Fitch: British Court Order to Freeze PDVSA Assets To Have Minimal Near Term Impact

Business Wire, Feb 8, 2008

CHICAGO -- Fitch Ratings views a British court order to freeze up to US$12 billion of PDVSA's worldwide assets to have a minimum impact on the company's day to day operations, as well as its near term credit quality and financial flexibility. In order to comply with this court order, PDVSA must maintain $12 billion of unencumbered assets anywhere in the world. The order in and of itself does not prevent PDVSA from transacting business, and from a practical perspective transferring assets given its total consolidated asset base of more than US$92 billion. PDVSA is expected to oppose this decision and present their opposing arguments later this month. The enforcement of this order and the applicability of British jurisdiction over assets domiciled outside of the UK remain unclear at this time.

More importantly, this order is part of the legal wrangling over the ongoing dispute between PDVSA and Exxon Mobil regarding the nationalization of the Cerro Negro heavy oil project in the Orinoco belt. The compensation to Exxon Mobil for this action remains in dispute and is currently in arbitration; the outcome of this arbitration process remains uncertain. A negative outcome of the arbitration could pressure the credit profile of PDVSA, which timing could be lengthy. In the meantime, the ability of the courts to encumber any of PDVSA assets before the arbitration process is complete is unlikely.

PDVSA, Venezuela's national oil company, is engaged in the exploration and production of crude oil and natural gas; the refining, marketing and transportation of crude and refined products; and the production of petrochemicals, as well as various other hydrocarbon-related activities in Venezuela and abroad. The Venezuelan government is the company's sole shareholder. The majority of PDVSA's cash generating assets are located in Venezuela (85%), and in the United States (15%) through its Citgo subsidiary. PDVSA's European assets represent only a small portion of the company's US$92.6 billion of total consolidated assets as of June 30, 2007.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.