TEXT-S&P affirms Petroleos de Venezuela

(The following statement was released by the rating agency)

Overview
-- Venezuelan state-owned oil company PDVSA's business and financial
performance remain aligned with our expectation.
-- We are affirming our 'B+' rating on PDVSA.
-- The stable outlook reflects our view that PDVSA's relationship with
the government will not change significantly over the next few years.

Rating Action
On July 30, 2012, Standard & Poor's Ratings Services affirmed its 'B+'
long-term corporate credit and senior unsecured ratings on Petroleos de
Venezuela S.A. (PDVSA). The outlook is stable. This affirmation follows our
regular annual review.

Rationale
The 'B+' rating on PDVSA, which is at the same level as that on its owner, the
Bolivarian Republic of Venezuela (B+/Stable/B), reflects our opinion that
there is an "almost certain" likelihood that the government would provide
timely and sufficient extraordinary support to PDVSA in the event of a
financial distress. We assess PDVSA's stand-alone credit profile (SACP) at
'b+', which reflects our assessment of a fair business risk profile and an
aggressive financial profile. It also incorporates continued delays in
releasing its financial information, as well as our view that the company
could prioritize transfers to the government before debt payments in a
distressed scenario.

In accordance with our criteria for government-related entities, our view of
an "almost certain" likelihood of extraordinary support is based on our
assessment of the following factors:
-- "Critical" role in contributing about 50% of the government's revenues
and 90% of the country's exports, and playing a key position in meeting the
sovereign's political and economic objectives; and
-- "Integral" link with the government, given its full and stable
ownership of the company. We also believe that the government will provide
considerable and timely credit support to the company in all circumstances.

PDVSA's fair business risk profile is based on its position as a leading
integrated oil company with a considerable proven reserve base, low discovery
and development costs, and its ownership of CITGO Petroleum Corp.
(BB-/Stable/--), one of the leading refiners in the U.S. We expect PDVSA's
business strategy to continue focusing on developing Venezuela's hydrocarbon
resources and improving its refineries. The company adjusted its projected
capital expenditures to $142 billion for the next five years to achieve a
sustainable crude oil production of 4.5 million barrels per day (mbpd) by 2015.

During 2011, PDVSA's crude oil production averaged 2.991 mbpd, up 1% from
2.975 mbpd in 2010 to meet OPEC production quota for that year. Current OPEC
quota for Venezuela is 3.2 mbpd. We believe that oil production will slightly
increase further and reach 3.5 mbpd for the next few years, although the
company's expectation is to increase its total production to 4.5 mbpd in 2015.

We view PDVSA's financial risk profile as aggressive due to the ongoing
increase in its debt, high capital expenditures, and considerable
contributions to the government's social programs which the company increased
to $30 billion during 2011, $4 billion of which went to the National
Development Fund (FONDEN) and $14 billion to a program to build housing for
the poor (Gran Mision Vivienda Venezuela). However, we are not expecting any
further contributions to Gran Mision Vivienda due to the contributions already
made. Despite the significant contributions to social programs, the company's
financial performance and main credit metrics were strong in 2011 with an
EBITDA margin of 40%, mainly due to higher oil prices.

PDVSA has benefited greatly from the recent high oil prices: as of Dec. 31,
2011, its EBITDA interest coverage, total debt to EBITDA, and funds from
operations (FFO) to total debt were 10.2x, 0.9x, and 28.7%, respectively,
compared with 3.4x, 1.0x, and 41%. Assuming our price deck for oil and gas at
$80 for 2013, and production levels of about 3.4 mbpd, we believe that these
ratios should remain within the current range. However, metrics could
deteriorate if the company continues to increase leverage and/or if there is a
considerable decrease in oil prices.

Liquidity
As a result of high oil prices during 2011, company's operating cash flow and
profitability measures rose. We have revised PDVSA's liquidity to "adequate"
from "less than adequate," as defined in our criteria. Our liquidity
assessment is based on the following assumptions:
-- We estimate that given the company's maturities during the next 12-18
months, uses of liquidity will exceed its sources by 1.22x;
-- Sources would continue to exceed uses even if EBITDA drops 20%;
-- Although major maturities were extended to 2017 and beyond with its
recent exchange, the company has maturities of more than $2 billion in the
current year, $3 billion in 2013 and 2014; and
-- Annual capital expenditures will be about $16 billion in 2012, and in
the $15 billion area for the next two years. We consider that those capital
expenditures could be significantly reduced under weaker industry conditions.

As of Dec. 31, 2011, PDVSA reported negative free operating cash flow (FOCF)
of $6.1 billion due to its high capital expenditure program, and we expect
FOCF to remain negative for the following several years. Our liquidity
analysis also incorporates qualitative factors, including our view that the
company has the capacity to absorb, with limited need for refinancing,
high-impact, low-probability events. Also, in our view, PDVSA has a sound
relationship with the banks.

As of Dec. 31, 2011, PDVSA's cash and equivalents totaled $10.3 billion
compared with $2.3 billion in debt maturities during the next 12 months
(adjusted for pension liabilities, operating leases, and asset retirement
obligations). In addition, we estimate FFO to be $15.2 billion by the end of
this year. As of Dec. 31, 2011, the company had no committed credit lines and
was in compliance with its financial covenants, mainly including debt to
EBITDA below 2.5x and EBITDA interest coverage above 4.0x

Outlook
The stable outlook reflects our view that PDVSA's relationship with the
government will not change significantly during the next few years. Because of
our assessment of an "almost certain" likelihood of support from the
government, the movement of the rating on PDVSA will follow that on the
sovereign.

Related Criteria And Research
-- Key Credit Factors: Global Criteria For Rating The Oil And Gas
Exploration And Production Industry, Jan. 20, 2012
-- Key Credit Factors: Criteria For Rating The Global Oil Refining
Industry, Nov. 28, 2011
-- General Criteria: Rating Government-Related Entities: Methodology And
Assumptions, Dec. 9, 2010
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
May 27, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

Ratings List
Ratings Affirmed

Petroleos de Venezuela S.A.
Corporate Credit Rating B+/Stable/--
Senior Unsecured B+

(Caryn Trokie, New York Ratings Unit)