THE LOCAL PRIVATE SECTOR IN THE VENEZUELAN OIL INDUSTRY. Antonio J. Vincentelli July 17, 2003

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1 THE LOCAL PRIVATE SECTOR IN THE VENEZUELAN OIL INDUSTRY Antonio J. Vincentelli July 17, 2003

2 GOODS AND SERVICES FOR THE OIL INDUSTRY GEOPHYSICS DRILLING AND WELL SERVICES ENGINEERING AND PROFESSIONAL SERVICES MANUFACTURING OF CAPITAL GOODS CONSTRUCTION OPERATION AND MAINTENANCE OF INSTALLATIONS

3 PRIVATE PARTICIPATION IN THE HYDROCARBONS INDUSTRY Areas of participation for the local and foreign private sectors: Orinoco Belt Heavy Oil Strategic Associations Mature Fields Operating Agreements Oil Exploration Agreements with risk and profit sharing Gas Industry Development Petrochemicals and Chemicals Development of Refinery Streams Over 60 companies with investment programs of more than 36 Billion US$

4 VENEZUELAN COMPANIES PARTICIPATION IN THE UPSTREAM OIL & GAS SECTOR Cartera de Investor Oil Land Inversiones Ehcopek Investor Oil & Gas Land/offshore Inelectra Investor Operator Oil & Gas Land/offshore Jantesa Investor Operator Oil Land Polar Investor Oil Land Otepi Investor Operator Gas Land Open Investor Operator Oil Land Suelopetrol Investor Operator Oil Land Vincler Investor Operator Oil & Gas Land REPRESENTS A TOTAL INVESTMENT FOR THE VENEZUELAN COMPANIES OF OVER 400 MM US $ IN 14 FIELDS

5 STRATEGY OF THE LOCAL PRIVATE SECTOR Develop current properties to their full potential. Identify new opportunities. Develop associations with local and international players. Increase capitalization (strategic partnerships, capital markets).

6 INELECTRA IN THE VENEZUELAN OIL INDUSTRY Operator Ypergas (34% Inelectra) Operator Inemaka 70% Inelectra 10.2% Yucal Placer North & South Additional 34.5% Kaki & Maulpa Partners Total Repsol Otepi Polar Epic Operator GOPEOC 100% Inelectra Additional 90% Gulf of Paria East 16.7% Kaki and Maulpa 15% Profalca 10% Gulf of Paria East Boscan Koch Proesca Polar ChevronTexaco

7 INEPETROL IN NUMBERS Net production Oil BPD Natural Gas 47 MCFD (*) Reserves Proven and probable 286 MMBE Stockholders Equity $80 MM$ * Utilized for secondary recovery, gas lift and fuel

8 THE O&G PRIVATE SECTOR IN VENEZUELA TODAY The private sector has a fundamental role in the development of the hydrocarbons industry in Venezuela. Its is firmly established and participates in all areas of the business: from providing goods and services, to investing and operating major enterprises in the areas of oil, gas, chemicals and petrochemicals. The National Development Plan promotes the private participation. The local private sector is continuously growing its participation in the O&G business.

9 El Paso Why Venezuela? New Orleans Monterrey MEXICO Gulf of Mexico Havana Miami Guadalajara CUBA México JAMAICA BELIZE Belmopan Guatemala HONDURAS GUATEMALA San Salvador Tegucigalpa EL SALVADOR NICARAGUA Managua Panamá COSTA RICA PANAMA

10 WORLD TOTAL ENERGY CONSUMPTION Quadrillion BTU Projection YEAR Average Annual Rate : 1.9% From: EIA, International Energy Outlook 2003

11 WORLD TOTAL ENERGY CONSUMPTION BY FUEL Projection Oil Gas GROWTH Oil % 1.8 Quadrillion BTU Coal Other Nuclear Natural Gas Coal Other Nuclear YEAR From: EIA, International Energy Outlook 2003

12 OIL 2003 Sub region/ctry. Reserves Production Demand (Billion barrels) (MMBD) (MMBD) USA CANADA MEXICO NORTH AMERICA S. & C. AMERICA TOTAL AMERICAS VENEZUELA Traditional Faja Latin America energy surplus Oil deficit in the Americas 3.9 MM BD 7.2 MM BD BP Statistical Review of World Energy, June 2003

13 USA: PROJECTION OF IMPORTS OIL AND PETROLEUM PRODUCTS 14 GROWTH Millons of Barrels per Day CRUDE P. PRODUCTS CRUDE PETROLEUM PRODUCTS % 1.4 5,1 Millions of Barrels per Day YEAR From: EIA, International Energy Outlook 2003

14 LOCATION OF NEW PETROLEUM PRODUCTS MANUFACTURING El Paso A large deficit New Orleans of Petroleum Products is anticipated Monterrey Gulf of Mexico Miami MEXICO Havana Guadalajara CUBA for the U.S. in the coming years México JAMAICA BELIZE Belmopan Guatemala HONDURAS GUATEMALA San Salvador Tegucigalpa EL SALVADOR NICARAGUA Managua COSTA Panamá RICA PANAMA The Atlantic Basin requires substantial additional refining capacity, the probability of expanding U.S. capacity is low Where should the new capacity be installed?

15 Venezuela is called to be the main energy supplier of the western hemisphere due to its large reserves of oil, natural gas and hydroelectric potential. Reserves & Capabilities The opportunities for the participation of the private sector are here

16 WHY VENEZUELA: CONFIDENCE AND COMPETITIVINESS Most prolific hydrocarbon region outside of the middle east Attractive Geographic Location. A strong, long established and demanding industry based on international standards, with a competitive supply sector. More than twenty private oil companies operate in Venezuela ranging from large multinational to small local companies. A free market economy subscribed to the WTO. Substantial development plan for the coming years. A tradition of respect to private investment. A modern legal framework. The right attributes to develop competitive advantages

17 OIL AND ECONOMIC DEVELOPMENT IN VENEZUELA Before Depletion Depletion of of reserves. reserves. Short Short term term activity. activity. Most Most activities activities in in the the hands hands of of the the State. State. Minimum Minimum ties ties with with the the country s country s private private sector. sector. Objective: Objective:! Maximize Maximize petroleum petroleum rent. rent. Now Abundant Abundant reserves. reserves. Long Long term term activity. activity. Promotes Promotes national national and and foreign foreign investment and and participation. Objectives:! Industry Industry growth growth and and creation creation of of value. value.! Shift Shift from from rent rent to to development.

18 h HYDROCARBONS IN VENEZUELA MAKE BUSINESS SENCE