Address to the venezuelan people by People's Minister of Energy and Petroleum and Petróleos de Venezuela S.A. (PDVSA) Executive Director Rafael Ramírez with regard to the ExxonMobil-PDVSA international arbitration

Friday, February 8, 2008
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Good evening.

We would like to address tonight to the whole country in order to report on a recent situation against the interest of our oil business and our country.

We all know about a policy of appeasement during the nineties, based on which most of the operations entrusted to Petróleos de Venezuela were privatized. Further, the Venezuelan state oil tax system started to be phased out by reducing the oil proceeds from taxes and royalties. This policy was known as the oil opening.

Since 1999, the Bolivarian Government of President Hugo Chávez implemented a policy to recover the Full Oil Sovereignty and management of our major resource. Since then, in the international field, we played a renewed role at the Organization of Petroleum Exporting Countries (OPEC), based on our observance of the quotas and recovery of oil prices. This made the oil barrel come from USD 13 to the current values.

Following the recovery of our oil business and defeat of the sabotage, the Bolivarian Government took multiple actions to recover our oil tax income. Therefore, by means of amendments to our Hydrocarbons Organic Law and the Income Tax Law, and by virtue of our powers as a sovereign state, oil revenues started to recover. Our royalties were adjusted, that is, what we charge for oil drilling, from 1 percent to 33.3 percent, which are the current levels. And our oil-related taxes increased from 34 percent to 50 percent, the effective rate. As a result of this oil policy, the Venezuelan state has gotten extraordinary earnings of about USD 40 billion, which simply would go to the hands of multinationals in the past.

Additionally, within the purview of our oil policy, we started to dismantle the privatization of Petróleos de Venezuela and retook control over our oil operations. In this way, in 2006, operational agreements, under which the Venezuelan oil production had been privatized, terminated. As part of this process, 33 fields and projects in private hands turned into joint ventures. Now, these fields are joint ventures with our national company, Petróleos de Venezuela, as the majority shareholder.

In the context of this policy, last February 27th, 2007, the Decree on nationalization of partnership agreements at the Orinoco Oil Belt and the risk exploration and shared profits agreements was issued. Such agreements should become joint ventures because they governed the remaining operations under the control of multinational private companies where Petróleos de Venezuela could not have the majority shareholding.

Within the term of migration to joint ventures, we reached agreements with more than ten oil multinationals, namely: Total of France; Statoil of Norway; ENI of Italy, and British Petroleum of the United Kingdom, among others. Not only we succeeded in migration of these companies, but also settled their sharing in the operations under amicable agreements by and between the parties. Only two US companies opted for arbitration to settle their disagreements with our sovereign decisions as Venezuelan state. They are ConocoPhillips and ExxonMobil.

In the case of ConocoPhillips we engaged in negotiations, even though we are under arbitration. However, the teams of both companies have agreed on the terms to compromise and settle.

As for ExxonMobil, we have a clear situation of conflict and confrontation. We will explain it to all Venezuelans. Before talking about the current situation with this multinational, we should clarify that the modality of arbitration was permitted and introduced during the oil opening, under the leadership of the Fourth Republic and of the old PDVSA, which approved such operations.

Arbitration is a very risky modality to our country, because it entails relinquishment of its sovereign jurisdiction in judicial matters to compromise and settle in foreign courts any disputes with multinationals.

Noteworthy, our current laws and the new joint ventures establish arbitration under no circumstances whatsoever. However, the Venezuelan state entered into these agreements in the past. Therefore, today there is joint responsibility, consistency, a global continuance in all these aspects. Therefore, we are facing arbitration with said multinationals.

Note, in addition, that this is not the first time during this three-year term of migration to joint ventures that we have confronted arbitration. For instance, we won arbitration with ENEL, the Italian electricity utility, in European courts. We had two additional arbitrations with ENI of Italy and Total of France. At the end, the parties involved compromised and settled.

ExxonMobil is one of the most powerful oil companies in the world and with a background of attacks on oil producing countries. In our own country, it has also a background of countering the sovereign decisions of multiple governments throughout the oil-related history. This company has set a strategy aimed at intimidating our State and Government due to our decisions.

The current situation is arbitration against Venezuela in New York courts. We would like to say that the Venezuelan state answered to said arbitration; appointed its representatives in this proceeding and is waiting for the action to be established in order to continue the way set and overcome these troubles.

Since the creation of OPEC, our oil history is filled with a number of events where multinationals have tried to contravene the States' sovereign decisions, confiscate, or run counter to the national interests. For this reason, ExxonMobil started this arbitration against Petróleos de Venezuela.
During such arbitration and in an action outside the terms of this arbitration, this multinational filed several complaints in courts of the United States, the United Kingdom and the Netherlands. What is the purpose of such actions? They purport to seize the assets of Petróleos de Venezuela.

Firstly, there is in New York a proceeding to freeze USD 300 million in our bank accounts, which are the proceeds from the oil sales in US refineries. Such proceeding is temporarily in favor of ExxonMobil. It is worth mentioning that these are temporary proceedings as long as our oil business makes its pleadings to solve this situation. We are working on it.

In London and the Netherlands, they filed complaints to freeze assets amounting to USD 12 billion. We would like to advise the country that Petróleos de Venezuela has no assets in the Netherlands or London that may near these numbers. Therefore, these actions make no impact on our oil business.

In this regard, we would like to deny definitely a set of misleading information in the media reporting on our industry frozen assets of USD 12 billion. This is untrue.

There are precautionary measures at these courts and our oil business is working on its pleadings to counter and defeat them, because, while they do not affect PDVSA directly, we deem it harassment.

We would like to advise the whole country that two years ago we got ready to face such arbitration. We have legal, technical, juridical teams available with proven expertise on such matters.

In addition, we would like to inform that we discussed this issue inside OPEC, because this is not the first time oil producing countries are the target of judicial complaints. At this very moment, companies such as Citgo and Saudi Aramco of Saudi Arabia face complaints at US courts, because large consuming countries try to break the stances and interests of oil producing countries.

In this regard, we report that the extent of such move against our oil business is null and void as to its impact on our finances and operations. Our oil business is running at full capacity in terms of operations, output and marketing, as evidenced by innumerable agreements, supplies and shipments, and a daily production of 3.3 million barrels of oil.

Multinational ExxonMobil intends to put uneasiness and a feeling of nervousness. If this company thought that it could preclude someway our State and Government from taking the appropriate action, then, we tell them that they are totally wrong. We are determined to move forward in our interest, our sovereign decisions and our oil business.

Additionally, we would like to deny and condemn by these means a large amount of misinformation and alarmist positions. We are astounded to learn that some national economic and political sectors have jumped in defense of a multinational over the interest of the nation and our oil business.

Beyond any personal position, the whole country is fully aware that this is all Venezuelans' business. Our oil industry is the heritage of all Venezuelans and it is a national company at the service of our State and our people.

In the name of our Government, the workers of our oil business, the armed forces, our people and the million men and women who work everyday to build a great country, we would like to advise you that we are determined to keep our policy of Full Oil Sovereignty, in the management of such an important business for the country as the oil business.

Also, we would like to say that our oil policy is growing and Petróleos de Venezuela is in good standing, as shown by its economic performance.

We will continue reporting on this situation to prevent our people from falling in anguish and misinformation due to the manipulations and intimidation from company ExxonMobil.

Good evening.