petroleos de venezuela, s.a. venezuelan national …

PETROLEOS DE VENEZUELA, S.A. VENEZUELAN NATIONAL PETROLEUM COMPANY

Avenida Libertador, La Campiña Apartado 169, Caracas 1010-A,

Bolivarian Republic of Venezuela (Address of Principal Executive Offices)

IFO30-06-07 i

Table of Contents

Page

1.- Factors affecting Forward-Looking Statements .....................................................................ii 2.- Summary 1 Social Development 2 3.- Selected Financial and Operating Data 2 4.- Managament´s Discussion and Analysis of Financial Condition and Results of Operations 7

5.- Liquidity and Capital Resources .........................................................................................24

6.- New Accounting Standards .................................................................................................26

7.- Legal Proceedings................................................................................................................27

8.- Quantitative and Qualitative Disclosures about Market Risk ..............................................27

Signatures ................................................................................................................................33

Annex A ..................................................................................................................................34

Index to Condensed Consolidated Interim Financial Statements.............................................. F-1

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As used in this report, references to “dollars” or “$” are to the lawful currency of the United States and references to “Bolivars” or “Bs.” are to the lawful currency of Venezuela. A unit conversion table and a glossary of certain oil and gas terms, including abbreviations for certain units, used in this report are contained in Annex A.

1.- Factors affecting Forward-Looking Statements

This report contains “forward-looking statements”. Such statements are subject to risks and uncertainties related to Venezuelan and international markets, inflation, the availability of continued access to capital markets and financing on favorable terms, regulatory compliance requirements, changes in import controls or import duties, levies or taxes and changes in prices or demand for our products as a result of actions of our competitors or economic factors. Such statements are also subject to the risks of costs and anticipated performance capabilities of technology, and performance by third parties of their contractual obligations. Exploration activities are subject to risks arising from the inherent difficulty of predicting the presence, yield and quality of hydrocarbons deposits, as well as unknown or unforeseen difficulties in extracting, transporting or processing any hydrocarbons found or doing so on an economic basis.

Should one or more of these risks or uncertainties materialize, actual results may vary materially from those estimated, anticipated or projected. Specifically, but without limitation, capital costs could increase, projects could be delayed, and anticipated improvements in capacity or performance may not be fully realized. Although we believe that the expectations reflected by such forward-looking statements are reasonable based on information currently available, readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revision to these forward-looking statements to reflect events or circumstances after the date of this report.

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2.- Summary

Petróleos de Venezuela, S.A. (PDVSA) is a company incorporated in 1975 and domiciled in the Bolivarian Republic of Venezuela (Venezuela), and is the holding company of a group of oil and gas companies, among others. PDVSA and its subsidiaries (PDVSA or the Company) are wholly-owned by the Bolivarian Republic of Venezuela, which controls PDVSA through the Ministry of Popular Power for Energy and Petroleum) (formerly Ministry of Energy and Mines - MENPET). PDVSA is responsible, in Venezuela, for developing the hydrocarbon industry, as well as, planning, coordinating, supervising and controlling the activities of its subsidiaries, both in Venezuela and abroad. Most of its foreign subsidiaries are responsible for refining and marketing activities in North America, Europe and the Caribbean.

The main activities of PDVSA are governed by the Organic Hydrocarbons Law, and gas activities are regulated by the Organic Law of Gas Hydrocarbons of September 1999 and its Regulation dated June 2000.

PDVSA is the largest vertically integrated oil company in Latin America with daily average crude oil production of 2,843 MBPD for the six months ended June 30, 2007, and the fourth largest vertically integrated oil company in the world as measured by total assets at year-end 2005, based on information published by Petroleum Intelligence Weekly, a trade publication. PDVSA carries out exploration, development and production (“upstream”) operations in Venezuela and our sales, marketing, refining, transportation, infrastructure, storage and shipping (“downstream”) operations in Venezuela, the Caribbean, North America, South America and Europe. PDVSA owns 100% of CITGO, a refiner and marketer of transportation fuels, petrochemicals and other industrial oil-based products in the United States.

All hydrocarbon reserves in Venezuela are owned by Venezuela and not by PDVSA. Under the Organic Hydrocarbons Law of 2001, as amended, all activities relating to the exploration and exploitation of hydrocarbons and their derivatives are reserved for the government of Venezuela, which may undertake such activities directly or through entities controlled by Venezuela through an equity participation of more than 50%. At the current production rate of crude oil and gas, Venezuela has proved reserves for the next 80 years.

PDVSA sells crude oil to the United States, Canada, the Caribbean, Europe, South

America, and Asia. In addition, PDVSA refines crude oil and other feedstock in Venezuela and abroad into a number of products, including gasoline, diesel, fuel oil and jet fuel, petrochemicals and industrial products, lubricants and waxes, and asphalt. PDVSA is also engaged in the exploration and production of gas from offshore sources.

PDVSA’s registered office is located at Avenida Libertador, La Campiña, Apdo. 169,

Caracas 1010-A, Venezuela, and our telephone number is 011-58-212-708-4111. Our website is: www.pdvsa.com. Information contained on our website is not part of this report.

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Social Development The Venezuelan National Constitution and the Organic Hydrocarbons Law mandates

PDVSA to contribute manpower and financial resources to social programs developed and administered by the Venezuelan government. More specifically, Article 5 of the Organic Hydrocarbons Law mandates that all revenues generated by the Venezuelan government from oil activities shall be used to promote health programs, macroeconomic stabilization funds and investments. PDVSA has made significant contributions to social programs, promoting and participating in Venezuela’s social and economic development. Since 2004, PDVSA has participated in and contributed significant funding towards low income housing, agricultural developments and other social programs. For example, in January 2004, we approved the creation of a trust fund referred to as Fondo Para el Desarrollo Económico y Social del País, or FONDESPA, which is designed to allocate amounts to programs related to projects, goods and services, development of infrastructure and roads, agricultural activities, health and education. PDVSA’s subsidiaries, such as Corporación Venezolana del Petróleo, S.A., or CVP, and Palmaven S.A., or Palmaven, contribute managerial and financial resources to support social programs related to education, healthcare, job creation and subsidized food distribution programs. CVP amended its charter in 2004 to focus on social and welfare activities.

In support of social projects developed by the Venezuelan government from 2003 to June 30, 2007, we have incurred expenses of $ 29,427 million, of which $ 7,243 million have been recorded during the six months ended June 30, 2007 and are included in the consolidated statement of income for that period.

3.- Selected Financial and Operating Data

The following table summarizes certain selected consolidated financial and operating data of PDVSA as of June 30, 2007 and December 31, 2006 and for the six months ended June 30, 2007 and 2006. The following table should be read in conjunction with our consolidated interim financial statements included herein, which have been prepared in accordance with International Financial Reporting Standards (IFRSs). The consolidated financial statements of PDVSA as of June 30, 2007 and for the six months ended June 30, 2007 and 2006 are unaudited.

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At June 30 , At December 31,

2007 2006

(in millions of U.S. dollars)

Balance Sheet

Cash and cash equivalents 3,560 1,875

Restricted cash 1,134 848

Recoverable value added tax 1,391 776

Notes and accounts receivable 13,651 9,546

Inventories 6,42 3 7,003

Prepaid expenses and other assets 5,174 2,985

Assets classified as held for sale 445 -

Total current assets 31,778 23,033

Restricted cash, net of current portion 1,796 1,928

Recoverable value added tax, net of current port ion 3,542 3,460

Investment s in non -consolidated investees 3,423 2,503

Property, plant and equipment, net 44,377 42,503

Deferred income tax 4,205 3,443

Long-term account s receivable and other assets 3,550 3,659

Total assets 92,671 80,529

Account s payable to suppliers 6,486 6,379

Current portion of long -term debt 1,983 652

Income tax payable 2,444 2,487

Employee benefits and other postretirement benefits 640 374

Accruals and other liabilities 9,770 9,263

Current liabilities 21,323 19,155

Long-term debt, net of current portion 11,595 2,262

Employee benefits and other postretirement benefits, net of

current portion 1,875 1,731


Accruals and other liabilities , n et of current portion 2,558 2,189

Total liabilities 39,030 27,426

Stockholder’s equity 53,641 53,103

Total liabilities and stockholder’s equity 92,671 80,529

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Six m onths e nded June 30 ,

2007 2006

(in millions of U.S. dollars)

Income Statement

Sales of crude oil and products:

Exports and international markets 41,580 49,612

In Venezuela 1,099 1,036

Other sales 225 219

Net revenues 42,904 50,867

Cost and expenses

Purchases of crude oil and products 16,646 20,333

Operating expenses 4,875 7,648

Exploration expenses 52 34

Depreciation and depletion 1,795 1,479

Asset impairment (16) (33)

Selling, administrative and general expenses 1,129 932

Royalties and other taxes 8,974 8,705

Financing expenses 310 93

Other expenses , net 828 757

Total costs and expenses 34,593 39,948

Equity in earning s of non -consolidated investees 364 695

Gain on sale of investment in affiliates of CITGO 641 -

Income before social development expenses and income tax 9,316 11,614

Social development expenses 7,243 6,719

Income before income tax 2,073 4,895

Income tax 1,177 2,050

Net income 896 2,84 5

Net income:

Attributable to the C ompany’s stockholder 625 2,68 4

Minority interests 271 161

Net income 896 2,845

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OPERATING DATA Six months Ended June 30, 2007 2006 (MBPD, except as otherwise indicated))

Venezuela´s crude oil production PDVSA´s crude oil production 2,843 2,920 Third party participation in Orinoco Belt 291 356 Total 3,134 3,276

PDVSA´s crude oil production Crude oil own production 2,361 2,296 “Empresas Mixtas” / Operating Agreements 299 398 Pdvsa´s participation in Orinoco Oil Belt 183 226 Total 2,843 2,920 Liquid petroleum gas (BOE) 175 176 Total crude oil and liquid petroleum gas 3,018 3,096 Natural gas (MMCFD)

3,965

3,932

Refinery production Venezuela 1,128 1,174 Curaçao 219 199 United States 1,070 1,398 Europe 264 229 Total refinery production 2,681 3,000

Venezuela´s sales volume exported Crude Oil 2,096 2,222 Refined Products 774 812 Total exports (1) 2,870 3,034

PDVSA's export sales -geographical breakdown United States and Canada 1,154 1,247 Caribbean, Central America and South America 853 835 Europe 254 316 Asia and others 292 262 Total 2,553 2,660

Average export price/barrel ($/barrel) 53.81 56.36

Sales volume domestic market Natural gas (MMCFD) 2,741 2,697 Other products 563 533 Average domestic sales price/barrel ($/barrel) 7.13 7.32 Average production cost ($/barrel) Including operating agreements and “empresas mixtas” 4.01 3.54 Excluding operating agreements and “empresas mixtas” 4.05 3.27

(1) Includes 317 MBPD on June 30, 2007 and 374 MBPD on June 30, 2006, corresponding to third parties interests in the Orinoco Oil Belt Associations.

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FINANCIAL DATA Six months Ended June 30, 2007 2006 (in millons of U.S. dollar) Capital Expenditures In Venezuela Exploration and Production 2,091 1,078 Refining, trade and Supply 670 212 Gas and other 787 376 Total Venezuela 3,548 1,666 Foreign-Refining 275 305 Total 3,823 1,971

Social development expenses FONDEN 3,120 2,920 Social investment plan 1,395 1,395 Missions 999 1,364 Social programs 345 147 FONDESPA 0 229 Other social programs 1,384 664 Total 7,243 6,719

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4.- Management’s Discussion and Analysis of Financial Condition and Results of Operations

Basis of Presentation

The economic environment of our operations involves mainly the international market for crude oil and refined products. As such the dollar is our functional currency and most of our financial transactions are denominated in dollars. The following discussion should be read in conjunction with our consolidated interim financial statements included herein.

The consolidated financial statements of PDVSA as of June 30, 2007 and December 31, 2006 and for the six months ended June 30, 2007 and 2006 included the Company, its affiliates and jointly controlled entities.

Overview

PDVSA is a vertically integrated oil and gas company engaged in the exploration, development and production of oil and gas and the refining, marketing transportation and distribution of crude oil, gas and petroleum products. During the six months ended June 30, 2007, our average daily output of crude oil reached 2,843 MBPD from 2,920 MBPD in the same period of 2006. PDVSA explores and produces hydrocarbons in Venezuela and sells crude oil to the United States, Canada, the Caribbean, Europe, South America and Asia. Additionally, PDVSA refines crude oil and other feedstock in Venezuela and abroad into a variety of products, including gasoline, diesel, fuel oil and jet fuel, petrochemicals and industrial products, lubricants and waxes and asphalt. PDVSA is also engaged in the gas business. Refined petroleum products are transported from our refineries primarily by tankers, pipelines and barges, and then through terminals to our customers. These refined petroleum products are sold to wholesale marketers, convenience stores, airlines, and other manufacturers as feedstock.

Based on the new social responsibility of PDVSA, set forth in Articles 302 and 311 of the Constitution of the Bolivarian Republic of Venezuela and Article 5 of the Organic Hydrocarbons Law, regarding PDVSA’s involvement in the country’s social development and in order to support the development of infrastructure, highways and roads, agricultural, health and educational programs and other investments in Venezuela, PDVSA participates in diverse programs established by the National Government.

Factors affecting Operating Results

PDVSA’s consolidated financial results depend primarily on the volume of crude oil produced and the price levels for hydrocarbons. The level of crude oil production and the capital expenditures needed to achieve such level of production have been among the principal factors

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determining our financial condition and results of operations since 1990, and are expected to continue to be principal factors in determining our financial condition and results of operations for the foreseeable future.

Trends affecting our Business

Our upstream operations are primarily focused on increasing reserves of crude oil, increasing the overall recovery factor of crude oil, continuing the development of extra-heavy crude oil projects, increasing the availability of gas, and improving existing technology in order to maximize the return on our investments.

With respect to the downstream business, our investments are focused on increasing

refining capacity, product enhancement and environmental compliance in Venezuela and the United States, expanding our markets in Latin America, the Caribbean and Asia, and improving the efficiency of our refining processes and marketing activities.

Changes in product quality specifications have been, and will continue to be, an important

driver in our downstream capital expenditures program. Market analysis in the regions we serve indicate that Tier II gasoline, ultra low sulfur diesel, Group II and III lube base oils and high performance asphalts will be required over the next four to six years. The use of some of these products is being mandated directly by regulatory agencies, while others are the indirect result of regulation. Ultimately, our customers will require all of these products in addition to others not currently defined.

Moreover, the high capital requirements needed to produce lower sulfur content fuels and

higher quality lubricant base stocks and asphalts place a premium on facilities already equipped to produce these products, which may lead to the further consolidation of refining capacity in specific markets.

The refined products business continues to be very competitive. Industry analysts predict

demand growth of 1% to 2% per year in the United States for the next five to ten years, creating expansion opportunities for U.S. refineries, which are currently operating at near capacity. While this growth trend would appear to be positive for refining and marketing companies, the industry has always exhibited strong competitive tendencies, and recent corporate consolidations have resulted in cost reduction synergies and economies of scale that have translated into competitive pricing in the marketplace and lower refining margins.

With respect to our gas business, we are actively promoting private sector participation in

the exploration, production and processing of non-associated gas reserves. In addition, our distribution processes will be expanded and enhanced in order to increase our domestic and international market shares. We will also increase our focus on the LNG markets.

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Impact of Production Quotas

Historically, members of the OPEC have entered into agreements to reduce their production of crude oil. Such agreements have sometimes increased global crude oil prices by decreasing the global supply of crude oil. Venezuela is a party to and has complied with such agreements, and we expect that Venezuela will continue to comply with such production agreements with other OPEC members. Since July 1998, OPEC’s production quotas have resulted in a worldwide decline in crude oil production and substantial increases in international crude oil prices.

Throughout 2001, the OPEC agreed to oil production cuts for its members. Three production cuts were made in February, April and September 2001, resulting in a total decrease in our production in 2001 of 407 MBPD compared to our production level in 2000. In January 2002, pursuant to production agreements with OPEC members in effect from January 2002, we decreased our production by 174 MBPD. Our total production quota increased from 2,647 MBPD in December 2003 to 3,107 in December 2004. Venezuela’s OPEC production quota increased by 113 MBPD to 3,223 MBPD in July 2005. At the 141st Extraordinary Meeting of the Ministerial Conference of OPEC on June 1, 2006, the Ministerial Conference decided to maintain OPEC’s production levels and to reaffirm “(OPEC’s) determination to guarantee that prices remain at acceptable levels.” The conference participants noted that market fundamentals have stayed unchanged since its last review, with the market continuing to be oversupplied and crude and product stocks continuing to be at acceptable levels.

The participants also agreed that oil prices are being affected by geopolitical tensions, the speculations on futures market and the lack of global refining capacity in the medium and long term. From July 2005 to October 2006, the production quota assigned to Venezuela was 3,223 MBPD.

At the Consultative Meeting of the Conference of OPEC on October 19, and 20, 2006 in Doha, Qatar, it was decided to reduce production by 1.2 MMBPD from current production of approximately 27.5 MMBPD to 26.3 MMBPD effective as of November 1, 2006. Venezuela reduced its production by 138 MBPD from that date.

The average price of the OPEC basket decreased by $1.51 per barrel, or 2%, from $61.21 per barrel for the six months ended June 30, 2006 to $59.70 per barrel for the six months ended June 30, 2007 due to market conditions. The average prices of our exports, including refined products, decreased $2.55 per barrel, or 5%, from $56.36 per barrel for the six months ended June 30, 2006 to $53.81 per barrel for the six months ended June 30, 2007.

Impact of Inflation and Devaluation

While more than 97% of our revenues and a significant portion of our expenses are in dollars, some of our operating costs (including income tax liabilities) are incurred in Bolivars. As a result, our financial condition and results of operations are affected by the Venezuelan inflation

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rate and the timing and magnitude of any change in the $/Bs exchange rate during a given financial reporting period.

On February 5, 2003, the Venezuelan government established an exchange control regime, and fixed the exchange rate for the sale and purchase of foreign currency at Bs. 1,600.00 to $1 and Bs. 1,596.00 to $1, respectively. On February 7, 2004 the foreign exchange rate for the sale and purchase of foreign currency was established at Bs. 1,920.00 to $1 and Bs. 1,915.20 to $1, respectively. On March 5, 2005 a new foreign exchange rate for the sale and purchase of foreign currency was established at Bs. 2,150.00 to $1 and Bs. 2,144.60 to $1, respectively.

June 30, 2007

December 31, 2006

June 30, 2006

December 31, 2005

Exchange rates at the end of the period derived from the exchange agreement with the Central Bank of Venezuela (Bs/$1)

2,150.00 2,150.00 2,150.00 2,150.00

Average Exchange rate 2,150.00 2,150.00 2,150.00 2,110.00 Increment in the CPI (%) 8% 17% 6% 14%

Recent Developments

Loan Agreements

As of June 30, 2007, PDVSA has an aggregate of $13,578 million of debt outstanding that matures on various dates through 2037.

During 2007, the Republic, PDVSA’s stockholder, approved an issuance of bonds, as well as other indebtedness.

On January 8, 2007 the public tender of bonds was approved up to $5,000 million due in 10, 20 and 30 years (2017, 2027 and 2037). Our subsidiary PDVSA Petróleo acts as a guarantor of all bonds, and the funds obtained will be used for capital investments. This issue was supervised and regulated by the BCV, and is exempt from the scope of the Capital Markets Law of Venezuela, on the basis that PDVSA is a state-owned company. Because of the high demand of investors and the favorable conditions of these debt instruments, the stockholder on 26 February 2007 authorized an increase of this issue from $5,000 to $7,500 million, in order to obtain additional resources necessary for the purchase of shares of companies in the electricity sector, as well as other investments approved by the stockholder of PDVSA. The annual coupon for the issued bonds is 5.25%, 5.375% and 5.50%, due in 10, 20 and 30 years, respectively. The

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combined issue of these bonds generated a premium of 5.5%. The bonds pay interest and principal in U.S. dollars.

On April 12, 2007, bonds totaling $7,500 million were issued.

In January 2007, PDVSA obtained a credit facility of $1,124 million with a consortium of banks led by BNP Paribas. This loan is due on January 30, 2008 and may be extended for an additional year with the approval of lenders representing over 50% of the original commitment. This loan bears interest at a rate equivalent to LIBOR, plus an increase based on the country risk of Venezuela established by Standard & Poor’s. As of the date of the issue, this increase was 1.15%.

In February 2007, PDVSA obtained a credit facility amounting to $3,500 million with a consortium of banks led by the Japan Bank for International Cooperation (JBIC). This loan has a term of 15 years and bears interest at a rate equivalent to LIBOR plus 1.13% and includes cash payment options or delivery of crude oil and products at market prices, subject to an agreement of minimum amounts reviewed every three years. At June 30, 2007 PDVSA had drawn down a total of $2,300 million under the credit facility at an average interest rate of 6.52%. As of June 30, 2007 the balance of this debt is $2,244 million with an average interest rate of 6.50%.

At June 30, 2007, PDVSA has credit lines available for $ 1,150 million.

Transition of Orinoco Belt Projects, Decree-Law 5,200

On February 26, 2007, the Government of the Bolivarian Republic of Venezuela issued Decree-Law 5,200 Migration to “Empresas Mixtas” of the Orinoco Oil Belt Association Agreements, as well as the Risk Exploration Agreements and Profit Sharing Agreements; therefore, the associations Petrolera Zuata, S.A., Sincrudos de Oriente, S.A., Petrolera Cerro Negro, S.A. and Petrolera Hamaca, C.A. must become “Empresas Mixtas”, whereby the subsidiary CVP, or any other appointed subsidiary holds no less than 60% of the shares, in accordance with the provisions of the Organic Hydrocarbons Law. Also existing agreements in the West Paria Gulf, East Paria Gulf and the block referred to as La Ceiba; as well as Orifuels Sinoven, S.A. (SINOVENSA) must be converted into “Empresas Mixtas” under the same structure as indicated above.

In this connection, transition commissions were created for each association, which incorporated the directors to ensure the transfer of control of all of their activities to the new state companies. Also, this Decree-Law granted the partners a term, beginning on the date of its publication, to set the terms and conditions of their possible involvement in the new “Empresas Mixtas”. An additional term was granted to submit the terms and conditions to the National Assembly, for the purpose of seeking authorization, in accordance with the Organic Hydrocarbons Law. Once that term has elapsed, without an agreement being reached for incorporation and operation of the “Empresas Mixtas”, the Bolivarian Republic of Venezuela,

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through PDVSA, will assume directly the activities performed by different associations, to maintain its continuity, in the public and social interest.

Pursuant to this Decree-Law, since May 1, 2007, PDVSA took control of all facilities relating to the above associations.

At present, negotiations with different partners of associations are in process, without reaching final agreements.

On June 26, 2007, Memorandums of Understanding were signed with international companies establishing the conditions of the migration according to the Hydrocarbon Law. PDVSA’s and the third parties participation in the “Empresas Mixtas” are as follows:

PROJECT PDVSA´S PARTICIPATION

THIRD PARTIES PARTICIPATION

Cerro Negro 83.33% BP 16.67% SINCOR 60.00% Total 30.30% Statoil 9.70%

70.00% Chevron 30.00% Hamaca (Ameriven)

74.00% ENI 26.00% Golfo de Paria Oeste (Corocoro)

60.00% Inerapia 8.00% Golfo de Paria Este (POSA) Sinopec 32.00%

PDVSA took 100% control of Petrozuata and La Ceiba, and continues conversations with the China National Petroleum Corporation in order to agree the final structure related of SINOVENSA.

In September 2007, PDVSA and Harvest Vinccler signed an agreement for the conversion into the “Empresa Mixta” “Petrodelta”; PDVSA will have 60% of the shares and Harvest Vinccler 40%.

Official Gazette 38,785, of October 8, 2007, published the law on the effects of the migration process to “Empresas Mixtas” of Joint Ventures of the Orinoco Oil Belt; as well as the Risk Exploration and Profit Sharing Agreements, which established the time limit for the private parties to reach agreements for the incorporation of “Empresas Mixtas” and for cases where agreement is not reached, PDVSA or a subsidiary will assume the operating activities.

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In Official Gazette 38,798, of October 9, 2007, the National Assembly approved the creation of the “Empresas Mixtas”: PetroMonagas, S.A. (formerly Cerro Negro), PetroCedeño, S.A. (formerly SINCOR), PetroPiar, S.A. (formerly Hamaca), East and West Paria Gulf, where PDVSA will have a participation of 83.33%, 60%, 70% and 74%, respectively. During August 2007, CVP paid to Petro-Canada $75 million as settlement of the La Ceiba Association Agreement.

Currency Exchange Agreement 9

On March 22, 2007, Official Gazette 38,650 published Currency Exchange Agreement 9, which established that PDVSA may acquire foreign currencies directly from the BCV, up to the amount authorized to reimburse the funds placed abroad, in accordance with what was established in Article 113 of the BCV Law. On February 8, 2007, the Board of Directors of the BCV authorized PDVSA to keep a special fund for an amount equal to $3,500 million to support “The Plan Siembra Petrolera 2007–2013”.

Certificate of Reserves in the Carabobo Block of the Orinoco Oil Reserves

In May 2007, PDVSA received a certificate from an independent company determining the existence of 30,660 million barrels of Original Oil on Site (POES) in the Carabobo Block 2, Carabobo Area of the Orinoco Oil Reserves. This certification estimates proved reserves of 6,000 million barrels, using a recovery factor of 20%. This certification is being reviewed and validated by the Ministry of Popular Power for Energy and Petroleum.

Acquisitions and Dispositions

Acquisitions

According to the guidelines and strategic objectives of the National Government, during 2007 the stockholder of PDVSA authorized the purchase of shares of several entities operating in the country’s electricity sector. These shares were recorded at cost and management believes that the effects of not consolidating these companies at June 30, 2007, are not material in relation to the consolidated financial statements as of that date. A summary these operations follows.

C.A. La Electricidad de Caracas

On February 15, 2007, PDVSA signed an agreement with The AES Corporation (AES) and its subsidiary AES Shannon Holding, B.V. for the purchase of its participation in C.A. La Electricidad de Caracas (EDC), equivalent to 82.14% of the total shares outstanding, for $739 million. According to Venezuelan law, to purchase the remaining outstanding shares, PDVSA made a public offer.

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From April 8 to May 8, 2007, PDVSA made a public tender offer to purchase up to 17.86% of the remaining outstanding shares of EDC, at a bolivar equivalent of $0.2734 per share (determined at the official exchange rate for the sale of dollars effective as of the closing date). This included, at the same time, the public tender offer in Venezuela and one in the United States of America for the purchase of all outstanding American Depositary Shares (ADS’s), each representing 50 EDC shares at a price of $13.6675 for each ADS.

As a result of the public tender offer and the agreement with AES, PDVSA acquired 93.61% of the EDC shares in circulation for a total amount of $844 million.

Sistema Eléctrico del Estado Nueva Esparta, C.A.

On February 8, 2007, PDVSA entered into a memorandum of understanding with CMS Energy Corporation for the purchase of its shares in Sistema Eléctrico del Estado Nueva Esparta, C.A. (SENECA), for $106 million, which represents 88% of the capital stock of that company. On March 7, 2007, the stockholder of PDVSA approved the purchase which was made on March 30, 2007.

Electricidad de Valencia, S.A.

On July 6, 2007, PDVSA acquired 100% of the shares of the Electricidad de Valencia, S.A. (ELEVAL) for $190 million.

Other Companies in the Electricity Sector

During 2007, PDVSA entered into negotiations in order to acquire the shares of Turbogeneradores de Venezuela, S.A. (TURBOVEN), Termobarrancas, C.A.; and C.A. Luz y Fuerza Eléctricas de Puerto Cabello (CALIFE). The Company’s management is currently negotiating with the stockholders of these companies in order to reach an agreement on the terms and conditions of the purchase.

Dispositions

CITGO is engaged in the refining, marketing and transportation of petroleum products including gasoline, diesel fuel, jet fuel, petrochemicals, lubricants, asphalt and refined waxes. We operate fuel refineries in Louisiana, Texas and Illinois and asphalt refineries in New Jersey and Georgia. CITGO’s interests in these refineries result in a total crude oil capacity of approximately 861,000 barrels per day. We employed approximately 4,000 employees and had total assets of approximately $8.8 billion as of June 30, 2007. In the first six months of 2007, we generated $1.1 billion of net income on total revenues of $18.7 billion which includes gain on sales of investments in affiliates of approximately $641 million.

Our transportation fuel customers include branded wholesale marketers, convenience stores and airlines, located mainly east of the Rocky Mountains. We generally market our asphalt to independent paving contractors on the East Coast of the United States. We sell lubricants principally in the United States to independent marketers, mass marketers and

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industrial customers. We sell petrochemical feedstocks and industrial products to various manufacturers and industrial companies throughout the United States. We sell petroleum coke primarily in international markets. CITGO markets gasoline through agreements with independent marketers and does not own or operate any of the CITGO branded locations.

Prior to 2007, CITGO’s obligations to its independent marketers exceeded the capacity of its refinery production and CITGO purchased significant quantities of refined products from affiliated and non-affiliated suppliers to offset the shortfall. In 2006, CITGO decided to restructure its light oil marketing activities to better focus on sales of products manufactured from its refineries and refineries owned by its affiliates. Associated decisions were made not to renew a sales agreement involving 7-Eleven, formerly CITGO’s largest customer and to discontinue sales to its independent marketers in 10 midwestern states and portions of three other states. The restructuring of these marketing activities involved the 2006 sale of CITGO’s 41.25% interest in LYONDELL-CITGO Refining LP and the termination of a related product supply agreement under which CITGO purchased light oils produced by the refinery owned by that entity.

Effective April 1, 2007 CITGO completed the restructuring of its light oil marketing activities. Its marketing efforts continue to be focused primarily in areas that are well located within existing distribution networks and which are located within the continental United States, east of the Rocky Mountains. CITGO remains one of the nation’s top ten largest branded gasoline suppliers serving approximately 9,000 independently owned and operated CITGO-branded retail outlets which supply approximately 5% of the gasoline consumed in the United States.

On January 26, 2007, CITGO closed on the sale of its ownership of approximately 6.8% of the outstanding capital stock of Explorer Pipeline Company. On February 27, 2007, CITGO completed the sale of its ownership of approximately 15.8% of the outstanding capital stock of Colonial Pipeline Company. However, these sales will have no adverse impact on CITGO’s ability to ship on these common carrier pipelines; nor were such sales conditioned upon any commitment to continue shipping on such pipelines.

In April 2006, CITGO commissioned an investment bank to conduct due diligence and solicit potential buyers for CITGO Asphalt Refining Company (CARCO), a wholly-owned subsidiary of CITGO. CARCO owns and operates two asphalt refineries in Paulsboro, New Jersey and Savannah, Georgia. The carrying value of these assets is $445 million, and these comprise properties, plant and equipment for $170 million, net of accumulated depreciation for $130 million and $275 million, mainly of crude oil and by-products inventory.

In August 2006, CITGO retained an investment bank to evaluate the potential sale of a wholly-owned pipeline from Houston to Oklahoma, known as the Eagle Oil Pipeline, four Texas terminals and the Fauna storage facility, hereafter collectively known as the “Southwest Assets”, and its 16% share of an additional pipeline and four terminals located in Ohio, hereafter

16

collectively known as the “Ohio Assets”, as well as a terminal in Iowa and a terminal in Kentucky. As of October 2007 CITGO has entered into agreements for the sale of the Southwest Assets and the Ohio Assets.

At the extraordinary stockholder’s meeting of PDVSA held on January 20, 2006, it was approved to transfer, for no consideration, all of the shares of Pequiven to the Bolivarian Republic of Venezuela, in order to comply with the provisions of the Law Fostering Development of Petrochemical, Carbochemical and Similar Activities, enacted in December 2005.

To meet the guidelines established by the Ministry of Popular Power for Energy and Petroleum and strategic plans of PDVSA, the Company continued temporarily to support financially the activities of Pequiven. This support included loans for working capital to carry out the investment plan for 2006, discounts on methane gas prices and financing of accounts receivable up to 180 days.

Results of Operations – Six months ended June 2007 compared to six months ended June 2006

The production of crude oil, condensate and liquid petroleum gas of PDVSA averaged 3,018 MBPD during the six months ended June 30, 2007, compared to an average of 3,096 MBPD produced during the same period in 2006. Of this total of 3,018 MBPD, 25 % was light crude oil and condensates, 33% was medium crude oil, 37% was heavy crude oil and the remaining 5% was liquid petroleum gas. Our net production of natural gas (net of amounts re-injected) was 3,964.4 MMCFD during the six months ended June 30, 2007 compared to 3,932.1 MMCFD during the same period in 2006. All of our crude oil and natural gas production operations are located in Venezuela.

During the six months ended June 30, 2007, our net output of refined petroleum products (including output representing our equity interest in refineries held by our affiliates in the United States and in Europe) was 2,681 MBPD. Of this total, 1,128 MBPD (42%) was produced in our Venezuelan refineries, 219 MBPD (8%) in the Isla Refinery in Curaçao, 1,070 MBPD (40%) was produced by the refineries in the United States, and the remaining 264 MBPD (10%), was produced by our European joint ventures.

Total Revenues

Our total revenues decreased $7,963 million, or 16%, from $ 50,867 million during the six months ended June 30, 2006 to $42,904 million during the same period in 2007. The main reason for the decrease results from a reduction in the volume of sales of CITGO of 357 MBPD and the reduction of $/bl 2.40 in the average sales price.

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The main reasons for the decrease in volumes were the sale of our interest in LYONDELL-CITGO, and the end of CITGO’s contract to sell refined product to 7-Eleven on September 30, 2006 which was not renewed.

The following table sets forth a summary of our consolidated exports and international market sales for the six months ended June 2007 and 2006:

PDVSA’s Exports and International Market Sales Volume

Six months ended June 30, 2007 2006 MBPD % of Total MBPD % of Total Refined petroleum products 3,145 66% 3,633 70% Crude oil 1,607 34% 1,550 30% Total 4,752 100% 5,183 100%

Average Price/Barrel ($/Barrel) 51.15 53.55

Our consolidated sales of 4,752 MBPD in the first six months of 2007, compared to 5,183 MBPD in the first six months of 2006, consist primarily of exports of crude oil and refined petroleum products from Venezuela, sales by our international subsidiaries of crude oil and refined petroleum products purchased from third parties and Venezuelan domestic sales. Our sales during the first six months of 2007 consisted of 1,607 MBPD of crude oil and 3,145 MBPD of refined products, as compared to 1,550 MBPD of crude oil and 3,633 MBPD of refined products during the first six months of 2006.

Export Revenues of Crude Oil and Refined Products

Our exports decreased in volume by 4% from 2,660 MBPD in the six months ended June 30, 2006 to 2,553 MBPD in the same period in 2007. Our average export price per barrel, including crude oil, refined petroleum products and liquid petroleum gas, was $ 53.81 for the six months ended June 30, 2007, compared to $56.36 for the same period in 2006, representing a 5% decrease. As a result, our export revenues derived from such products decreased by $1,897 million in the six months ended June 30, 2007 as compared to the same period in 2006.

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The following table sets forth the primary markets for Venezuelan crude oil, refined petroleum products and liquid petroleum gas for the six months ended June 30, 2007 and 2006:

PDVSA's Export Sales - Geographical Breakdown

Six months ended June 30, 2007 2006 (MBPD, except as otherwise

indicated) United States and Canada 1,154 1,247 Caribbean, Central America and South America

853 835

Europe 254 316 Asia and others 292 262 Total 2,553 2,660

PDVSA exports all of the crude oil that we produce that is not processed in our Venezuelan refineries (including Isla Refinery in Curaçao). Of our total exports of crude oil and refined products of 2,553 MBPD for the six months ended June 30, 2007, 1,838 MBPD were exported (including Isla Refinery in Curaçao) as crude oil and 715 MBPD were exported as refined petroleum products. For the purpose of calculating export volumes, we treat crude oil processed in Isla Refinery in Curaçao as an export of crude oil from Venezuela and do not treat the sale of refined petroleum products from Isla Refinery as an export of refined petroleum products from Venezuela.

Revenues of International Subsidiaries

As of June 2007, the total volumes of crude oil and refined petroleum products that we sold exceeded our total production of crude oil and liquid petroleum gas. During the six months ended June 30, 2007, we produced 3,018 MBPD of crude oil and liquid petroleum gas, compared to 4,752 MBPD of total sales. CITGO, a wholly owned subsidiary of PDV America, Inc., generates most of the sales in excess of our crude oil and liquid petroleum gas production primarily because it purchases crude oil and refined petroleum products from third parties (including affiliates) for supply to its refining and marketing network in the United States.

Total sales of refined petroleum products by CITGO during the six months ended June 30, 2007 were approximately 1,332 compared to 1,689 MBPD for the same period in 2006. Sales decreased $6,700 million, or 27%, in the six months ended June 30, 2007 as compared to the

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same period in 2006, due to a decrease in the average sales price of 8% and a decrease in sales volume of 21%.

Domestic Sales

During the six months ended June 30, 2007 we sold 563 MBPD of refined petroleum products (including liquid petroleum gas) and 2,741 MMCFD of natural gas in Venezuela, compared to the 533 MBPD of refined petroleum products and 2,697 MMCFD of natural gas for the same period in 2006, representing an increase in sales of refined petroleum products and natural gas of 6% and 2%, respectively. The increase was mainly due to higher demand.

Equity in Earnings of Non-Consolidated Investees

Equity in earnings of non-consolidated investees decreased $331 million, from $695 million for the six months ended June 30, 2007 to $364 million by the same period in 2006, primarily due to the sale of our interest in LYONDELL-CITGO LP.

Cost and Expenses

Purchases of Crude Oil and Products

Purchases of crude oil and products decreased by 18% from $20,333 million for the six months ended June 30, 2006 to $16,646 million for the same period in 2007. CITGO purchases crude oil and refined petroleum products from third parties for supply to its refining and marketing network in the United States. CITGO’s purchases of crude oil from us totaled approximately 412 MBPD during the six months ended June 30, 2007, compared to 421 MBPD for the same period in 2006. For the first six months of 2007, PDVSA also purchased 431 MBPD of crude oil to meet our supply commitments and as feedstock in our refineries.

Operating Expenses

Our operating expenses decreased by $2,773 million, or 36 %, from $ 7,648 in the six months ended June 30, 2006 to $ 4,875 million for the same period in 2007. This decrease is mainly due to the migration of operating agreements to “Empresas Mixtas” from March 31, 2006 and the elimination of the payment of stipends, operational fees and capital fees related to the operating agreement. In addition, CITGO sold its 41.25% participation in LYONDELL-CITGO in August 2006 and also, in January and February 2007, CITGO sold its 6.8% and 15.8% interests in Explorer Pipeline Company and Colonial Pipeline Company, respectively, generating decrease in refining costs during the first semester of 2007.

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Selling, Administrative and General Expenses

Our selling, administrative and general expenses increased by 21 %, from $ 932 million for the six months ended June 30, 2006 to $1,129 million during the same period in 2007, mainly due to the increase in labor costs.

Financing Expenses

Our financing expenses increased by 233 % from a total of $ 93 million for the first six months of 2006 to $310 million during the same period in 2007. The variation is mainly due to the increase in the amount of debt outstanding, from $3,071 million at June 30, 2006 to $13,578 million at June 30, 2007.

New debt contracted during the period from June 2006 to June 2007, is represented principally by:

Unsecured bonds maturing in 2017, 2027 and 2037 for $3,000 million, $3,000 million, and $1,500 million, respectively, bearing annual interest of 5.25%, 5.375% y 5.50%, respectively, coupons are paid semi-annually.

Loans guaranteed by government agencies of export and financial institutions, $ 2,300 million, bearing interest at LIBOR plus 1.13%, maturing in 2022.

Long- term debt at June 30, 2007 and June, 30 2006 consists of the following (in millions of dollars):

Six months ended June 30, 2007 2006 Long-term debt 13,578 3,071 Less current portion of long-term debt 1,983 309 Long-term debt, net of current portion 11,595 2,762 Weighted average variable interest rate 6.05810 % 6.16126 % Weighted average fixed interest 7.85290 % 7.84404 %

Taxes

For the first six months period of 2007, PDVSA expensed $10,151 million in taxes, compared to $10,755 million in 2006, representing a decrease of 6%. The consolidated effective income tax rate for the six month period ended June 30, 2007 was 56.7% (for the year ended December 31,

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2006 the rate was 42,5% and for the six months ended June 30, 2006 this rate was 41.8%). This change in the effective tax rate was mainly due to a decrease as a result of the regular readjustment for inflation and the effect of the conversion into dollars, and an increase resulting from an increase in the provision for legal contingencies, the net effect of which resulted in a lower effective tax rate.

A summary of the tax effects on our consolidated operations for the six months ended June 30, 2007 and 2006 follows (in millions of dollars):

Six months ended June 30, 2007 2006 Income taxes 1,177 2,050 Production and other taxes 8,974 8,705 10,151 10,755

Impact of Taxes on Net Income and Cash Flows

Income tax expense is based on accounting records in Bolivars, in accordance with the Venezuelan income tax law. For tax purposes, Venezuelan companies are required to reflect the impact of inflation and the variations in the rate of the Bolivar relative to the dollar and other foreign currencies by adjusting non-monetary assets and stockholder’s equity on their fiscal balance sheets. The Venezuelan income tax law considers any gain resulting from this adjustment as taxable income and any loss as a deductible expense. Such adjustments affect our taxable income and therefore the amount of our income tax liability in Bolivars. When such tax liabilities are translated into dollars, the adjustments may create a material difference between the effective tax rate paid when expressed in dollars and the statutory rate in Bolivars.

On May 24, 2006 an amendment to the Organic Hydrocarbons Law modified existing taxes and created new taxes as described below.

Royalty and Production tax. The Organic Hydrocarbons Law came into effect in January 2002 and among other things increased the royalty tax rate from 16 2/3% to 30% based on the volume of extracted hydrocarbons. For mature reservoirs or extra-heavy crude oil from the Orinoco Oil Belt, the Organic Hydrocarbons Law provides for a tax of 20% to 30%. For natural bitumen, the Organic Hydrocarbons Law provides for a tax of 16 2/3% to 30%, based on the profitability of reservoirs. The tax is fully deductible for the purposes of determining net taxable income. On May 24, 2006, the Organic Hydrocarbons Law was updated to provide for a production tax at a rate of 33%, which is partially compensated with the royalty tax.

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On November 30, 2005, the Ministry of People’s Power for Energy and Petroleum and PDVSA Petróleo entered into an agreement to establish the terms for the payment of production tax on hydrocarbons exploitation and on participation in the extraction of associated substances, namely coque and sulfur, during the hydrocarbons upgrading and refining process. The agreement became effective on December 1, 2005.

Surface tax: The surface tax is calculated at the annual rate of 100 tax units (TU) for each square kilometer or fraction of surface extension of land granted and not exploited. Surface tax is determined based on the concession area not under production, with an annual increase of 2% for five years and 5% in subsequent years.

General consumption tax: The general consumption tax is determined at a rate ranging between 30% and 50% of the price paid by the final customer and is applicable to each liter of hydrocarbon-derived product sold in the domestic market. The consumption tax rate is determined annually.

We are also taxed on our own consumption, equivalent to 10% of the value of each cubic meter of hydrocarbon-derived product consumed as fuel oil in our operations, calculated based on the final sale price.

Extraction tax: The extraction tax is calculated at a rate of one third of the value of all the liquid hydrocarbons extracted from an oil field (from the same base established by the law for royalty calculation). The taxpayer may deduct from the amount to be paid what it will pay as royalty, including any additional royalty paid in advance.

Export registration tax: The export registration tax is calculated at a rate of one thousandth of the value of all hydrocarbons exported from a port in national territory (based on the sale price of these hydrocarbons).

Income Tax: In January 2002, an amendment to Venezuelan income tax laws came into effect that reduced the income tax rate applicable to our Venezuelan subsidiaries engaged in the production of hydrocarbons and related activities from 67.7% to 50%.

On September 25, 2006, an amendment to the income tax laws provided for the following changes:

Article 11 previously excluded the Orinoco Oil Belt associations from an income tax rate of 50%. Effective January 1, 2006, Article 11 only excludes those companies, whether integrated or not, that carry out exploration and exploitation activities of non-associated gas or processing, transport, distribution, storage, commercialization and export activities of gas and their components and those companies devoted exclusively to the refining or upgrading of heavy and extra-heavy crude oil.

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Article 56 previously granted a tax discount equivalent to 8% of the amount of new investments and an additional 4% for investments in hydrocarbons recovery, gas conservation and hydrocarbon valuation. Effective as of fiscal year 2006, Article 56 provides a tax discount of 10% for investments in assets, programs and activities related to the conservation and protection of the environment. This discount does not apply to companies involved in the exploitation of hydrocarbons and related activities.

An amendment to the Venezuelan Income Tax Law was published on February 16, 2007, which includes the following: (i) interest paid to related parties pursuant to the law is deductible only to the extent that debt due to related parties and debt due to independent parties does not exceed the debtor’s paid-in capital stock, (ii) the amount of a taxpayer’s indebtedness due to related parties that exceeds its annual average net equity will be treated as net equity, and (iii) foreign exchange profits or losses are deemed to have occurred in the fiscal year in which they are realized or when the related assets or liabilities become due.

Value Added Tax (VAT): Prior to August 2004, Venezuela levied a wholesale tax (a form of value added tax) of 16% on domestic sales transactions. Between September 2004 and September 2005, Venezuela levied this tax at a rate of 15% and, as of October 1, 2005, reduced the rate to 14%. On March 1, 2007, the President of Venezuela reduced the VAT rate to 11% and, as of July 1, 2007, reduced it to 9%.

As an exporter, each of our Venezuelan operating subsidiaries is entitled to a refund for a significant portion of such taxes paid, which we classify on our balance sheet as recoverable value added tax. The Venezuelan tax authority issues tax recovery certificates, or CERTs, to us which can be used to pay our future tax liabilities. During the first six months of 2006, we paid $209 million using CERTs. In 2006, we settled tax liabilities amounting to $647 million using CERTs.

The Partial Amendment to the Income Tax Law published in Official Gazette 38,529 dated September 25, 2006 supersedes all tax credits on new investments applicable to companies in the hydrocarbons sector and related activities, and exempts them from application of tax credits available for activities different from those relating to hydrocarbons. Until the date this amendment was enacted, PDVSA and some of its Venezuelan subsidiaries were entitled to tax credits for new investments in property, plant and equipment up to 12% of the amounts invested, and the carryforward period may not exceed three years. Such credits, however, may not exceed 2% of net taxable income according to the previous law.

The income tax law allows tax losses to be carried forward for three years to offset future taxable income, except losses resulting from the application of the fiscal inflation adjustment, which can be carried forward for one year.

Effective March 2002, and for the term of one year, the Venezuelan government introduced a tax on certain banking transactions to be levied at a rate of 0.75%. In March 2003, the term was extended for one more year, and this tax was raised to a rate of 1.00% until June

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2003, when the rate was reduced to 0.75%. The tax rate was reduced to 0.50% from December 2003 and at the beginning of February 2006 this tax was eliminated.

In conformity with the Venezuelan tax law, taxpayers subject to income tax who carry out import, export and loan operations with related parties domiciled abroad are obliged to determine their income, costs and deductions by applying transfer pricing rules. We have obtained studies supporting our transfer pricing methodology. The resulting effects are included as a taxable item in the determination of income tax. We undertake significant operations regulated by transfer pricing rules.

5.- Liquidity and Capital Resources

Cash Flows from Operating Activities

For the six months ended June 30, 2007, PDVSA’s net cash used in operating activities totaled $4,860 million, resulting from net cash used of $9,306 partially compensated by net cash provided of $4,446.

The cash used is represented as follows: $4,105 million increase in notes and accounts receivable, $2,080 million increase in prepaid expenses and other assets, mainly due to the overpayment of income tax, the increase of $697 million in recoverable value added tax, the payments of employee benefits of approximately $231 million and other adjustments to reconcile net income of $2,193 million, which includes: $1,172 million of deferred income tax, $ 364 of equity in earnings of non-consolidated investees, $641 of gain on sale of investment in affiliates of CITGO and $16 of asset impairment.

The cash provided is represented as follows: $896 million of net income $1,795 million of depreciation and depletion, $641 million of provision for employee benefits and other postretirement benefits, $309 million of changes in inventory, $107 million increase in accounts payable to suppliers, $607 increase in income tax payable, accruals and other liabilities and other items of $91 million.

Cash Flows from Investing Activities

Net cash used in investing activities totaled $3,896 million for the six months June 30, 2007, of which capital expenditures, net represent $3,823 million and $ 957 million represent the purchase of several entities in of the electricity sector of the country, such as 93.61% of the total outstanding shares of Electricidad de Caracas, C.A and 88% of the capital stock of Sistema Eléctrico del Estado Nueva Esparta, C.A.. During the first six months ended June 30, 2007, PDVSA received $280 million of dividends from investments in non-consolidated investees, and $ 756 million from the sale of CITGO’s interest of 6.8% and 15.8% in Explorer Pipeline Company and Colonial Pipeline Company, respectively.

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Our capital expenditures were as follows ($ in millions):

For the six month period ended June 30,

2007 2006 In Venezuela:

Exploration and Production 2,091 1,078 Refining 670 212 Gas and others 787 376

3,548 1,666 Foreign-refining 275 305 Total 3,823 1,971

Cash Flows from Financing Activities

Consolidated net cash from financing activities totaled approximately $10,441 million for the six months ended June 30, 2007, resulting primarily from borrowings of $11,427 million in order to obtain the necessary resources for the investment plans for the next 6 years (“Plan Siembra Petrolera 2007–2012”), the stockholder of PDVSA has approved the issue of bonds, as well as other borrowings. Debt repayments of $ 763 million, and dividends payments of $ 223 million.

Loan Agreements

As of June 30, 2007, PDVSA has an aggregate of $13,578 million of debt outstanding maturing on various dates through 2037.

During 2007, the republic, PDVSA’s stockholder approved an issuance of bonds, as well as other indebtedness.

On January 8, 2007 the public tender of bonds was approved up to $5,000 million due in 10, 20 and 30 years (2017, 2027 and 2037). Our subsidiary PDVSA Petróleo acts as a guarantor of all bonds, and the funds obtained must be used for capital investments. This issue was supervised and regulated by the BCV, and is exempt from the scope of the Capital Markets Law of Venezuela, on the basis that PDVSA is a state-owned company. Because of the high demand of investors and the favorable conditions of these debt instruments, the stockholder on 26 February 2007 authorized an increase of this issue from $5,000 to $7,500 million, in order to obtain additional resources necessary for the purchase of shares of companies in the electricity sector, as well as other investments approved by the stockholder of PDVSA. The annual coupon

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for the issued bonds is 5.25%, 5.375% and 5.50%, due in 10, 20 and 30 years, respectively. The combined issue of these bonds generated a premium of 5.5%. The bonds pay interest at principal in U.S. dollars.

On April 12, 2007, bonds totalize $7,500 million were issued.

In January 2007, PDVSA obtained a credit facility of $1,124 million with a consortium of banks led by BNP Paribas. This loan is due on January 30, 2008, and may be extended for an additional year with the approval of lenders representing over 50% of the original commitment. This loan bears interest at a rate equivalent to LIBOR plus an increase based on the country-risk of Venezuela, established by Standard & Poor’s.

In February 2007, PDVSA obtained a credit facility amounting to $3,500 million with a consortium of banks led by the Japan Bank for International Cooperation (JBIC). This loan is due in 15 years and bears interest at a rate equivalent to LIBOR plus 1.13% and includes cash payment options or delivery of crude oil and products at market prices, subject to an agreement of minimum amounts reviewed every three years. At June 30, 2007 PDVSA had drawn down a total of $2,300 million under the credit facility at an average interest rate of 6.52%. As of June 30, 2007 the balance of this debt is $2,244 million with an average interest rate of 6.50%.

At June 30, 2007, PDVSA has credit lines available for $ 1,150 million.

On April 30, 2007, $ 1.17 million was declared and paid as a dividend and $ 85 million was paid as advances of dividends to stockholder.

Our scheduled debt payments from July to December 2007, and for the years 2008,

2009, 2010, 2011 and thereafter totals $510 million, $1,780 million, $474 million, $1,637 million, $431 million and 8,746 million respectively.

6.- New Accounting Standard

March 2007, IASB issued International Accounting Standards 23 revised Borrowing Costs (IAS 23), which is effective for periods beginning on or after January 1, 2009. This standard is being evaluated by management and it is not expected that its application will significantly affect the consolidated financial statements. During the six months ended June 30 2007, the IASB issued Interpretation 13 (IFRIC 13) Client Fidelity Programmes. IFRIC 13 will be effective for periods beginning on or after of July 1, 2008.

PDVSA is assessing these new standards, and based on its analysis to date, it believes that they will not have a significant impact on the condensed consolidated interim financial statements at June 30, 2007.

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7.- Legal Proceedings

In September 2005, the company New Brunswick Power Corporation (“NB Power”) filed a lawsuit at a Canadian Court and an arbitration request before the International Council for Dispute Resolution of the American Arbitration Association of New York against PDVSA, Bitúmenes del Orinoco, S.A. (BITOR) and the Bolivarian Republic of Venezuela, alleging, among other things, the failure to comply with an Orimulsión® supply contract. Such procedures were suspended until the Federal Court of New York rules on a petition filed by PDVSA and BITOR relating to the existence of the Contract or lack thereof. NB Power, seeks compensation for damages for Cdn$2,000 million (Canadian dollars). On July 25, 2007, PDVSA paid $110 million in an out of court settlement with NB Power.

As of June 30, 2007 the Company is involved in other claims and legal actions in the normal course of business of $6,078 million. These claims and legal actions have not varied significantly since December 31, 2006; therefore the opinion then issued by management and its legal advisors, remains in effect concluding that, the outcome of these claims would not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

Based on an analysis of the information available, a provision is included in accruals and other liabilities at June 30, 2007 and December 3, 2006 for $1,569 million and $860 million, respectively. If the lawsuits and claims known were resolved in an adverse manner for the Company for amounts greater than those accrued, then such results could have material adverse affect on the Company’s results of operations. Although it is not possible to predict the outcome of these matters, management, based in part on the advice of its legal counsel, does not believe that it is probable that losses associated with such legal proceeding, exceeding the estimates already recognized, are significant for the Company’s financial situation or results of operations.

8.- Quantitative and Qualitative Disclosure about Market Risk

Introduction

We are exposed to hydrocarbon price fluctuations, interest rate fluctuations and foreign currency exchange risks. To manage these exposures, we have defined certain benchmarks consistent with our preferred risk profile for the environment in which we operate and finance our assets. We do not attempt to manage the price risk related to all of our inventories of hydrocarbon products. As a result, at June 30, 2007, we were exposed to price risks with respect to a substantial portion of our hydrocarbon inventories. The following disclosure does not

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attempt to quantify the price risks associated with such commodity inventories. All matters related to market risks are managed by our international subsidiaries.

Commodity Derivative Instruments

We balance our crude oil and refined product supply and demand and manage a portion of our price risk by entering into petroleum commodity derivative contracts through our subsidiary CITGO. Changes in the fair value of these contracts are recorded in cost of sales and operating expense.

The following tables present contractual amounts with open positions at June 30, 2007 and 2006 for commodity derivatives, and includes futures purchased and futures sold:

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Maturity Number of Contract Market

Commodity Derivative Date Contracts Value Value(3)

Long/(Short)

No Lead Gasoline (1) Futures Purchased 2007 175 16.3$ 16.5$

Futures Sold 2007 (990) (90.0)$ (92.5)$

Forward Purchase Contracts 2007 1,776 132.9$ 133.2$

Forward Sale Contracts 2007 (1,877) (148.9)$ (148.2)$

Distillates (1) Futures Purchased 2007 303 24.5$ 26.5$

Futures Purchased 2008 449 37.3$ 39.5$

Futures Sold 2007 (4) (0.3)$ (0.3)$

OTC Swaps (Pay Fixed / Receive Float) (4) 2007 112 -$ 0.8$

OTC Swaps (Pay Float / Receive Fixed) (4) 2007 (10) -$ (0.5)$



Forward Purchase Contracts 2007 394 29.9$ 29.6$


Forward Sale Contracts 2008 (489) (41.4)$ (43.5)$

Crude Oil (1) Futures Purchased 2007 865 58.5$ 61.3$

Futures Sold 2007 (50) (3.5)$ (3.5)$

Listed Put Options Purchased 2007 44 -$ 0.1$

Listed Put Options Sold 2007 (294) -$ (0.6)$

OTC Put Options Purchased 2007 1,000 -$ 1.0$

OTC Put Options Sold 2007 (500) -$ (0.7)$



Natural Gas (2) Futures Purchased 2007 300 2.6$ 2.3$

Listed Call Options Purchased 2007 1,400 -$ 0.5$

Listed Put Options Sold 2007 (1,400) -$ (0.8)$

OTC Options Purchased 2007 600 -$ 0.7$

OTC Options Sold 2007 (1,800) -$ 0.6$

Ethanol (1) Forward Sales Contracts 2007 3,311 -$ (1.7)$

(1) Thousands of barrels

(2) Ten-thousands of mmbtu

(3) Based on actively quoted prices.

(4) Floating price based on market index designated in contract; fixed price agreed upon at date of contract.

Open Positions at June 30, 2007

Asset/(Liability)

($ in millions)

Commodity Derivatives

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Maturity Number of Contract Market

Commodity Derivative Date Contracts Value Value(3)

Long/(Short)

No Lead Gasoline (1) Futures Purchased 2006 175 16.3$ 16.3$

Futures Sold 2006 (175) (16.3)$ (16.3)$




Distillates (1) Futures Purchased 2006 959 80.6$ 85.2$


Futures Sold 2006 (221) (18.9)$ (18.8)$

Futures Sold 2007 (1) (0.1)$ (0.1)$






Crude Oil (1) Futures Purchased 2006 671 48.0$ 50.1$

Futures Sold 2006 (701) (50.2)$ (52.3)$

Listed Call Options Purchased 2006 249 -$ 0.3$

Listed Call Options Sold 2006 (245) -$ (0.3)$


Listed Put Options Sold 2006 (145) -$ -$

OTC Swaps (Pay Fixed / Receive Float) (4) 2006 25 -$ -$



Natural Gas (2) Futures Purchased 2006 73 4.9$ 4.6$


Futures Sold 2006 (30) (2.0)$ (1.8)$

Futures Sold 2007 (15) (1.5)$ (1.5)$

Listed Call Options Purchased 2006 10 -$ 0.1$

Listed Call Options Sold 2006 (10) -$ (0.1)$


Listed Put Options Sold 2006 (45) -$ (0.3)$

OTC Put Options Sold 2006 (324) -$ (1.4)$

(1) Thousands of barrels

(2) Ten-thousands of mmbtu

(3) Based on actively quoted prices.

(4) Floating price based on market index designated in contract; fixed price agreed upon at date of contract.

Open Positions at June 30, 2006

Asset/(Liability)

($ in millions)

Commodity Derivatives

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Futures maturities of long-term at June 30, 2007 and June 30, 2006 are as follows (in millions of dollars)

Short-term and Long-term Debt at June 30, 2007

Expected Maturities

Fixed Rate Debt Variable Rate Debt TOTAL

US$ US$ US$ June 2007 – June 2008 15 1,968 1,983 July 2008 – December 2008 9 297 306 2009 17 457 474 2010 1,638 1,638 2011 7 424 431 Thereafter 7,840 906 8,746 Total 7,888 5,690 13,578

Short-term and Long-term Debt at June 30, 2006

Expected Maturities

Fixed Rate Debt Variable Rate Debt TOTAL

US$ US$ June 2006 – June 2007 11 298 309 June 2007 – December 2007 6 307 313 2008 18 412 430 2009 17 156 173 2010 137 137 2011 146 146 Thereafter 340 1,223 1,563 Total 392 2,679 3,071

Foreign Exchange Risk

The U.S. dollar is our functional currency, since a significant portion of our revenues and debt, as well as the majority of our costs, expenses and investments are denominated in dollars. We generally do not enter into foreign currency derivative transactions to hedge against movements in exchange rates. We are, however, exposed to foreign currency exchange risk associated with our recoverable luxury and wholesale tax receivables, notes and accounts receivable, and long-term and short-term debt denominated in currencies other than the U.S. dollar, as summarized below:

32

At June 30, At December 31, 2007 2006 ($ in millions) Monetary Assets Bolivars 15,056 11,056 Euros 458 452 Other currencies 9 15 15,523 11,523 Monetary Liabilities

Bolivars 21,625 12,591 Yen 219 249 Euros 44 3 Other currencies 63 42 21,951 12,885 Net Bolivars (6,569) (1,535) Yen (219) (249) Euros 414 449 Other currencies (54) (27) Total (6,428) (1,362)

33

SIGNATURES

PDVSA has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PETROLEOS DE VENEZUELA, S.A.

Date: December 28, 2007 By: /s Name: Víctor Eduardo Aular B. Title: Chief Financial Officer

34

ANNEX A

Measurement Conversion Table

1 barrel = 42 U.S. gallons

1 barrel of oil equivalent = 1 barrel of crude oil = 5,800 cubic feet of gas (based on the actual average equivalent energy content of PDVSA’s proved natural gas reserves)

1 barrel of crude oil per day = Approximately 50 tons of crude oil per year

1 cubic meter = 33.315 cubic feet

1 metric ton = 1,000 kilograms = Approximately 2,205 pounds

1 metric ton of crude oil = Approximately 7.3 barrels of crude oil (assuming a specific gravity of 33º)

1 metric ton of oil equivalent

= Approximately 1,125 cubic meters of natural gas

35

Glossary of Certain Oil and Gas Terms Unless the context indicates otherwise, the following terms used in this report have the

meanings set forth below:

2D Two dimensional seismic lines (Km). 3D Three dimensional seismic lines (Km2).

4D Three dimensional seismic lines (Km2) taken at different periods of time.

Alquilation The process of producing alquilates (refined products used to enhance gasoline).

AQUACONVERSION® A proprietary technology for the thermal/catalytic conversion of heavy crude oil and residuals by treatment with steam and additives, to reduce the viscosity of heavy crude oil fractions and residuals.

API gravity An indication of density of crude oil or other liquid hydrocarbons as measured by a system recommended by the American Petroleum Institute (API), measured in degrees. The lower the API gravity, the heavier the compound. For example, asphalt has an API gravity of 8° and gasoline has an API gravity of 50°.

Barrels (or bbl) Barrels of crude oil, including condensate and natural gas liquids.

BCF Billions of cubic feet. BOE Barrels of oil equivalent.

BPD Barrels per day. Cetane index An index used to measure diesel quality based on the efficiency

with which the fuel ignites; the higher the number the higher the quality of the diesel.

Condensate Light carbon substances produced from natural gas that condense into liquid at normal temperatures and pressures associated with surface production equipment.

Crude oil Crude oil containing condensate.

Crude slate (or slate) A listing of the various crudes that are processed in a refinery during a given period in a given configuration.

Distillate Liquid hydrocarbons distilled from crude or condensate. Extra-heavy crude oil Crude oil with an average API gravity of less than 11°.

FCC The FCC unit is the basis of modern refineries. It “cracks” heavy molecules of crude oils into smaller, lighter ones that can then be used in the formulation of gasolines.

36

Feedstocks Partially refined petroleum that is added to the crude slate and converted into refined petroleum products.

Fractionator A processing unit that breaks down feedstocks into desired fractions (specific boiling ranges).

Heavy crude oil Crude oil with an average API gravity of less than 21°. Hydrotreatment The process of removing sulfur from a hydrocarbon stream in the

presence of a catalyst. Km Kilometer.

Light crude oil Crude oil with an average API gravity of 30° or more. LNG Liquefied natural gas.

Medium crude oil Crude oil with an average API gravity of 21° or more and less than 30°.

MBPD Thousands of barrels per day. MCF Thousands of cubic feet.

MCFD Thousands of cubic feet per day. MMCFD Millions of cubic feet per day.

MDWT Thousand deadweight tons; a designation for the size or displacement of a ship.

M3D Cubic meters per day. MM3D One thousand cubic meters per day.

MMB Millions of barrels. MMMB Billions of barrels.

Olefins A class of unsaturated hydrocarbons. Pitch Black or dark viscose substance obtained as a residual in the

distillation of oil (bituminous—resin). Proved reserves Proved oil and gas reserves are the estimated quantities of crude oil,

natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reserves under existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangements, but not escalations based upon future conditions.

Proved developed reserves Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other

37

improved recovery techniques for supplementing natural forces and mechanisms of primary recovery are included as “proved developed reserves” only after testing by a pilot project or after the operating of an installed program has confirmed through production response that increased recovery will be achieved.

Proved undeveloped reserves

Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively minor expenditure is required for recompletion, but does not include reserves attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proven to be effective by actual testing in the area and in the same reservoir. Reserves on undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of production from the existing productive field.

Reformer A processing unit that converts naphtha into higher octane components.

Spud To begin to drill a well.

PETROLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA) (Wholly owned by the Bolivarian Republic of Venezuela)

F-1

CONDENSED COSOLIDATED INTERIM FINANCIAL STATEMENTS

PETRÓLEOS DE VENEZUELA, S.A. AND SUBSIDIARIES (PDVSA)

(Wholly-owned by the Bolivarian Republic of Venezuela)

Condensed Consolidated Interim Financial Statements

Six-month period ended June 30, 2007

With Independent Auditors’ Report Thereon

PETRÓLEOS DE VENEZUELA, S.A. Y SUS FILIALES (PDVSA) (Wholly-owned by the Bolivarian Republic of Venezuela)



Table of Contents

Pages

Independent Auditors’ Report on Review of Condensed Consolidated Interim Financial Information 1-2

Condensed Consolidated Interim Balance Sheet 3

Condensed Consolidated Interim Statement of Income 4

Condensed Consolidated Interim Statement of Stockholder’s Equity 5

Condensed Consolidated Interim Statement of Cash Flows 6

Notes to the Condensed Consolidated Interim Financial Statements:

(1) Reporting Entity 7

(2) Basis of Presentation: 7 (a) Statement of Compliance 7 (b) Functional and Presentation Currency 8 (c) Use of Estimates and Judgements 8

(3) Significant Accounting Policies 8

(4) Recently Issued Accounting Standards 8

(5) Exchange Agreement with the Banco Central de Venezuela (BCV) 9

(6) Transactions and Balances in Currencies other than the Dollar 9

(7) Prepaid Expenses and Other Assets 10

(8) Property, Plant and Equipment, Net 10

(9) Long-term Accounts Receivable and Other Assets 11

(10) Joint Development Activities 11

(11) Assets Classified as Held for Sale 12

(12) Purchase of Electricity Sector Companies 13

(13) Sale of Non-consolidated Investees 13

(14) Income Tax 14




Table of Contents, Continued

Pages

(15) Long-term Debt 14-15

(16) Accruals and Other Liabilities 15-16

(17) Capital Stock and Reserves 16

(18) Related Party Transactions 16-18

(19) Operating Segments and Geographic Data 18-19

(20) Litigation and Other Claims 19-20

(21) New Laws: 20 (a) Special Powers Law 20 (b) Monetary Reconversion Law 20

(22) Subsequent Events: 21 (a) Organic Law for Reorganization of the Electricity Sector 21 (b) Recently Issued Accounting Standards 21 (c) Litigation and Other Claims 21 (d) Sale of Citgo’s Assets 21 (e) Joint Development Activities 21-22 (f) Purchase of Companies in the Electricity Sector 22 (g) Collective Labor Contract 22 (h) Financial Transactions Tax Law 22

(Continued)

Independent Auditors’ Report on Review of Condensed Consolidated Interim Financial Information

To the Stockholder and Board of Directors of Petróleos de Venezuela, S.A.:

Introduction

We have reviewed the accompanying condensed consolidated interim balance sheet of Petróleos de Venezuela, S.A. and its subsidiaries (PDVSA) (wholly-owned by the Bolivarian Republic of Venezuela) as of June 30, 2007 and the related condensed consolidated statements of income, stockholder’s equity and cash flows for the six-month period then ended (interim financial information). We did not review the interim financial information as of June 30, 2007, and for the six-month period then ended of the following subsidiaries: Petroindependiente, S.A.; Petroboscán, S.A.; Petroregional del Lago, S.A.; Petroquiriquire, S.A.; Petrolera Sino-Venezolana, S.A. and Baripetrol, S.A., which reflect total assets constituting 3% as of June 30, 2007 and net income constituting 56% for the period then ended, of the related consolidated totals. The interim financial information of those subsidiaries was reviewed by other auditors, whose reports as of June 30, 2007 have been furnished to us and our conclusion, insofar as it relates to the amounts included in the interim financial information of those subsidiaries as of that date and for that period, is based solely on the reports of other auditors. The management of PDVSA is responsible for the preparation and fair presentation of the accompanying condensed consolidated interim financial information in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting. Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the accompanying condensed consolidated interim financial information.

Conclusion

Based on our review and the review reports of the other auditors, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information as of June 30, 2007 and for the six-month period then ended is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting.

2

Emphasis of Matters

We draw your attention to the following matters:

We audited PDVSA’s consolidated balance sheet as of December 31, 2006 and the related consolidated statements of income, stockholder’s equity and cash flows for the year then ended, and we issued our unqualified report thereon on June 15, 2007.

We did not perform a review of the condensed consolidated interim statements of income, stockholder’s equity and cash flows for the six-month period ended June 30, 2006, or the related explanatory notes; consequently, we do not express a conclusion thereon. This condensed consolidated interim financial information was prepared by the management of PDVSA and is presented solely for comparative purposes.

ALCARAZ CABRERA VÁZQUEZ

Dimas Castro Bustillos Public Accountant C.P.C. Nº 5326

October 26, 2007

Caracas, Venezuela


Condensed Consolidated Interim Balance Sheet as of June 30, 2007

(In millions of U.S. dollars)

3

June 30, De ce mbe r 31,

Asse ts Note 2007 2006

(unaudite d)

Current asset:

Cash and cash equivalents 3,560 1,875

Restricted cash 1,134 848

Recoverable value added tax 18 1,391 776

Notes and accounts receivable 13,651 9,546

Inventories 6,423 7,003

Prepaid expenses and other assets 7 5,174 2,985

Assets classified as held for sale 11 445 -

Total current assets 31,778 23,033

Restricted cash, net of current portion 1,796 1,928

Recoverable value added tax, net of current portion 18 3,542 3,460

Investments in non-consolidated investees 12, 13 3,423 2,503

Property, plant and equipment, net 8 44,377 42,503


Long-term accounts receivable and other assets 9 3,550 3,659

Total assets 92,671 80,529

Liabilitie s and Stockholde r's Equity

Current liabilities:

Accounts payable to suppliers 6,486 6,379

Current portion of long-term debt 15 1,983 652

Income tax payable 2,444 2,487

Employee benefits and other postretirement benefits 640 374

Accruals and other liabilities 16 9,770 9,263

Total current liabilities 21,323 19,155

Long-term debt, net of current portion 15 11,595 2,262

Employee benefits and other postretirement benefits, net

of current portion 1,875 1,731


Accruals and other liabilities, net of current portion 16 2,558 2,189

Total liabilities 39,030 27,426

Stockholder's equity, see statement of condensed consolidated

interim stockholder's equity 17 53,641 53,103

Total liabilities and stockholder's equity 92,671 80,529

The accompanying notes form part of the condensed consolidated interim financial statements.


Condensed Consolidated Interim Statement of Income


4

For the six months

e nde d June 30,

Note 2007 2006

Sales of crude oil and products: 18

Export and international markets 41,580 49,612

In Venezuela 1,099 1,036

Other sales 225 219

42,904 50,867

Costs and expenses: 18

Purchases of crude oil and products 16,646 20,333

Operating expenses 4,875 7,648

Exploration expenses 52 34


Asset impairment 8 (16) (33)

Selling, administrative and general expenses 1,129 932

Royalties and other taxes 8,974 8,705

Finance expenses 310 93

Other expenses, net 828 757

34,593 39,948

Equity in earnings of non-consolidated investees 18 364 695

Gain on sale of investment in affiliates of CITGO 13 641 -

Income before social development expenses

and income tax 9,316 11,614

Social development expenses 18 7,243 6,719

Income before income tax 2,073 4,895

Income tax 14 1,177 2,050


Net income:

Attributable to the Company's stockholder 625 2,684

Minority interests 271 161

896 2,845


(unaudite d)


Condensed Consolidated Interim Balance Sheet as of June 30, 2007

Six months ended June 30, 2007


5

Equity attributable to the Company's stockholder

Retained Earnings Total

Legal Accumulated Additional attributable to Total

Capital reserves and (losses) contribution of Company's Minority stockholder's

Note stock other income Total stockholder stockholder interests equity

Balances at January 1, 2006 39,094 8,825 (905) 7,920 - 47,014 81 47,095

Net income - - 2,684 2,684 - 2,684 161 2,845

Equity distribution to stockholder - (227) (2,582) (2,809) - (2,809) (70) (2,879)

Dividends paid - - (1,317) (1,317) - (1,317) - (1,317)

Balances at June 30, 2006 39,094 8,598 (2,120) 6,478 - 45,572 172 45,744

Balances at January 1, 2007 39,094 8,860 (471) 8,389 3,233 50,716 2,387 53,103

Net income - - 625 625 - 625 271 896

Advances to stockholder on account of

dividends 17 - - (85) (85) - (85) - (85)

Minority interests of "Empresas Mixtas"

in dividends declared by those

companies 17 - - - - - - (273) (273)

Balances at June 30, 2007 39,094 8,860 69 8,929 3,233 51,256 2,385 53,641



Condensed Consolidated Interim Statement of Cash Flows


6

For the six months

ended June 30,

2007 2006

Cash flows from operating activities:


Adjustments to reconcile net income to net cash

(used in) from operating activities -


Asset impairment (16) (33)

Cost of asset retirement obligations 91 -

Deferred income tax (1,172) (856)

Provision for employee benefits and other postretirement benefits 641 480

Equity in earnings of non-consolidated investees (364) (695)

Gain on sale of investment in affiliates of CITGO (641) -

Changes in operating assets -

Notes and accounts receivable (4,105) (3,758)

Inventories 309 685

Prepaid expenses and other assets (2,080) (4,137)

Recoverable value added tax (697) (463)

Changes in operating liabilities -

Accounts payable to suppliers 107 262

Income tax payable, accruals and other liabilities 607 4,725

Payments of employee benefits and other postretirement benefits (231) (234)

Total adjustments (5,756) (2,545)

Net cash (used in) from operating activities (4,860) 300

Cash flows from investing activities:

Capital expenditures, net (3,823) (1,971)

(Increase) decrease in restricted cash (154) 3,053

Sale of investments in affiliate of CITGO 756 -

Incorporation of non-consolidated investees (957) -

Dividends received from non-consolidated investees 280 527

Other changes in investments 2 148

Net cash (used in) from investing activities (3,896) 1,757

Cash flows from financing activitites:

Increase in long-term debt 11,427 -

Payments of long-term debt (763) (339)

Dividend advances to stockholder and dividends paid (85) (1,317)

Dividends paid - minority interests (138) -

Net cash from (used in) financing activities 10,441 (1,656)

Net increase in cash and cash equivalents 1,685 401

Cash and cash equivalents at January 1 1,875 1,800

Cash and cash equivalents at June 30 3,560 2,201


(unaudited)


Notes to the Condensed Consolidated Interim Financial Statements


(These condensed consolidated interim financial statements are unaudited)

7 (Continued)

(1) Reporting Entity

Petróleos de Venezuela, S.A. is a company incorporated and domiciled in the Bolivarian Republic of Venezuela and is located at Edificio Petróleos de Venezuela, Torre Este, Avenida Libertador, La Campiña, Apartado 169, Caracas 1010-A.

Petróleos de Venezuela, S.A. and its subsidiaries (PDVSA or the Company) are wholly-owned by the Bolivarian Republic of Venezuela, which controls PDVSA through the Ministry of Popular Power for Energy and Petroleum (formerly Ministry of Energy and Mines - MENPET). PDVSA is responsible, in Venezuela, for developing the hydrocarbon industry; and planning, coordinating, supervising and controlling the activities of its subsidiaries, both in Venezuela and abroad (see note 10). Most of the foreign subsidiaries are responsible for refining and marketing activities in North America, Europe and the Caribbean. Based on the new social responsibility of PDVSA, set forth in Articles 302 and 311 of the Constitution of the Bolivarian Republic of Venezuela and Article 5 of the Organic Hydrocarbons Law, regarding PDVSA’s involvement in the country’s social development and in order to support the development of infrastructure, highways and roads, agricultural, health and educational programs and other investments in Venezuela, PDVSA participates in diverse programs established by the National Government (see notes 9 and 18).

PDVSA’s condensed consolidated interim financial statements as of and for the six months ended June 30, 2007, comprise the Company and its subsidiaries, its affiliates and jointly-controlled entities.

PDVSA’s consolidated financial statements as of and for the year ended December 31, 2006 are available at the Company’s main office.

(2) Basis of Presentation

(a) Statement of Compliance

These condensed consolidated interim financial statements have been prepared in accordance with the International Financial Reporting (IFRS) IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board (IASB). They do not include all of the information required for full annual consolidated financial statements, and should be read in conjunction with the Company’s consolidated financial statements as of and for the year ended December 31, 2006 and the respective independent auditors’ report dated June 15, 2007.

On October 9, 2007, the Board of Directors approved the condensed consolidated interim financial statements as of and for the six months ended June 30, 2007.





8 (Continued)

(b) Functional and Presentation Currency

The condensed consolidated interim financial statements and its notes are presented in U.S. dollars (dollars or $), which is the functional currency of the Company since the main economic environment of the operations of PDVSA is the international market for crude oil and refined products. Additionally, a significant portion of revenues and long-term debt as well as most costs, expenses and investments are denominated in dollars.

The financial information presented in dollars has been approximated to millions.

(c) Use of Estimates and Judgements

In order to prepare the condensed consolidated interim financial statements, management is required to make estimates, judgements and assumptions affecting the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The Company uses its best estimates and judgements; nevertheless, actual results may differ from those estimates. For the preparation of these condensed consolidated interim financial statements, the significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2006.

(3) Significant Accounting Policies

The accounting policies applied by PDVSA in these condensed consolidated interim financial statements are the same as those applied by PDVSA in its consolidated financial statements as of and for the year ended December 31, 2006.

(4) Recently Issued Accounting Standards

In March 2007, the IASB issued the revised International Accounting Standard 23 Financing Costs (IAS 23), which will be effective for periods beginning on or after January 1, 2009.

During the six months ended June 30, 2007, the IASB issued Interpretation 13 (IFRIC 13) Customer Loyalty Programmes. IFRIC 13 will be effective for periods beginning on or after July 1, 2008.

PDVSA is assessing these new standards, and based on its analysis to date, it believes that they will not have a significant impact on the condensed consolidated interim financial statements at June 30, 2007.





9 (Continued)

(5) Exchange Agreement with the Banco Central de Venezuela (BCV)

On March 22, 2007 Official Gazette 38,650 published Currency Exchange Agreement 9, which established that PDVSA may acquire foreign currencies directly from the BCV, up to the amount authorized, to reimburse funds placed abroad, in accordance with that established in Article 113 of the BCV Law. Based on this Agreement, on February 8, 2007, the Board of Directors of the BCV authorized PDVSA to keep a special fund up to the amount of $3,500 million to support the “Plan Siembra Petrolera 2007 - 2013”.

(6) Transactions and Balances in Currencies other than the Dollar

PDVSA has the following monetary assets and liabilities denominated in currencies other than the dollar, which are converted to dollars at the exchange rate prevailing at the balance sheet date (in millions of dollars):

June 30, December 31,

2007 2006

Monetary assets:Bolivars 15,056 11,056 Euros 458 452 Other currencies 9 15

15,523 11,523

Monetary liabilities:Bolivars 21,625 12,591 Yen 219 249 Euros 44 3 Other currencies 63 42

21,951 12,885

Net monetary liability position (6,428) (1,362)

The exchange rates to the dollar at the interim period-end, average semi-annual exchange rates and the inter-semester increase in the Consumer Price Index (CPI), published by the BCV were as follows:

June 30,

2007 2006

Exchange rate for the dollar for the six-month period ended (Bs/$1) 2,150 2,150 Exchange rate for the dollar for the six-month period ended ($/!1) 1.35 1.28 Average semi-annual dollar exchange rate (Bs/$1) 2,150 2,150 Inter-semester increase in the CPI (%) 8 6





10 (Continued)

(7) Prepaid Expenses and Other Assets

Prepaid expenses and other assets are summarized as follows (in millions of dollars):


2007 2006

Income tax overpayments (see note 18) 3,966 2,077 Trading securities 264 309 Advances to suppliers and contractors 427 175 Prepaid insurance 7 84 Derivative assets - 52 Other assets 510 288

5,174 2,985

During the six months ended June 30, 2007 income tax overpayments include additional payments for $1,658 million, corresponding to the 2007 estimated income tax return.

(8) Property, Plant and Equipment, Net

Acquisitions and Disposals

During the six months ended June 30, 2007, the Company acquired assets with a cost of $3,728 million (for the six months ended June 30, 2006: $1,965 million). Also, assets with a net carrying value of $6 million were disposed of during the six months ended June 30, 2007 (for the six months ended June 30, 2006: $27 million).

Reversals of Impairment Loss

During the six months ended June 30, 2007, PDVSA carried out the relevant impairment assessments, and based on the new market conditions and the related business, identified the need to reverse $16 million of impairment losses recognized in prior periods, mainly relating to certain gas production, trading and transportation assets (for the six months ended June 30, 2006: $33 million).





11 (Continued)

(9) Long-term Accounts Receivable and Other Assets

Long-term accounts receivable and other assets are summarized as follows (in millions of dollars):


2007 2006

Long-term accounts receivable - energy agreements 1,017 707

Long-term accounts receivable from related parties

(see note 18) 955 1,483

Entities executing the Fondo para el Desarrollo

Económico y Social (FONDESPA) 860 882

Materials and supplies 48 45

Buildings used by government entities (see note 18) 84 87

Other 586 455

3,550 3,659

(10) Joint Development Activities

Migration of the Orinoco Oil Belt Association Agreements to “Empresas Mixtas”

Within the policies of “Full Petroleum Sovereignty” and for the purpose of ending privatization of the Venezuelan oil sector, which began in the 1990’s, on February 26, 2007, the Government of the Bolivarian Republic of Venezuela issued Decree-Law 5,200, Migration to “Empresas Mixtas” of the Orinoco Oil Belt Association Agreements, as well as the Risk Exploration and Profit Sharing Agreements; therefore, the associations Petrolera Zuata, S.A., Sincrudos de Oriente, S.A., Petrolera Cerro Negro, S.A. and Petrolera Hamaca, C.A. must become “Empresas Mixtas”, whereby the subsidiary Corporación Venezolana del Petróleo, S. A. (CVP), or any other appointed subsidiary holds no less than 60% of the shares, in accordance with the provisions of the Organic Hydrocarbons Law. Also, existing agreements in the West Paria Gulf, East Paria Gulf and the block referred to as La Ceiba; as well as Orifuels SINOVEN, S.A. (SINOVENSA) must be converted into “Empresas Mixtas” under the same structure as indicated above.

In this connection, transition commissions were created for each association, which incorporated directors to ensure the transfer of control of all of their activities to the new state companies. Also, this Decree-Law granted the partners a term, beginning on the date of its publication, to set the terms and conditions of their possible involvement in the new “Empresas Mixtas”. An additional term was granted to submit the terms and conditions to the National Assembly, for the purpose of seeking authorization, in accordance with the Organic Hydrocarbons Law. Once that term has elapsed, without an agreement being reached for incorporation and operation of the “Empresas Mixtas”, the Bolivarian Republic of Venezuela, through PDVSA, will assume directly the activities performed by the different associations, to maintain continuity, in the public and social interest.





12 (Continued)

Pursuant to this Decree-Law, since May 1, 2007, PDVSA is in charge of all facilities relating to the abovementioned associations.

On June 26, 2007, PDVSA signed the memorandums of understanding with international companies, partners of such Agreements, except for Petrolera Zuata, C.A. (Petrozuata) and Administradora Petrolera La Ceiba, C. A., with which PDVSA did not reach an agreement. These memorandums define the share participation in “Empresas Mixtas” to be formed and that will be submitted to the National Assembly, as established in the Organic Hydrocarbons Law (see note 22-e).

In the cases of Petrozuata and Administradora Petrolera La Ceiba, C.A., PDVSA took control of the activities of these Agreements.

In the case of SINOVENSA, PDVSA is in conversation with the China National Petroleum Corporation (CNPC) to agree the final structure.

Migration of Operating Agreements to “Empresas Mixtas”

In June 2007, the National Assembly of Venezuela approved the creation of the “Empresas Mixtas” Petrodelta, S.A. and Lagopetrol, S.A. with a participation of 60% and 69%, respectively, with the option for the minority stockholders of Lagopetrol, S.A. to increase their participation up to 40% under certain conditions (see note 22-e).

On March 5, 2007, PDVSA through its subsidiary Corporación Venezolana del Petróleo, S.A. (CVP), subscribed an agreement with the companies Total Oil and Gas and British Petroleum, in order to settle all participations, rights, shares or claims in relation to the extinguished exchange agreement, corresponding to the field Campo Jusepín in Monagas State, for the amount of $250 million.

(11) Assets Classified as Held for Sale

During 2007, CITGO Petroleum Corporation and subsidiaries (CITGO) decided to sell the two asphalt refineries, owned by CITGO Asphalt Refining Company (CARCO), located in Paulsboro - New Jersey and Savannah - Georgia, United States of America. The carrying value of these assets is $445 million, and these comprise properties, plant and equipment for $170 million, net of accumulated depreciation for $130 million, and $275 million, mainly inventories of crude oil and products.





13 (Continued)

(12) Purchase of Electricity Sector Companies

According to guidelines and strategic objetives of the National Government during 2007, the stockholder of PDVSA authorized the purchase of shares of several entities operating in the country’s electricity sector. These shares were recorded at cost and management believes that the effects of not consolidating these companies at June 30, 2007, are not material in relation to the consolidated financial statements as of that date (see note 22-a). A summary of these operations follows:

C.A. La Electricidad de Caracas

On February 15, 2007, PDVSA signed an agreement with The AES Corporation (AES) and its subsidiary AES Shannon Holding, B.V. for the purchase of its participation in C.A. La Electricidad de Caracas (EDC), equivalent to 82.14% of the shares. According to Venezuelan law, to purchase the remaining outstanding shares, PDVSA must make a public tender.

From April 8 to May 8, 2007, PDVSA made a public tender to purchase up to 17.86% of the remaining outstanding shares of EDC, at a bolivar equivalent of $0.2734 per share (determined at the official exchange rate for the sale of dollars effective as of the closing date). This included, at the same time, the public tender in Venezuela and one in the United States of America for the purchase of all outstanding American Depositary Shares (ADS’s), each representing 50 EDC shares at a price of $13.6675 for each ADS.

As a result of the public tender and the agreement with AES, PDVSA acquired 93.61% of the EDC shares in circulation for a total amount of $844 million.

Sistema Eléctrico del Estado Nueva Esparta, C.A.

On February 8, 2007, PDVSA entered into a memorandum of understanding with CMS Energy Corporation for the purchase of its shares in Sistema Eléctrico del Estado Nueva Esparta, C.A. (SENECA), for $106 million, which represents 88% of the capital stock of that company. On March 7, 2007, the stockholder of PDVSA approved the purchase which was made on March 30, 2007.

Other Companies in the Electricity Sector

During 2007, PDVSA began several negotiation processes in order to acquire the shares of the companies Turbogeneradores de Venezuela, S.A. (TURBOVEN); Termobarrancas, C.A.; C.A. Luz and Fuerza Eléctrica de Puerto Cabello (CALIFE). The Company’s management is currently negotiating with the stockholders of these companies, in order to reach to an agreement on the terms and conditions of the purchase (see note 22-f).

(13) Sale of Non-consolidated Investees

In January and February 2007, CITGO sold its 6.8% and 15.8% interests in Explorer Pipeline Company and Colonial Pipeline Company, respectively. For these sales, CITGO received $756 million in cash and recognized a gain on the sale of these investments of $641 million.





14 (Continued)

(14) Income Tax

The consolidated effective income tax rate for the six months ended June 30, 2007 was 56.7% (for the year ended December 31, 2006 the rate was 42.5% and for the six months ended June 30, 2006 the rate was 41.8%). The change in the effective tax rate was mainly due to a decrease as a result of the regular readjustment for inflation and the effect of the conversion into dollars, and an increase resulting from an increase in the provision for legal contingencies, the net effect of which resulted in a lower consolidated effective tax rate.

(15) Long-term Debt

The movement in long-term debt and its current portion, during the six months ended June 30, 2007, is summarized as follows (in millions of dollars):

Nom inal Ye ar of

Inte re st rate s value B alance m aturi ty

Balance at January 1, 2007 2,914

Inde bte dne ss

Issue of bonds 5.25% 3,000 3 ,000 2017

Issue of bonds 5.375% 3,000 3 ,000 2027

Issue of bonds 5.50% 1,500 1 ,500 2037

Loan guarant eed by governmental agencies

of export and financial inst it ut ions LIBOR+ 1.13% 2,300 2 ,244 2022

Unsecured revolving line of credit 6 .34% to 6.47% 1,124 1 ,124 2008

Revolving line of credit guarant eed by subsidiary

in t he Unit ed St at es of America 8.25% 1,150 458

Bonds issued by the subsidiary in t he Unit ed

St at es of America 5.09% 45 45 2037

Paym e nts

Secured bonds 7.33% to 8.46% - (37)

Lines of credit 4 .34% to 6.97% - (520)

Loans guarant ed in dollars 6 .13% to 7.69% (LIBOR +0.5%) - (120)

Loans guarant eed in yen 1.70% to 2.30% - (25)

Exchange variation - Debt in yen (5)

Balance at June 30, 2007 13,578

Issue of Bonds and Other Borrowings

On January 8, 2007 and February 26, 2007 the public tender of bonds was approved up to $7,500 million due in 10, 20 and 30 years (2017, 2027 and 2037). The subsidiary PDVSA Petróleo acts as a guarantor of all bonds, and the funds obtained must be used for capital investments, among others. This issue was supervised and regulated by the BCV, and is exempt from the scope of the Capital Markets Law of Venezuela, on the basis that PDVSA is a state-owned company. The annual coupon for bonds issued is 5.25%, 5.375% and 5.50%, due in 10, 20 and 30 years, respectively. The combined issue of these bonds generated a premium of 5.5%. The bonds are payable in U.S. dollars upon maturity.





15 (Continued)

Between April 12 and May 10, 2007, the process to issue the bonds was completed, placing the $7,500 million offered.

On April 2007, Decree 5,282 was published and established exoneration from the payment of income tax on income, to holders, individuals and legal entities, from PDVSA’s bonds.

In January 2007, the Company obtained a credit facility of $1,124 million with a group of banks led by BNP Paribas. This loan is due on January 30, 2008 and may be extended for an additional year with the approval of lenders representing over 50% of the original commitment. This loan bears interest at a rate equivalent to LIBOR plus an increase based on the country risk of Venezuela established by Standard & Poor’s. As of the date of the issue, this increase was 1.15%.

In February 2007, a group of banks lead by the Japan Bank for International Cooperation (JBIC) approved the granting of a loan to the Company of $3,500 million. This loan has a fifteen-year term, bears interest at a rate equivalent to LIBOR plus 1.13% and includes cash payment options or delivery of crude oil and products at market prices, subject to an agreement of minimum amounts reviewed every three years. At June 30, 2007 the Company has received $2,300 million, and has made payments for $56 million, with a remaining carrying value of $2,244 million.

(16) Accruals and Other Liabilities

Accruals and other liabilities are summarized as follows (in millions of dollars):


2007 2006

Taxes and contributions payable 4,366 2,298 Provision for litigation and other claims (see note 20) 1,569 860 Accounts payable to employees 718 515 Accrual for asset environmental obligations 800 709 Accrual for asset retirement obligations 1,122 1,024 Deferred income, net - premium on issue of bonds

(see note 15) 407 - Accrued social development expenses 1,617 255 Dividends payable 289 154 Other 1,440 5,637

Sub-total 12,328 11,452

Less, current portion of accruals and other liabilities 9,770 9,263

Long-term portion 2,558 2,189

Taxes and contributions payable include income tax, value added tax, royalties payable and other taxes.





16 (Continued)

The Company increased the provision for litigation and other claims by $534 million due to the unfavorable decision resulting from the review of the sentence filed by PDVSA with the Supreme Court of Justice for prior years tax obligations (see note 20).

The item other includes mainly financial leasing, dividends payable, accrued expenses of foreign affiliates and accounts payable to related parties.

(17) Capital Stock and Reserves

Dividends

During the six months ended June 30, 2007, advances to the stockholder on account of dividends, for $85 million, were paid in cash.

Minority Interests

Minority interests presented in the consolidated statement of stockholder’s equity are related to the participation of minority investors in stockholder’s equity and consolidated results for the six months ended June 30, 2007. During the first semester of 2007, a group of indirect subsidiaries (“Empresas Mixtas”) decreed and paid dividends for $273 million to minority investors.

(18) Related Party Transactions

PDVSA considers its non-consolidated investees, jointly-controlled companies, the Company’s directors and executives, other companies that are also property of the stockholder and other government institutions as related parties.

A summary of transactions and balances with related parties follows (in millions of dollars):

Six months ended

2007 2006

Activities of the semester:Sales 10,689 11,289 Equity interest in earnings

of non-consolidated investees 364 695 Costs and expenses:

Purchases of crude oil and products 2,061 1,329 Royalties and other taxes 8,974 8,705 Other 53 177

Estimated income tax expense in Venezuela 1,498 1,835 Social development expenses 7,243 6,719

June 30,





17 (Continued)


2007 2006

Balances at end of the period:Contributions to the Fondo para la Estabilización

Macroeconómica (FEM) 789 766 Trust funds with the Banco de Desarrollo

Económico y Social de Venezuela (BANDES) 1,001 996 Trust funds with Banfoandes,

Banco Universal, C.A. (BANFOANDES) 15 16 Income tax overpayments (see note 7) 3,966 2,077 Recoverable tax credits 4,933 4,236 Notes and accounts receivable 1,014 1,006 Long-term accounts receivable (see note 9) 955 1,483 Executing entities of FONDESPA (see note 9) 860 882 Investments in non-consolidated investees 2,473 2,503 Accounts payable to suppliers 181 247 Accruals and other liabilities (see note 16) 4,599 7,393 Buildings used by government entities

(see note 9) 84 87 Income tax payable in Venezuela 2,399 2,369

Supply agreements maintained by the subsidiary PDVSA Petróleo at June 30, 2007, remain in effect under the same conditions disclosed at December 31, 2006.

During the six months ended June 2007 and 2006, CITGO sold to affiliated companies, mainly at market prices, raw materials and other products for $271 million and $179 million, respectively. Balances relating to these operations at June 30, 2007 and December 31, 2006, for $74 million and $63 million, respectively, are included in notes and accounts receivable from related parties.

During the six months ended June 30, 2007 and 2006, CITGO purchased refined products from various affiliated companies (LYONDELL-CITGO Refining, L.P. until June 30, 2006, Hovensa L.L.C. and Chalmette Refining, L.L.C.) under long-term agreements. These purchases, for $2,031 million and $6,178 million, respectively, are included in the condensed consolidated interim statement of income as purchases of crude oil and products. At June 30, 2007 and December 31, 2006, accounts payable to suppliers include $171 million and $234 million, respectively, relating to these transactions.

During the six months ended June 30, 2007 and 2006, PDVSA purchased upgraded crude oil from Petrozuata for $30 million and $151 million, respectively, which are included in purchases of crude oil and products in the condensed consolidated interim statement of income. In addition, Petrozuata reimbursed PDVSA Petróleo, operating expenses for $3 million and $4 million, corresponding to the six months ended June 30, 2007 and June 30, 2006, respectively.





18 (Continued)

Long-term accounts receivable at June 30, 2007 and December 31, 2006 include balances with C. A. de Administración y Fomento Eléctrico (CADAFE) for $647 million and $503 million, respectively, which do not bear interest and have no fixed maturities. These accounts receivable from CADAFE result, mainly, from the supply of light diesel by PDVSA Petróleo, which can be offset against energy supply services provided by CADAFE. During the six months ended June 30, 2007 and 2006, PDVSA Petróleo offset accounts receivable from CADAFE for $10 million and $29 million, respectively.

During the six months ended June, 30 2007 and 2006, compensation made by PDVSA to its directors for salaries and social security contributions amounted to approximately $1.45 million and $1.38 million, respectively.

The transactions undertaken with related parties at June 30, 2007 and December 31, 2006, do not indicate necessarily the results that would have been obtained had these transactions been carried out with third parties.

At June 30, 2007 and December 31, 2006, certain assets with a net carrying value of $84 million and $87 million, respectively, have been identified, that correspond to buildings owned by PDVSA used by entities attached to government entities, for which agreements remain unchanged with respect to the conditions of use and the treatment of maintenance expenses and other charges at December 31, 2006. At June 30, 2007 and December 31, 2006, the value of such buildings is presented under other assets (see note 9).

(19) Operating Segments and Geographic Data

Business Segments

The exploration and production activities include the search for oil and gas reserves and upgrading of extra heavy crude; as well as the transportation of crude oil and associated gas to the refineries and cracking plants.

The refining, trading and supply activities in Venezuela include the management of the refineries, marketing and transportation of crude oil and refined products, under the PDV brand. Refining, trading and supply activities in the United States of America comprise the administration of refineries and the marketing of gasoline and products, mainly in the eastern and mid-west regions of the US, under the CITGO brand.

The gas activity includes the management of gas processing plants, the upgrading, and commercialization of natural and liquid gas, both for industrial and domestic use; as well as its transportation, distribution, placement and sale.

Geographic Segments

Exploration and production activities of crude oil and gas are performed solely in Venezuela. Refining, supply and trading activities are mainly in Venezuela and the United States of America.





19 (Continued)

The “Other” line item includes corporate related items and results of non-significant operations in Venezuela, Europe and the Caribbean.

The financial information relating to the operating income and loss of the Company’s segments, for the six months ended June 30, 2007 and 2006 is presented in the following table (in millions of dollars):

Refining,

Exploration and trade and

production supply Gas Other Eliminations Total

2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006

Sales of crude oil and

products:

In Venezuela 31,784 29,780 32,296 33,689 2,039 1,782 226 204 (29,928) (27,056) (1) 36,417 38,399

In the United States

of America - - 17,963 24,704 - - - - (11,484) (12,241) (1) 6,479 12,463

In other countries - - - - - - 8 5 - - 8 5

Total income 31,784 29,780 50,259 58,393 2,039 1,782 234 209 (41,412) (39,297) 42,904 50,867

Operating income (loss) of

segments:

In Venezuela 15,049 10,104 (8,688) (1,034) 1,301 935 8 15 (1,457) (606) (2) 6,213 9,415

In the United States

of America - - 2,123 1,371 - - - - - - 2,123 1,371

In other countries - - - - - - 285 226 - - 285 226

Total operating

income

(loss) 15,049 10,104 (6,565) 337 1,301 935 293 241 (1,457) (606) 8,621 11,012

(1) Represents eliminations of intersegment sales.

(2) Represents eliminations of intersegment sales, purchases and costs.

(20) Litigation and Other Claims

In September 2005, the company New Brunswick Power Corporation (“NB Power”) filed a lawsuit at a Canadian court and an arbitration request to the International Council for Dispute Resolution of the American Arbitration Association of New York, against PDVSA, Bitúmenes Orinoco, S.A. (BITOR) and the Bolivarian Republic of Venezuela, alleging, among other things the failure to comply with an Orimulsión® supply contract. Such procedures were suspended until the Federal Court of New York rules on a petition filed by PDVSA and BITOR regarding the existence of the Contract or lack thereof. NB Power, seeks compensation for damages of Cdn$ 2,000 million (Canadian dollars). The management of PDVSA and its legal advisors have stated that this contract was never signed; therefore, they have defended the allegation that the contract is invalid. At June 30, 2006, the provision for litigation and other





20 (Continued)

claims includes $110 million for this concept (see note 22-c).

The Company is involved in other claims and legal actions in the normal course of business amounting to $6,078 million. Except for that relating to an unfavorable case (see note 16) and that stated in the above paragraph, these claims and actions have not varied significantly since December 31, 2006; therefore, the opinion then issued by management and its legal advisors remains in effect, concluding that the outcome of these claims will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

Based on an analysis of the information available, a provision is included in accruals and other liabilities at June 30, 2007 and December 31, 2006 for $1,569 million and $860 million, respectively (see note 16). If known lawsuits and claims were resolved in an adverse manner for the Company for amounts greater than those accrued, then such results could have a material adverse effect on the Company’s results of operations. Although it is not possible to predict the outcome of these matters, management, based in part on the advice of its legal counsel, does not believe that it is probable that losses associated with such legal proceeding exceeding the estimates already recognized, are significant for the Company’s financial position or results of operations.

(21) New Laws

(a) Special Powers Law

On February 1, 2007 the National Assembly approved a law authorizing the President of the Bolivarian Republic of Venezuela to enact a Decree-Law for a series of matters for a term of 18 months after its publication. According to this law, the eleven areas approved are related to the transformation of government institutions, popular participation, economic, financial, fiscal and energy matters.

(b) Monetary Reconversion Law

On March 6, 2007 National Government enacted a Decree-Law for Monetary Reconversion, which establishes beginning on January 1, 2008, a restatement of the monetary system’s unit equivalent to one thousand current bolivars. Therefore, beginning on January 1, 2008, prices, salaries and other social aspects, as well as taxes and other amounts in Venezuelan currency contained in the financial statements, other accounting documents or securities, and in general, any transaction or reference expressed in Venezuelan currency must be restated in the new currency (“Bolívares Fuertes” o “Bs. F”). As part of the reconversion process, beginning October 1, 2007, the instruments used to display prices of goods and services as well as others expressing monetary amounts shall use the unit prior to restatement and the new one. Also, the new currency must be used in the financial statements for years ended prior to January 1, 2008, approved after that date.

The Company’s management believes that the application of this new law will not affect significantly the Company’s financial statements at June 30, 2007.





21 (Continued)

(22) Subsequent Events

Important events occurring after the balance sheet date at June 30, 2007 are presented below:

(a) Organic Law for Reorganization of the Electricity Sector

Official Gazette 38,736, of July 31, 2007 published a Decree-Law for Reorganization of the Electricity Sector, whereby the company Corporación Eléctrica Nacional, S.A. is created, attached to the Ministry of Popular Power for Energy and Petroleum, to focus on the generation, transmission, distribution and commercialization of power and electricity. The capital stock will be subscribed 75% by the Republic, through the Ministry of Popular Power for Energy and Petroleum, and 25% by PDVSA. This Law instructs the Republic, Corporación Venezolana de Guayana (CVG) and PDVSA, to transfer their shares in public electric companies to the Corporación Eléctrica Nacional, S.A. Currently, the Company’s management is in the process of evaluating the mechanisms to transfer the shares (see note 12).

(b) Recently Issued Accounting Standards

In July 2007, the IASB issued Interpretation 14 (IFRIC14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction). This interpretation is effective for fiscal years beginning on or after January 1, 2008. This interpretation is being assessed by the Company’s management and is not expected to have significant effects on the consolidated financial statements.

(c) Litigation and Other Claims

On July 25, 2007, the Company made a payment of $110 million in favor of NB Power for an extra-judicial agreement among the parties, whereby the claim is definitively extinguished (see note 20).

(d) Sale of CITGO’s Assets

In October 2007, CITGO agreed to sell the Eagle Oil Pipeline as part of the markets review strategy initiated in 2006.

(e) Joint Development Activities

In September 2007, CVP and the company Harvest - Vinccler, C. A. signed the contract to convert to the “Empresa Mixta” Petrodelta, S. A., whereby CVP will hold 60% of the shares and Harvest –Vinccler, C. A. 40%.





22

Official Gazette 38,785, of October 8, 2007, published the Law on the Effects of the Migration process to “Empresas Mixtas” of Joint Ventures of the Orinoco Oil Belt; as well as the Risk Exploration and Profit Sharing Agreements, which establishes the time limit for the private parties to reach agreements for the incorporation of “Empresas Mixtas”, and for cases where agreement is not reached, PDVSA or a subsidiary will assume the operating activities.

In Official Gazette 38,798, of October 29, 2007, the National Assembly approved the creation of the “Empresas Mixtas”: PetroMonagas, S.A. (formerly Cerro Negro), PetroCedeño, S.A. (formerly SINCOR), PetroPiar, S.A. (formerly Hamaca), East and West Paria Gulf, where PDVSA shall have a participation of 83.33%, 60%, 70%, 60% and 74%, respectively (see note 10).

During August 2007, CVP paid to Petro-Canada $75 million for settlement of the La Ceiba Association Agreement (see note 10).

(f) Purchase of Companies in the Electricity Sector

On July 6, 2007, PDVSA purchased 100% of the shares of C. A. Electricidad de Valencia (ELEVAL) for $190 million.

(g) Collective Labor Contract

On October 11, 2007, PDVSA signed a Collective Labor Contract effective until 2009, introducing improvements in salaries and social benefits of the contractual payroll workers. This Contract will cover over 760 new workers in the solids control area; although this activity is performed at the productive drilling rigs, it was excluded in 1999 from the collective labor contract. The obligations resulting from application of this contract will commence from the time the legal deposit is made, which is estimated to be during the first two weeks of November 2007.

(h) Financial Transactions Tax Law

On October 5, 2007, the National Government enacted the Decree-Law for the Financial Transactions Tax for Companies and Economic Entities without Juridical Personality. This law establishes that companies and economic entities without Juridical Personality shall pay an amount equivalent to 1.5 % of the amount of the financial transactions undertaking. This Law will be effective from November 1, 2007 until December 31, 2008.

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