has been supplied with Venezuelan crudes by a separate PDVSA subsidiary, Commercit, which from early 1998 became part of PDVSA M&M.

CITGO's fully-owned refineries are located at Lake Charles (Louisiana), Corpus Christi (Texas), Paulsboro (New Jersey), Savannah (Georgia), and Lemont (Illinois). The Lemont plant was the latest to become fully-owned by CITGO, under a $250m deal with Unocal in late 1996 to take over Unoven, a 50-50 partnership formed in February 1989. Its refineries have deep-conversion units. It has two asphalt refining units at the Paulsboro (New Jersey) and Savannah (Georgia) refineries and one lubricants plant at its Lake Charges refinery called Cit-Con.

The Lemont refinery, near Chicago, is to be sold. CITGO is negotiating the sale with Suncor, an integrated Canadian firm. The refinery produces over 80% high value clean products and has an upgrading facility suited for Venezuelan heavy crudes. Unoven, part of the Lemont system acquired from Unocal, has marketing operations in seven mid-western states, including 149 retail outlets, as well as supply deals with some 2,500 independent service stations. It has 14 terminals and truck rack facilities and participation in nine pipelines carrying crude and petroleum products.

The Lyondell/CITGO refinery in Houston is a partnership that has evolved since the early 1990. In 1994, PDVSA raised its stake in this from 5% to 11%. In the same year, it provided finance for upgrading at the refinery so it would be able to process up to 200,000 b/d of heavy Venezuelan crude oil of 17[degree sign] API. The PDVSA stake was raised later to 42%. In 1998 the stake was reduced to 41% after a rise in the JV's capacity and capital and PDVSA's share was worth $597m, from $630m in 1997 when the stake was 42%.

CITGO had a net profit of $26m in the third quarter of 1999, from $71m in the third quarter of 1998, due to low margins in the refining business. The company's President and CEO, David J. Tippeconnic, said: "Low refining margins continued to depress CITGO's earnings during the third quarter". Third quarter income from operations was $66m, compared to $139m in the third quarter of 1998, on gross revenue of $3.7 bn and the gross revenue in the third quarter of 1998 was $2.7 bn. "This again reflects the dismal state of industry margins", he added. Net income for the first nine months of 1999 was $137m, down from $211m in the same period in 1998.

With its famous logo spread from coast to coast and in the other parts of the US through its 1,500-plus stations in 48 states, CITGO markets three different octane grades of gasoline, complete with its proprietary "high performance" detergent additive, "to satisfy the needs of a wide range of vehicles and operating conditions". In its website - at www.citgo.com - it says "un-additized gasoline can leave harmful deposits in today's fuel systems which are technically advanced and highly sensitive to such deposits. Over time, as these deposits accumulate, a vehicle may develop driveability problems... CITGO's additive is provided to all of the octane grade you choose".

CITGO also markets diesel, heating oils, asphalt, petrochemicals, and more than 600 different of lubricants and waxes. It is the largest asphalt refiner and marketer on the East Coast, and one of the largest petrochemical suppliers in the US. Its marketing outlets, many of them also including convenience stores and diners, cover the mid-Atlantic, the north-east, mid-west, south east and south-west. It has 54 bulk-storage terminals. Originally part of Cities Service Co. that dates back to the turn of the century and later part of the famous convenience store chain 7-Eleven, CITGO was acquired by PDVSA in January 1999, which PDVSA having bought 50% into the company in 1986.