MD Overview : This slide runs a self-contained mini-presentation listing the firm’s services.

1. MD Overview : This slide runs a self-contained mini-presentation listing the firm’s services. As the audience begins to arrive for your presentation, you may wish to let this run as an introduction to the firm. To remove this slide, choose Edit, Delete Slide. DO NOT CHANGE THIS SLIDE

2. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Opportunities in Venezuelan Hydrocarbons10th AnnualLatin Oil & Gas 200421 & 22 June, 2004Rio de Janeiro, Brazil Elisabeth Eljuri E-mail: elisabeth.eljuri@macleoddixon.com.ve Phone: +58 212 2760002

3. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Content: I) Projects recently awarded or to be awarded in the near future: • In the gas sector • In the oil sector II) Legal Aspects of the Oil & Gas Business: • Legal Aspects of the gas business • Legal Aspects of the oil business • Overview of the Service Contract Experience

4. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Projects recently awarded or to be awarded in the near future: In the gas sector: • 11 onshore gas licenses were bid but only 6 were awarded in 2001. • Plataforma Deltana: Three offshore gas licenses bid in 2002/2003. One more is still in negotiation for a direct adjudication. • MSLNG: This project is being negotiated on a direct award basis with Shell/Mitsubishi. It includes an offshore gas license and permits for an LNG Plant. • Seven blocks in the West (Golfo de Venezuela and Falcón). Possibly also for crude.

5. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Projects recently awarded or to be awarded in the near future: In the oil sector: • Conversion of operating agreements into joint venture companies: In order to adapt the operating agreements signed under the old regime to the parameters set forth in the Organic Hydrocarbons Law (“OHL”) for joint venture companies. • Possible creation of joint venture companies for both medium and light as well as extra heavy oil. Unclear whether they will be bid or directly awarded.

6. Legal Aspects of the Gas Business: Constitutional Framework => Hydrocarbon reservoirs belong to the Republic. Legal Framework => Organic Gaseous Hydrocarbons Law (“OGL”) published in OG Nº 36.793 dated September 23, 1999. General Regulations to the OGL (“Regulations”) published in OG Nº 5.471 Extraordinary dated June 5, 2000.

7. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Gas Business (cont.): Title to the Fields: Fields of “hydrocarbon gases” existing in the national territory, in the Territorial Sea, in the Contiguous Maritime Zone and on the Continental Shelf belonging to the Republic, are part of the public domain.

8. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Gas Business (cont.): Private Participation: • Article 2 of the OGL opens to State, national private and foreign private companies the exploration for, and production of fields of non-associated gas; and transportation, processing, storage, industrialization, distribution and exporting of all hydrocarbon gases, whether coming from associated or non-associated reservoirs. The OGL also covers liquid hydrocarbons and non-hydrocarbons components of hydrocarbons gases as well as hydrocarbon gases generated by the refining process.

9. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Gas Business (cont.): Prohibition of Vertical Integration • The same person cannot simultaneously carry out or control, in the same region, two or more of the activities of production, transportation or distribution of natural gas. • When the viability of the project requires it, the MEM can authorize the same person to carry out more than one of these activities, in which case the authorized person must establish separate accounting for each activity.

10. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Gas Business (cont.): • Article 45 of the Regulations allow the MEM to extend the application of the OGL to “associated gas” fields if its crude or condensate reserves do not permit commercial production.

11. Legal Aspects of the Gas Business (cont.): Open Access • As per the OGL, companies involved in the storage, transportation and distribution of hydrocarbons gases are obliged to offer available capacity to other companies. • The upstream gas licenses provide that, the MEM has the authority to propose the licensee that a third party share its facilities.

12. Legal Aspects of the Gas Business (cont.): Licenses & Permits • Exploration for, and production of non-associated gas fields can be carried out by national or foreign private companies with or without the participation of the State, under a license system. • Gas Activities in the midstream and downstream sector are subject to a permit regime.

13. Legal Aspects of the Gas Business (cont.): Licenses – Requirements • Licenses must contain, at a minimum, clauses specifying : • Description of the project. • Maximum term of 35 years, subject to a maximum extension of additional 30 years. • Maximum of 5 years for an exploration program. • Delimitation of the exploration block. • Indication of any special payments stipulated in favor of the Republic.

14. Legal Aspects of the Gas Business (cont.): Licences – Local Content • The Regulations require to the “highest extent possible” to use Venezuelan goods, services and management, and to train Venezuelan personnel. Licenses – Prohibition of Sale of Essential Assets • The Regulations prohibit to sell, dispose, lease, give in accommodation, impose any liens or give different use to the Essential Assets (facilities and equipment indispensable to conduct the activity with maximum eficiency and quality).

15. Legal Aspects of the Gas Business (cont.): Licenses – Reversion • The OGL establishes that all land and permanent works, including facilities, accesories and equipment acquired to be used pursuant to the license (and permits) shall be preserved and reverted to the Republic once the licensee expires free of any liens and encumbrances.

16. Legal Aspects of the Gas Business (cont.): Licenses – Royalty • The OGL imposes a flat royalty of 20% on all gas produced, which is not re-injected. This royalty only applies to non-associated gas production. • The MEM can request the royalty in cash or kind. If no preference is stated, the assumption is that the royalty must be paid in cash.

17. Legal Aspects of the Gas Business (cont.): Licenses – Pricing and Tariffs • The MEM has the authority to determine the prices of the hydrocarbon gases from the production and processing centers, taking into consideration equitable principles. • The MEM and the Ministry of Production and Commerce are empowered to regulate tariffs for all services: transportation, storage and distribution.

18. Legal Aspects of the Gas Business (cont.): Licenses - Condensate or Associated Gas • There is an obligation to inform MEM of a discovery of oil, condensates or associated gas, within 30 calendar days after a discovery takes place. • The licensee does not have immediate and direct production rights to such discovery, but there is a possibility to enter into contractual arrangements, without going through a public binding process.

19. Legal Aspects of the Gas Business (cont.): Permits • Permits are subject to very similar rules as licenses, including specifically rules on assignment, reversion (with certain exceptions), choice of law and jurisdiction, and special payments. • Permits for processing and industrialization of hydrocarbon gases, and marketing of LPGs are not subject either to fixed terms or reversion.

20. Legal Aspects of the Gas Business (cont.): • Rights conferred by an exploration and production license do not entitle the licensee to carry out any of the activities under the permit regime unless such activities are “inherent to the project”. Such licensees have to acquire the relevant permit.

21. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business Constitutional Framework => • Hydrocarbon reservoirs belong to the Republic. This rule is confirmed in the OHL.  • Petroleum activities are reserved to the State for reasons of public interests and strategic nature.

22. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): Legal Framework => OHL (Organic Hydrocarbons Law) published in OG Nº 37.323 dated November 13, 2001. Primary activities (exploration, extraction, gathering, transportation and initial storage), as well as those associated with the works required for such primary activities, are reserved to the State.

23. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): Primary activities may be performed: • Directly by the State; • Through 100% State-owned companies; or • Through joint venture companies in which the State’s participation as shareholder is greater than 50%. This means that under the OHL, private participation in primary activities is available only through incorporated joint venture companies with a State-equity participation of more than 50%.

24. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): Traditional Service Contracts The possibility of private entities entering into service contracts for hydrocarbon projects may still be open under Article 25 of the OHL, but there are no parameters regulating these types of contracts.

25. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): Operating and Association Agreements The possibility of private entities entering into operating agreements (as regulated under the prior legislation) and association agreements (such as those used for the extra-heavy crude projects) is no longer available under the OHL. Notwithstanding the above, and because of the non-retroactive application of the OHL, the operating and association agreements already signed are still valid.

26. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): The performance of primary activities by private investors requires: • Authorization from the National Assembly at the request of the National Executive through the MEM of the joint venture company and the terms and conditions; • Incorporation of the joint venture company; • Granting of the right to perform primary activities by decree of the National Executive;

27. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): • Designation of the geographical area by decree of the National Executive; and • Entering into a contract or granting instrument governing the operations.

28. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): The minimum conditions of the granting instrument are basically: • A 25-year limit, renewable for a maximum of 15 years; • The description of the location and extension of the area; • The obligation to maintain the land, facilities and equipment used to carry out the activities and to assign such assets to the State upon expiration of the term; and

29. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): • The inclusion of a clause stating that any matters which cannot be settled in a friendly manner by the parties, including by arbitration in those cases permitted by the relevant law, shall be decided by the courts of the Republic.

30. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): Industrial activities include distillation, purification and transformation of natural and refined hydrocarbons to obtain by-products in order to increase the value of the relevant substances. • The industrial (refining) activities may be performed by the State or by private persons through a licenses regime (in the case of natural hydrocarbon refining), and through permits (in the case of industrialization of refined hydrocarbons). • The OHL reserves to the State the title over the existing facilities and works of its property used for refining and for transportation of products and gas.

31. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): Commercialization activities • The commercialization of natural hydrocarbons is reserved to 100% State owned companies.  • The commercialization of hydrocarbon by-products are, in principle, not reserved to the State and can be carried out by private entities. The OHL provides that the National Executive, by way of a Decree, is entitled to reserve the commercialization of certain hydrocarbon by-products for 100% owned companies.

32. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): Royalties • The OHL provides a royalty rate of 30%. • The OHL allows the Government to agree on a reduced rate of 20% for mature or extra-extra-heavy crude fields and 16 2/3% for bitumen fields in case the economic viability of the project is at stake. The OHL also allows the Government to revert such reduction if the economics of the projects improve in a way to allow for an increase in royalty.

33. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): Local content • All persons engaged in hydrocarbons activities have an obligation to contract “goods, services, human resources and capital of national origin”. • The current Administration issued specific guidelines for local content participation, on the basis of the provisions in the OHL and in the Organic Law on Gaseous Hydrocarbons. Basically, they provide that projects have to be designed in such a way as to maximize their local content, and exceptions are allowed only to ensure the technical level and quality.

34. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): Open access The OHL establishes the obligation on storage, transportation and distribution companies to provide open access to their facilities. Producers and major users are not expressly included as also subject to the open access obligation. Facilities used for the commercialization of hydrocarbon by-products are not expressly excluded from the open access rule.

35. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): Mandatory OPEC Curtailment The OHL provides a vague rule concerning the application of any decisions taken by the Republic pursuant to international agreements upon those entities conducting hydrocarbon activities.

36. Sample Bullets : Replace the text in each bullet with your own information. To create another slide with the same layout, choose Insert, Duplicate Slide. Legal Aspects of the Oil Business (cont.): Non-retroactive Application of the OHL The OHL contains no grandfathering provision confirming the validity of vested rights with respect to agreements executed under the prior hydrocarbon legislation. Notwithstanding the lack of a grandfathering provision, rights vested under the legislation in effect before the enactment of the OHL, are generally protected on the basis that the retroactive application of legislative provisions is forbidden by constitutional mandate.

37. Conclusions on Today’s Opportunities: • New opportunities are taking a different structure • Unique opportunities being offered due to current situation • Certain level of contract and award risks • However, it seems that for the right opportunity, contractors are willing to invest.

38. Thank you for your Attention www.macleoddixon.com