CITGO PETROLEUM CORP - 10-Q Quarterly Report

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United States

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
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OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

COMMISSION FILE NUMBER 1-14380
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CITGO PETROLEUM CORPORATION
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(Exact name of registrant as specified in its charter)

DELAWARE 73-1173881
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)

ONE WARREN PLACE, 6100 SOUTH YALE AVENUE, TULSA, OKLAHOMA 74136
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(Address of principal executive office) (Zip Code)

(918) 495-4000
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(Registrant's telephone number, including area code)

N. A.
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(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark whether the registrant is an accelerated filer (as
described in Rule 12b-2 of the Act): Yes No X
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

COMMON STOCK, $1.00 PAR VALUE 1,000
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(Class) (outstanding at April 30, 2003)

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CITGO PETROLEUM CORPORATION

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

TABLE OF CONTENTS
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FACTORS AFFECTING FORWARD LOOKING STATEMENTS

This Report contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Specifically, all statements under
the caption "Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations" pertaining to capital expenditures and
investments related to environmental compliance, strategic planning, purchasing
patterns of refined products and capital resources available to CITGO Petroleum
Corporation ("CITGO", "our Company", "we", "us", "our", or similar references)
are forward looking statements. In addition, when used in this document, the
words "anticipate," "estimate," "project," "believe" and similar expressions are
used to identify forward looking statements.

Those forward looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from the forward looking
statements. Those risks and uncertainties include changes in the availability
and cost of crude oil, feedstocks, blending components and refined products;
changes in prices or demand for our products as a result of competitive actions
or economic factors; changes in environmental and other regulatory requirements,
which may affect operations, operating costs and capital expenditure
requirements; costs and uncertainties associated with technological change and
implementation; inflation; and continued access to capital markets and
commercial bank financing on favorable terms. In addition, we purchase a
significant portion of our crude oil requirements from Petroleos de Venezuela,
S.A. (as defined herein), our ultimate parent corporation, under long-term
supply agreements, and could be adversely affected by social, economic and
political conditions in Venezuela. (See Exhibit 99.4 to the Form 8-K filed by
CITGO on February 25, 2003 for additional information concerning risk factors).

Readers are cautioned not to place undue reliance on these 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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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
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See notes to condensed consolidated financial statements.

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CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
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See notes to condensed consolidated financial statements.

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CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS)
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See notes to condensed consolidated financial statements.

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CITGO PETROLEUM CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
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See notes to condensed consolidated financial statements.

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CITGO PETROLEUM CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE-MONTH PERIODS ENDED MARCH 31, 2003 AND 2002
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1. BASIS OF PRESENTATION

The financial information for CITGO Petroleum Corporation ("CITGO" or
"the Company") subsequent to December 31, 2002 and with respect to the
interim three-month periods ended March 31, 2003 and 2002 is unaudited.
In management's opinion, such interim information contains all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results of such periods. The results of
operations for the three-month periods ended March 31, 2003 and 2002
are not necessarily indicative of the results to be expected for the
full year. Reference is made to CITGO's Annual Report for the fiscal
year ended December 31, 2002 on Form 10-K, dated March 21, 2003, for
additional information.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"), which clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements." FIN 46 defines variable interest entities and
how an enterprise should assess its interests in a variable interest
entity to decide whether to consolidate that entity. The interpretation
requires certain minimum disclosures with respect to variable interest
entities in which an enterprise holds significant variable interest but
which it does not consolidate. FIN 46 applies immediately to variable
interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning
after June 15, 2003 to variable interest entities in which an
enterprise holds a variable interest that it acquired before February
1, 2003. FIN 46 applies to public enterprises as of the beginning of
the applicable interim or annual period, and it applies to nonpublic
enterprises as of the end of the applicable annual period. FIN 46 may
be applied prospectively with a cumulative-effect adjustment as of the
date on which it is first applied or by restating previously issued
financial statements for one or more years with a cumulative-effect
adjustment as of the beginning of the first year restated. CITGO
expects that the application of FIN 46 to variable interest entities in
which it acquired an interest before February 1, 2003 will not have a
material impact on its financial position or results of operations.

On January 1, 2003 the Company adopted Statement of Financial
Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143) which addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. It applies
to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development
and/or the normal operation of a long-lived asset, except for certain
obligations of lessees. The Company has identified certain asset
retirement obligations that are within the scope of the standard,
including obligations imposed by certain state laws pertaining to
closure and/or removal of storage tanks, contractual removal
obligations included in certain easement and right-of-way agreements
associated with the Company's pipeline operations, and contractual
removal obligations relating to a refinery processing unit located
within a third-party entity's facility. The Company cannot currently
determine a reasonable estimate of the fair value of its asset
retirement obligations due to the fact that the related assets have
indeterminate useful lives which preclude development of assumptions
about the potential timing of settlement dates. Such obligations will
be recognized in the period in which sufficient information exists to
estimate a range of potential settlement dates. Accordingly, the
adoption of SFAS No. 143 did not impact the Company's financial
position or results of operations.

2. ACCOUNTS RECEIVABLE

Credit rating downgrades from the three major rating agencies during
January 2003, caused a termination event under CITGO's accounts
receivables sale facility existing at that time, which ultimately led
to the repurchase of $125 million in accounts receivable and
cancellation of the facility on January 31, 2003. That

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facility had a maximum size of $225 million, of which $125 million was
used at the time of cancellation. On February 28, 2003, a new accounts
receivable sales facility was established. This facility allows for the
non-recourse sale of certain accounts receivable to independent third
parties. A maximum of $200 million in accounts receivable may be sold
at any one time.

3. INVENTORIES

Inventories, primarily at LIFO, consist of the following:

4. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

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CITGO's revolving bank loan agreements with various banks consist of
(i) a $260 million, three-year, revolving bank loan, maturing in
December 2005; (ii) a $260 million, 364-day, revolving bank loan,
maturing in December 2003; and (iii) a $25 million, 364-day, revolving
bank loan, maturing in May 2003. The $25 million revolving bank loan,
expiring in May 2003, will not be renewed. CITGO intends to replace
both of the $260 million revolving bank loans when they mature.

On May 3, 2002, CITGO issued $7.7 million of tax exempt environmental
facilities revenue bonds due 2032. On June 28, 2002, CITGO issued $30
million of tax exempt environmental facilities revenue bonds due 2032.
The proceeds from both of these issuances will be used for capital
projects at the Lemont refinery. Restricted cash of $24 million at
March 31, 2003 represents highly liquid investments held in trust
accounts in accordance with these bond agreements. Funds are released
solely for financing the qualified capital expenditures as defined in
the bond agreements. CITGO repurchased the $7.7 million of tax exempt
bonds in May of 2003.

On February 27, 2003, CITGO closed on a three year $200 million, senior
secured term loan. Security is provided by CITGO's 15.8 percent equity
interest in Colonial Pipeline and 6.8 percent equity interest in
Explorer Pipeline.

On February 27, 2003 CITGO issued $550 million aggregate principal
amount of 11-3/8 percent unsecured senior notes due February 1, 2011.
In connection with this debt issuance, CITGO redeemed $50 million
principal amount of its Senior Notes due 2006.

The tax-exempt bonds are supported by letters of credit. Some of the
providers of these letters of credit indicated they would not renew
such letters of credit. As a result, CITGO repurchased tax-exempt bonds
that were supported by these letters of credit in the amounts of $75
million in March 2003, $25 million in April 2003 and approximately $8
million in May 2003.

5. INVESTMENT IN LYONDELL-CITGO REFINING LP

LYONDELL-CITGO Refining LP ("LYONDELL-CITGO") owns and operates a 265
MBPD refinery in Houston, Texas and is owned by subsidiaries of CITGO
(41.25%) and Lyondell Chemical Company (58.75%) ("the Owners"). This
refinery processes heavy crude oil supplied by PDVSA under a long-term
supply contract that expires in 2017. CITGO purchases substantially all
of the gasoline, diesel and jet fuel produced at the refinery under a
long-term contract.

At various times since April 1998, PDVSA, pursuant to its contractual
rights, declared force majeure and reduced deliveries of crude oil to
LYONDELL-CITGO; this required LYONDELL-CITGO to obtain alternative
sources of crude oil supply in replacement, which resulted in lower
operating margins. Most recently, LYONDELL-CITGO received notice of
force majeure from PDVSA in December 2002. Crude oil was purchased in
the spot market to replace the volume not delivered under the contract
during December 2002. By February 2003, crude oil deliveries had
returned to contract volumes and the force majeure was lifted March 6,
2003.

CITGO has a note receivable from LYONDELL-CITGO which totals $35
million at March 31, 2003 and December 31, 2002. The note bears
interest at market rates. Principal and interest are due in December
2004. Accordingly, this note is included in the balance sheet caption
other assets in the accompanying consolidated balance sheets.

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CITGO accounts for its investment in LYONDELL-CITGO using the equity
method of accounting and records its share of the net earnings of
LYONDELL-CITGO based on allocations of income agreed to by the Owners
which differ from participation interests. Cash distributions are
allocated to the Owners based on participation interest. Information on
CITGO's investment in LYONDELL-CITGO follows:

On December 11, 2002, LYONDELL-CITGO completed a refinancing of its
working capital revolver and its term bank loan. The new term loan and
working capital revolver will mature in June 2004.

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6. COMMITMENTS AND CONTINGENCIES

LITIGATION AND INJURY CLAIMS - Various lawsuits and claims arising in
the ordinary course of business are pending against the Company. The
Company records accruals for potential losses when, in management's
opinion, such losses are probable and reasonably estimable. If known
lawsuits and claims were to be determined in a manner adverse to the
Company, and in amounts greater than the Company's accruals, then such
determinations could have a material adverse effect on the Company's
results of operations in a given reporting period. The most significant
lawsuits and claims are discussed below.

The Company settled a lawsuit against PDVMR and CITGO in Illinois state
court which claimed damages as a result of PDVMR invoicing a
partnership in which it is a partner, and an affiliate of the other
partner of the partnership, allegedly excessive charges for electricity
utilized by these entities' facilities located adjacent to the Lemont,
Illinois refinery. The electricity supplier to the refinery is seeking
recovery from the Company of alleged underpayments for electricity. The
Company has denied all allegations and is pursuing its defenses.

In September 2002, a state District Court in Corpus Christi, Texas has
ordered the Company to pay property owners and their attorneys
approximately $6 million based on alleged settlement of class action
property damage claims as a result of alleged air, soil and groundwater
contamination from emissions released from the Company's Corpus
Christi, Texas refinery. CITGO will appeal the ruling to the Texas
Court of Appeals.

CITGO is one of several refinery defendants to state and federal
lawsuits in New York and state actions in Illinois and California
alleging contamination of water supplies by methyl tertiary butyl ether
("MTBE"), a component of gasoline. The plaintiffs claim that MTBE is a
defective product and that refiners failed to adequately warn customers
and the public about risks associated with the use of MTBE in gasoline.
These actions allege that MTBE poses public health risks and seek
testing, damages and remediation of the alleged contamination. The
plaintiffs filed putative class action lawsuits in federal courts in
Illinois, California, Florida and New York. CITGO was named as a
defendant in all but the California case. The federal cases were all
consolidated in a Multidistrict Litigation case in the United States
District Court for the Southern District of New York ("MDL"). In July
2002, the court in the MDL case denied plaintiffs' motion for class
certification. The California plaintiffs in the MDL action then
dismissed their federal lawsuit and refiled in state court in
California. Subsequently, the remaining MDL plaintiffs settled with the
Company and its codefendants for an amount that does not have a
material impact on CITGO's financial condition or results of
operations. The Company anticipates a similar settlement of the
California lawsuit. In August 2002, a New York state court judge
handling two separate but related individual MTBE lawsuits dismissed
plaintiffs' product liability claims, leaving only traditional nuisance
and trespass claims for leakage from underground storage tanks at
gasoline stations near plaintiffs' water wells. Subsequently, a
putative class action involving the same leaking underground storage
tanks has been filed. CITGO anticipates filing a motion to dismiss the
product liability claims and will also oppose class certification.
Also, in late October 2002, The County of Suffolk, New York, and the
Suffolk County Water Authority filed suit in state court, claiming MTBE
contamination of that county's water supply. The Illinois state action
has been brought on behalf of a class of contaminated well owners in
Illinois and a second class of all well owners within a defined
distance of leaking underground storage tanks. The judge in the
Illinois state court action is expected to hear plaintiffs' motion for
class certification in that case sometime within the next year.

In August 1999, the U.S. Department of Commerce rejected a petition
filed by a group of independent oil producers to apply antidumping
measures and countervailing duties against imports of crude oil from
Venezuela, Iraq, Mexico and Saudi Arabia. The petitioners appealed this
decision before the U.S. Court of International Trade based in New
York. On September 19, 2000, the Court of International Trade

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remanded the case to the Department of Commerce with instructions to
reconsider its August 1999 decision. The Department of Commerce was
required to make a revised decision as to whether or not to initiate an
investigation within 60 days. The Department of Commerce appealed to
the U.S. Court of Appeals for the Federal Circuit, which dismissed the
appeal as premature on July 31, 2001. The Department of Commerce issued
its revised decision, which again rejected the petition, in August
2001. The revised decision was affirmed by the Court of International
Trade on December 17, 2002. In February 2003, the independent oil
producers appealed the decision of the Court of International Trade.

CITGO has been named as a defendant in approximately 122 asbestos
lawsuits pending in state and federal courts, primarily in Louisiana,
Texas and Illinois. These cases, most of which involve multiple
defendants, are brought by former employees or contractor employees
seeking damages for asbestos related illnesses allegedly caused, at
least in part, from exposure at refineries owned or operated by CITGO
in Lake Charles, Louisiana, Corpus Christi, Texas and Lemont, Illinois.
In many of these cases, the plaintiffs' alleged exposure occurred over
a period of years extending back to a time before CITGO owned or
operated the premises at issue. In some cases, CITGO is indemnified by
or has the right to seek indemnification for losses and expenses that
CITGO may incur from prior owners of the refineries or employers of the
claimants. In other cases, including approximately 96 actions where
CITGO has not been sued but prior owners of the CITGO refineries have
been sued, these prior owners have asserted indemnification rights
against CITGO. The Company does not believe that the resolution of
these cases will have an adverse material effect on its financial
condition or results of operations.

ENVIRONMENTAL COMPLIANCE AND REMEDIATION - The U.S. refining industry
is required to comply with increasingly stringent product
specifications under the 1990 Clean Air Act Amendments for reformulated
gasoline and low sulphur gasoline and diesel fuel that have
necessitated additional capital and operating expenditures, and altered
significantly the U.S. refining industry and the return realized on
refinery investments. Also, regulatory interpretations by the U.S. EPA
regarding "modifications" to refinery equipment under the New Source
Review ("NSR") provisions of the Clean Air Act have created uncertainty
about the extent to which additional capital and operating expenditures
will be required and administrative penalties imposed.

In addition, CITGO is subject to various other federal, state and local
environmental laws and regulations that may require CITGO to take
additional compliance actions and also actions to remediate the effects
on the environment of prior disposal or release of petroleum, hazardous
substances and other waste and/or pay for natural resource damages.
Maintaining compliance with environmental laws and regulations could
require significant capital expenditures and additional operating
costs. Also, numerous other factors affect the Company's plans with
respect to environmental compliance and related expenditures. See
"Factors Affecting Forward Looking Statements."

CITGO's accounting policy establishes environmental reserves as
probable site restoration and remediation obligations become reasonably
capable of estimation. CITGO believes the amounts provided in its
consolidated financial statements, as prescribed by generally accepted
accounting principles, are adequate in light of probable and estimable
liabilities and obligations. However, there can be no assurance that
the actual amounts required to discharge alleged liabilities and
obligations and to comply with applicable laws and regulations will not
exceed amounts provided for or will not have a material adverse affect
on its consolidated results of operations, financial condition and cash
flows.

In 1992, the Company reached an agreement with the Louisiana Department
of Environmental Quality ("LDEQ") to cease usage of certain surface
impoundments at its Lake Charles refinery by 1994. A mutually
acceptable closure plan was filed with the LDEQ in 1993. The Company
and the former owner of the refinery are participating in the closure
and sharing the related costs based on estimated contributions of waste
and ownership periods. The remediation commenced in December 1993. In
1997,

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CITGO presented a proposal to the LDEQ revising the 1993 closure plan.
In 1998 and 2000, CITGO submitted further revisions as requested by the
LDEQ. The LDEQ issued an administrative order in June 2002 that
addressed the requirements and schedule for proceeding to develop and
implement the corrective action or closure plan for these surface
impoundments and related waste units. Compliance with the terms of the
administrative order has begun.

The Texas Commission on Environmental Quality ("TCEQ") conducted a
two-day multi-media investigation of the Corpus Christi Refinery during
2002 and has issued a notice of enforcement to the Company identifying
31 items of alleged violations of Texas environmental regulations.
CITGO anticipates that penalties will be proposed with respect to these
matters, but no amounts have yet been specified.

In March 2003, the TCEQ notified CITGO about a proposed penalty for
failure to maintain equipment upset records, to obtain authority for
certain sulfur dioxide and hydrogen sulfide emissions and to comply
with certain air limitations at its Corpus Christi refinery during 2000
and 2001. CITGO disputes these findings and has appealed the proposed
penalty.

In June 1999, CITGO and numerous other industrial companies received
notice from the U.S. EPA that the U.S. EPA believed that CITGO and
these other companies have contributed to contamination in the
Calcasieu Estuary, in the proximity of Lake Charles, Calcasieu Parish,
Louisiana and are potentially responsible parties ("PRPs") under the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"). The U.S. EPA made a demand for payment of its past
investigation costs from CITGO and other PRPs and since 1999 has been
conducting a remedial investigation/feasibility study ("RI/FS") under
its CERCLA authority. The U.S. EPA released the draft of the remedial
investigation phase of the report in early May 2003. CITGO and other
PRPs may be potentially responsible for the costs of the RI/FS,
subsequent remedial actions and natural resource damages. CITGO is
reviewing the recent remedial investigation phase of the report and its
implications. Meanwhile, the Company disagrees with the U.S. EPA's
earlier allegations and still intends to contest this matter.

In January and July 2001, CITGO received notices of violation ("NOVs")
from the U.S. EPA alleging violations of the Clean Air Act. The NOVs
are an outgrowth of an industry-wide and multi-industry U.S. EPA
enforcement initiative alleging that many refineries and electric
utilities modified air emission sources without obtaining permits or
installing new control equipment under the NSR provisions of the Clean
Air Act. The NOVs followed inspections and formal information requests
regarding the Company's Lake Charles, Louisiana, Corpus Christi, Texas
and Lemont, Illinois refineries. Since mid-2002, CITGO has been engaged
in global settlement negotiations with the United States. The
settlement negotiations have focused on different levels of air
pollutant emission reductions and the merits of various types of
control equipment to achieve those reductions. No settlement agreement,
or agreement in principal, has been reached. Based primarily on the
costs of control equipment reported by the United States and other
petroleum companies and the types and number of emission control
devices that have been agreed to in previous petroleum companies' NSR
settlements with the United States, CITGO estimates that the capital
costs of a settlement with the United States could range from $130
million to $200 million. Any such capital costs would be incurred over
a period of years, anticipated to be from 2003 to 2008. Also, this cost
estimate range, while based on current information and judgment, is
dependent on a number of subjective factors, including the types of
control devices installed, the emission limitations set for the units,
the year the technology may be installed, and possible future
operational changes. The Company also may be subject to possible
penalties. If settlement discussions fail, CITGO is prepared to contest
the NOVs. If CITGO is found to have violated the provisions cited in
the NOVs, it estimates the capital expenditures and penalties that
might result could range up to $290 million, to be incurred over a
period of years.

In June 1999, an NOV was issued by the U.S. EPA alleging violations of
the National Emission Standards for Hazardous Air Pollutants
("NESHAPS") regulations covering benzene emissions from wastewater
treatment operations at the Company's Lemont, Illinois refinery. CITGO
is in settlement discussions with

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the U.S. EPA. CITGO believes this matter will be consolidated with the
matters described in the previous paragraph.

In June 2002, a Consolidated Compliance Order and Notice of Potential
Penalty was issued by the LDEQ alleging various violations of the
Louisiana air quality regulations at CITGO's Lake Charles, Louisiana
refinery. CITGO is in settlement discussions with the LDEQ.

Various regulatory authorities have the right to conduct, and from time
to time do conduct, environmental compliance audits of CITGO and its
subsidiaries' facilities and operations. Those audits have the
potential to reveal matters that those authorities believe represent
non-compliance in one or more respects with regulatory requirements and
for which those authorities may seek corrective actions and/or
penalties in an administrative or judicial proceeding. Based upon
current information, CITGO is not aware that any such audits or their
findings have resulted in the filing of such a proceeding or is the
subject of a threatened filing with respect to such a proceeding, nor
does CITGO believe that any such audit or their findings will have a
material adverse effect on its future business and operating results,
other than matters described above.

Conditions which require additional expenditures may exist with respect
to the Company's various sites including, but not limited to, its
operating refinery complexes, former refinery sites, service stations
and crude oil and petroleum product storage terminals. Based on
currently available information, CITGO cannot determine the amount of
any such future expenditures.

DERIVATIVE COMMODITY AND FINANCIAL INSTRUMENTS - As of March 31, 2003
CITGO's petroleum commodity derivatives included exchange traded
futures contracts, forward purchase and sale contracts, exchange traded
and over-the-counter options and over-the-counter swaps. At March 31,
2003, the balance sheet captions prepaid expenses and other current
assets and other current liabilities include $14 million and $24
million, respectively, related to the fair values of open commodity
derivatives.

CITGO has also entered into various interest rate swaps to manage the
Company's risk related to interest rate changes on its debt. The fair
value of the interest rate swap agreements in place at March 31, 2003,
based on the estimated amount that the Company would receive or pay to
terminate the agreements as of that date and taking into account
current interest rates, was a loss of $3 million, the offset of which
is recorded in the balance sheet caption other current liabilities. In
connection with the determination of fair market value, the Company
considered the creditworthiness of the counterparties, but no
adjustment was determined to be necessary as a result.

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GUARANTEES - As of March 31, 2003, the Company has guaranteed the debt
of others in a variety of circumstances including letters of credit
issued for an affiliate, bank debt of an affiliate, bank debt of an
equity investment, bank debt of customers and customer debt related to
the acquisition of marketing equipment as shown in the following table:

In each case, if the debtor fails to meet its obligation, CITGO would
be obligated to make the required payment. The guarantees related to
letters of credit, affiliate's bank debt and equity investment bank
debt expire in 2003. The guarantees related to customer bank debt
expire between 2004 and 2009. The guarantees related to financing debt
associated with equipment acquisition by customers expire between 2003
and 2007. The Company has not recorded any amounts on the Company's
balance sheet relating to these guarantees.

In the event of debtor default on the letters of credit, CITGO has been
indemnified by PDV Holding, Inc. ("PDV Holding"), the direct parent of
PDV America. In the event of debtor default on the affiliate's and
equity investment bank debt, CITGO has no recourse. In the event of
debtor default on customer bank debt, CITGO generally has recourse to
personal guarantees from principals or liens on property, except in one
case, in which the guaranteed amount is $170 thousand, CITGO has no
recourse. In the event of debtor default on financing debt incurred by
customers, CITGO would receive an interest in the equipment being
financed after making the guaranteed debt payment.

CITGO has granted indemnities to the buyers in connection with past
sales of product terminal facilities. These indemnities provide that
CITGO will accept responsibility for claims arising from the period in
which CITGO owned the facilities. Due to the uncertainties in this
situation, the Company is not able to estimate a liability relating to
these indemnities.

The Company has not recorded a liability on its balance sheet relating
to product warranties because historically, product warranty claims
have not been significant.

7. RELATED PARTY TRANSACTIONS

CITGO purchases approximately one-half of the crude oil processed in
its refineries from subsidiaries of PDVSA under long-term supply
agreements. These supply agreements extend through the year 2006 for
the Lake Charles refinery, 2010 for the Paulsboro refinery, 2012 for
the Corpus Christi refinery and 2013 for the Savannah refinery.

These crude supply agreements contain force majeure provisions which
excuse the performance by either party of its obligations under the
agreement under specified circumstances. PDVSA has invoked the force

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majeure provisions and reduced the volume of crude oil supplied under
the contracts at various times since April 1998 for a variety of
reasons. As a result of these declarations of force majeure, the
Company was required to obtain crude oil from alternative sources,
which resulted in increased volatility in its operating margins. The
Company was notified that effective March 6, 2003, PDVSA ended its most
recent declaration of force majeure under the crude oil supply
agreements.

In August 2002, three affiliates entered into agreements to advance
excess cash to the Company from time to time under demand notes for
amounts of up to a maximum of $10 million with PDV Texas, Inc. ("PDV
Texas"), $30 million with PDV America and $10 million with PDV Holding.
The notes bear interest at rates equivalent to 30-day LIBOR plus .875%
payable quarterly. At March 31, 2003, $9.5 million was outstanding on
the note with PDV America which is included in payables to affiliates
in the accompanying consolidated balance sheet.

PDV America has a $500 million principal payment due in August 2003.
PDV America holds a $500 million mirror note due from PDVSA which is
designed to provide sufficient liquidity to PDV America to make this
payment. While PDVSA's obligation remains unchanged, CITGO may pay a
dividend of up to $500 million to PDV America to provide funds for the
repayment of PDV America's notes due August 2003, if CITGO satisfies
the conditions under the indenture governing its 11-3/8% senior notes
to make such a dividend.

8. INSURANCE RECOVERIES

On August 14, 2001, a fire occurred at the crude oil distillation unit
of the Lemont refinery. The crude unit was destroyed and the refinery's
other processing units were temporarily taken out of production. A new
crude unit was operational at the end of May 2002.

On September 21, 2001, a fire occurred at the hydrocracker unit of the
Lake Charles refinery. The hydrocracker unit was damaged and operations
at other processing units were temporarily affected. Operation of the
other refinery units returned to normal on October 16, 2001. Operations
at the hydrocracker resumed on November 22, 2001.

The Company recognizes property damage insurance recoveries in excess
of the amount of recorded losses and related expenses, and business
interruption insurance recoveries when such amounts are realized.
During the three-month periods ended March 31, 2003 and 2002, the
Company recorded $118 million and $95 million, respectively, of
insurance recoveries related to these fires. The Company received cash
proceeds of $47 million and $101 million during the three-month periods
ended March 31, 2003 and 2002. CITGO expects to recover additional
amounts related to the Lemont refinery event subject to final
settlement negotiations.

15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The following discussion of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements included elsewhere herein. Reference is made
to our Annual Report for the fiscal year ended December 31, 2002 on Form 10-K,
dated March 21, 2003, for additional information and a description of critical
accounting policies and factors which may cause substantial fluctuations in our
earnings and cash flows.

In the quarter ended March 31, 2003, we generated net income of $139.8
million on total revenue of $6.5 billion compared to a net loss of $15.6 million
on total revenue of $3.8 billion for the same period last year. (See "Gross
margin").

RESULTS OF OPERATIONS

The following table summarizes the sources of our sales revenues and
sales volumes for the three-month periods ended March 31, 2003 and 2002:

CITGO SALES REVENUES AND VOLUMES

16

The following table summarizes our cost of sales and operating expenses
for the three-month periods ended March 31, 2003 and 2002:

CITGO COST OF SALES AND OPERATING EXPENSES

Sales revenues and volumes. Sales increased $2.7 billion, or
approximately 74%, in the three-month period ended March 31, 2003 as compared to
the same period in 2002. This was due to an increase in average sales price of
58% and an increase in sales volume of 10%. (See CITGO Sales Revenues and
Volumes table above.)

Equity in earnings of affiliates. Equity in earnings of affiliates
decreased by $5 million for the three-month period ended March 31, 2003 as
compared to the same period in 2002. The decrease was primarily due to the
decrease in the earnings of LYONDELL-CITGO, our share of which decreased $5
million from $14 million in the first quarter of 2002 to $9 million in the first
quarter of 2003.

Insurance recoveries. The insurance recoveries of $118 million included
in the first quarter of 2003 and $95 million included in the first quarter of
2002 relate primarily to a fire which occurred on August 14, 2001 at the Lemont
refinery. The crude unit was destroyed and the refinery's other processing units
were temporarily taken out of production. These recoveries are, in part,
reimbursements for expenses incurred in 2002 and 2001 to mitigate the effect of
the fire on our earnings. We expect to recover additional amounts related to
this event subject to final settlement negotiations.

Cost of sales and operating expenses. Cost of sales and operating
expenses increased by $2.5 billion or 67%, in the quarter ended March 31, 2003
as compared to the same period in 2002. PDVSA's reduction of deliveries of crude
oil related to its declaration of force majeure on its crude oil supply
agreements did not have a significant effect on the crude oil component of cost
of sales and operating expenses in the first quarter 2003 or 2002. (See CITGO
Cost of Sales and Operating Expenses table above.)

We purchase refined products to supplement the production from our
refineries to meet marketing demands and resolve logistical issues. Refined
product purchases represented 56% of total cost of sales and operating expenses
for the first quarter 2003 and 57% for the first quarter of 2002. We estimate
margins on purchased products, on average, are lower than margins on produced
products due to the fact that we can only receive the marketing portion of the
total margin received on the produced refined products. However, purchased
products are not segregated from our produced products and margins may vary due
to market conditions and other factors

17

beyond our control. As such, it is not practical to measure the effects on
profitability of changes in volumes of purchased products. In the near term,
other than normal refinery turnaround maintenance, we do not anticipate
operational actions or market conditions which might cause a material change in
anticipated purchased product requirements; however, there could be events
beyond our control which impact the volume of refined products purchased. (See
also "Factors Affecting Forward Looking Statements".)

Gross margin. The gross margin for the three-month period ended March
31, 2003 was approximately 2.7 cents per gallon, compared to a negative gross
margin of approximately (0.7) cents per gallon for the same period in 2002. The
revenue per gallon component in the three-month period ended March 31, 2003
increased approximately 58% and the cost per gallon component increased
approximately 52%. As a result, the gross margin increased approximately 3.3
cents on a per gallon basis in the quarter ended March 31, 2003 compared to the
same period in 2002. The gross margin is directly affected by changes in selling
prices relative to changes in costs. An increase or decrease in the price for
crude oil, feedstocks and blending products generally results in a corresponding
increase or decrease in prices for refined products. Generally, the effect of
changes in crude oil and feedstock prices on our consolidated operating results
therefore depends in part on how quickly refined product prices adjust to
reflect these changes. However, in the first quarter of 2002, there was a
substantial increase in refined product costs without an equivalent increase in
sales price resulting in a significant negative impact on our gross margin and
earnings.

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased 4% from $76 million in the first quarter of
2002 to $73 million in the first quarter of 2003.

Interest expense. Interest expense increased by $7 million in the
three-month period ended March 31, 2003 as compared to the same period in 2002.
This was primarily due to the net increase in the outstanding debt balance and
higher overall interest rates resulting from the issuance of the $550 million
senior notes and the closing of the $200 million term loan in February 2003.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated net cash provided by operating activities totaled
approximately $300 million for the three-month period ended March 31, 2003.
Operating cash flows were derived primarily from net income of $140 million,
depreciation and amortization of $79 million and changes in operating assets and
liabilities of $81 million. The more significant changes in operating assets and
liabilities include a decrease in inventory, an increase in income taxes
payable, and an increase in deferred taxes offset, in part, by a decrease in
current liabilities and an increase in notes and accounts receivable.

Net cash used in investing activities in the three month period ended
March 31, 2003 totaled $105 million consisting primarily of capital expenditures
of $90 million.

Net cash provided by financing activities totaled $254 million for the
three-month period ended March 31, 2003, consisting primarily of the proceeds
from Senior Notes due in 2011 of $547 million and the proceeds from the senior
secured term loan of $200 million. These proceeds were offset by the payment of
$279 million on revolving bank loans, the repurchase of $50 million of Senior
Notes due 2006 for a cash payment of $47.5 million, the payment of $50 million
on master shelf agreement notes, the repurchase of $75 million of tax-exempt
bonds, the repayment of loans from affiliates of $30 million, and $12 million in
debt issuance costs associated with the Senior Notes due 2011.

As of March 31, 2003, capital resources available to us included cash
generated by operations and available borrowing capacity under our committed
bank facilities of $545 million. Our $25 million revolving bank loan maturing in
May 2003 will not be renewed. Additionally, the remaining $400 million from our
shelf registration with the Securities and Exchange Commission for $600 million
of debt securities may be offered and

18

sold from time to time. Our Company's management believes that we have
sufficient capital resources to carry out planned capital spending programs,
including regulatory and environmental projects in the near term and to meet
currently anticipated future obligations as they arise. We periodically evaluate
other sources of capital in the marketplace and anticipate that long-term
capital requirements will be satisfied with current capital resources and future
financing arrangements, including the issuance of debt securities. Our ability
to obtain such financing will depend on numerous factors, including market
conditions and our perceived creditworthiness at that time. (See also "Factors
Affecting Forward Looking Statements".)

Our various debt instruments require maintenance of a specified minimum
net worth and impose restrictions on our ability to:

o incur additional debt unless we meet specified interest coverage and
debt to capitalization ratios;

o place liens on our property, subject to specified exceptions;

o sell assets, subject to specified exceptions;

o make restricted payments, including dividends, repurchases of
capital stock and specified investments; and

o merge, consolidate or transfer assets.

We are in compliance with our obligations under our debt financing
arrangements at March 31, 2003.

Upon the occurrence of a change of control of our Company, as defined
in the Indenture governing our 11-3/8% Senior Notes due February 1, 2011, the
holders of those notes have the right to require us to repurchase them at a
price equal to 101% of the principal amount thereof plus accrued interest. In
addition, our bank credit agreements provide that, unless lenders holding
two-thirds of the commitments thereunder otherwise agree, a change in control of
our Company, as defined in those agreements, will constitute a default under
those credit agreements.

Internally generated cash flow, together with borrowings available
under our credit facilities, are expected to be sufficient to fund capital
expenditures. In addition, we have taken steps to reduce our capital
expenditures in 2003 by approximately $250 million, resulting in budgeted total
2003 expenditures of $460 million, and will reassess the economics of the
postponed projects at a later date. Finally, we are continuing to review the
timing and amount of scheduled expenditures under our planned capital spending
programs, including regulatory and environmental projects in the near term.

CITGO is required by various state regulations to demonstrate financial
responsibility for environmental liability coverage, closure and post-closure
care related to its facilities. Historically, CITGO has satisfied the
requirements based upon the credit rating of its bonds and various financial
ratios. CITGO's credit rating and 2002 financial ratios did not satisfy the
requirements of one state and as a result, CITGO is required to present an
alternate form of financial responsibility assurance. Possible options include,
among other things, a letter of credit, an insurance policy, placing cash in a
trust account or filing a request for a variance from the regulations of that
state. Presently, CITGO is evaluating its options.

We have outstanding letters of credit that support tax-exempt bonds
that were issued previously for our benefit. Some of the providers of these
outstanding letters of credit have indicated that they will not renew such
letters of credit. As a result, we repurchased $75 million of tax-exempt bonds
that were supported by these letters of credit in March 2003, $25 million in
April 2003 and $8 million in May 2003. We expect that we will seek to reissue
these tax-exempt bonds, with replacement letters of credit in support, if we are
able to obtain such letters of credit from other financial institutions or,
alternatively, we will seek to replace these tax-exempt bonds with new
tax-exempt bonds that will not require letter of credit support. As of May 1,
2003, we have an additional $239 million of letters of credit outstanding that
back or support other bond issues that we have issued through governmental
entities, which are subject to renewal during the twelve month period ending
March 31, 2004. We have not received any notice from the issuers of these
additional letters of credit indicating an intention not to renew. Currently, we
are working with a financial institution to renew a $127 million letter of
credit facility that expires in June 2003 which supports $120 million of
tax-exempt bonds. However, we cannot

19

be certain that any of our letters of credit will be renewed, that we will be
successful in obtaining replacements if they are not renewed, that any
replacement letters of credit will be on terms as advantageous as those we
currently hold or that we will be able to arrange for replacement tax-exempt
bonds that will not require letter of credit support.

In August 2002, three of our affiliates entered into agreements to
advance excess cash to us from time to time under demand notes. These notes
provide for maximum amounts of $10 million from PDV Texas, Inc., $30 million
from PDV America and $10 million from PDV Holding. At March 31, 2003, the
outstanding amounts under these notes were $0 million, $9.5 million and $0
million, respectively.

We have undertaken the following to supplement and improve our
liquidity:

o On February 27, 2003 we issued $550 million aggregate principal amount
of 11-3/8 percent unsecured senior notes due February 1, 2011.

o On February 27, 2003, we closed on a three year $200 million, senior
secured term loan. Security is provided by our 15.8 percent equity
interest in Colonial Pipeline and our 6.8 percent equity interest in
Explorer Pipeline.

o On February 28, 2003, a new accounts receivable sales facility was
established. This facility allows for the non-recourse sale of certain
accounts receivable to independent third parties. A maximum of $200
million in accounts receivable may be sold at any one time. This new
facility does not contain any covenants that trigger increased costs
or burdens as a result of a change in our securities ratings.

o On April 25, 2003, we completed a transaction that will provide
approximately $50 million of liquidity from the transfer of title to a
third party of certain of our refined products at the time those
products are delivered into the custody of interstate pipelines. The
terms of this transaction include an option to acquire like volumes of
refined products from the third party at prevailing prices at
predetermined transfer points. The sale of refined products will begin
in May 2003.

o We have reduced our planned capital expenditures in 2003 by
approximately $250 million.

Our senior unsecured debt ratings, as currently assessed by the three
major debt rating agencies, are as follows:

Moody's Investor's Services Ba3
Standard & Poor's Ratings Group BB-
Fitch Investors Services, Inc. B+

Our secured debt ratings, as currently assessed by the three major debt
rating agencies, are as follows:

Moody's Investor's Services Ba2
Standard & Poor's Ratings Group BB
Fitch Investors Services, Inc. Not Rated

PDV America has a $500 million principal payment due in August 2003.
PDV America holds a $500 million mirror note due from PDVSA which is designed to
provide sufficient liquidity to PDV America to make this payment. While PDVSA's
obligation remains unchanged, we may pay a dividend of up to $500 million to PDV
America to provide funds for the repayment of PDV America's notes due August
2003, if we satisfy the conditions under the indenture governing our 11-3/8%
senior notes to make such a dividend.

20

Our debt instruments do not contain any covenants that trigger
increased costs or burdens as a result of a change in our securities ratings.
However, certain of our guarantee agreements, which support approximately $20
million of affiliate letters of credit, require us to cash collateralize the
applicable letters of credit upon a reduction of our credit rating below a
stated level.

We believe that we have adequate liquidity from existing sources to
support our operations for the foreseeable future. We are continuing to review
our operations for opportunities to reduce operating and capital expenditures.

NEW ACCOUNTING STANDARDS

On January 1, 2003 CITGO adopted Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143)
which addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. It applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction, development
and/or the normal operation of a long-lived asset, except for certain
obligations of lessees. We have identified certain asset retirement obligations
that are within the scope of the standard, including obligations imposed by
certain state laws pertaining to closure and/or removal of storage tanks,
contractual removal obligations included in certain easement and right-of-way
agreements associated with our pipeline operations, and contractual removal
obligations relating to a refinery processing unit located within a third-party
entity's facility. We cannot currently determine a reasonable estimate of the
fair value of our asset retirement obligations due to the fact that the related
assets have indeterminate useful lives which preclude development of assumptions
about the potential timing of settlement dates. Such obligations will be
recognized in the period in which sufficient information exists to estimate a
range of potential settlement dates. Accordingly, the adoption of SFAS No. 143
did not impact the Company's financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"), which clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46
defines variable interest entities and how an enterprise should assess its
interests in a variable interest entity to decide whether to consolidate that
entity. The interpretation requires certain minimum disclosures with respect to
variable interest entities in which an enterprise holds significant variable
interest but which it does not consolidate. FIN 46 applies immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies in the first fiscal year or interim period beginning after June 15, 2003
to variable interest entities in which an enterprise holds a variable interest
that it acquired before February 1, 2003. FIN 46 applies to public enterprises
as of the beginning of the applicable interim or annual period, and it applies
to nonpublic enterprises as of the end of the applicable annual period. FIN 46
may be applied prospectively with a cumulative-effect adjustment as of the date
on which it is first applied or by restating previously issued financial
statements for one or more years with a cumulative-effect adjustment as of the
beginning of the first year restated. CITGO expects that the application of FIN
46 to variable interest entities in which it acquired an interest before
February 1, 2003 will not have a material impact on its financial position or
results of operations.

PROPOSED ACCOUNTING CHANGE

The American Institute of Certified Public Accountants ("AICPA") has
issued a "Statement of Position" exposure draft on cost capitalization that is
expected to require companies to expense the non-capital portion of major
maintenance costs as incurred. The statement is expected to require that any
existing unamortized deferred non-capital major maintenance costs be expensed
immediately. This statement also has provisions which will change the method of
determining depreciable lives. The impact on future depreciation expense is not
determinable at this time. The exposure draft indicates that this change will be
required to be adopted for fiscal years beginning after June 15, 2003, and that
the effect of expensing existing unamortized deferred non-capital major
maintenance costs will be reported as a cumulative effect of an accounting
change in the consolidated

21

statement of income. Currently, the AICPA is discussing the future of this
exposure draft with the FASB. The final accounting requirements and timing of
required adoption are not known at this time. At March 31, 2003, we have
included turnaround costs of $200 million in other assets. Company management
has not determined the amount, if any, of these costs that could be capitalized
under the provisions of the exposure draft.

22

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Introduction. We have exposure to price fluctuations of crude oil and
refined products as well as fluctuations in interest rates. To manage these
exposures, our management has defined certain benchmarks consistent with its
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 crude oil and refined products. As a result, at March 31, 2003,
we were exposed to the risk of broad market price declines with respect to a
substantial portion of our crude oil and refined product inventories. The
following disclosures do not attempt to quantify the price risk associated with
such commodity inventories.

Commodity Instruments. We balance our crude oil and petroleum product
supply/demand and manage a portion of our price risk by entering into petroleum
commodity derivatives. Generally, our risk management strategies qualified as
hedges through December 31, 2000. Effective January 1, 2001, our policy is to
elect hedge accounting only under limited circumstances involving derivatives
with initial terms of 90 days or greater and notional amounts of $25 million or
greater. At March 31, 2003, none of our commodity derivatives were accounted for
as hedges.

NON TRADING COMMODITY DERIVATIVES
OPEN POSITIONS AT MARCH 31, 2003

- ----------
(1) 1,000 barrels per contract

(2) Ten-thousands of mmbtu per contract

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

(4) Based on actively quoted prices.

24

Debt Related Instruments. We have fixed and floating U.S. currency
denominated debt. We use interest rate swaps to manage our debt portfolio toward
a benchmark of 40 to 70 percent fixed rate debt to total fixed and floating rate
debt. These instruments have the effect of changing the interest rate with the
objective of minimizing our long-term costs. At March 31, 2003 and 2002, our
primary exposures were to LIBOR and floating rates on tax exempt bonds.

For interest rate swaps, the table below presents notional amounts and
interest rates by expected (contractual) maturity dates. Notional amounts are
used to calculate the contractual payments to be exchanged under the contracts.

NON TRADING INTEREST RATE DERIVATIVES
OPEN POSITIONS AT MARCH 31, 2003 AND 2002

Changes in the fair value of these agreements are recorded in other
income (expense). The fair value of the interest rate swap agreements in place
at March 31, 2003, based on the estimated amount that we would receive or pay to
terminate the agreements as of that date and taking into account current
interest rates, was a loss of $3 million, the offset of which is recorded in the
balance sheet caption other current liabilities.

25

For debt obligations, the table below presents principal cash flows and
related weighted average interest rates by expected maturity dates. Weighted
average variable rates are based on implied forward rates in the yield curve at
the reporting date.

DEBT OBLIGATIONS
AT MARCH 31, 2003

DEBT OBLIGATIONS
AT MARCH 31, 2002

26

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this Report, the Company's
management, including the principal executive officer and principal financial
officer, evaluated the Company's disclosure controls and procedures related to
the recording, processing, summarization and reporting of information in the
Company's periodic reports that it files with the Securities and Exchange
Commission (SEC). These disclosure controls and procedures have been designed to
ensure that (a) material information relating to the Company, including its
consolidated subsidiaries, is made known to the Company's management, including
these officers, by other employees of the Company and its subsidiaries, and (b)
this information is recorded, processed, summarized, evaluated and reported, as
applicable, within the time periods specified in the SEC's rules and forms. Due
to the inherent limitations of control systems, not all misstatements may be
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The Company's controls and procedures can only provide
reasonable, not absolute, assurance that the above objectives have been met.
Also, the Company does not control or manage certain of its unconsolidated
entities and as such, the disclosure controls and procedures with respect to
such entities are more limited than those it maintains with respect to its
consolidated subsidiaries.

As of March 31, 2003, these officers concluded that the design of the
disclosure controls and procedures provide reasonable assurance that they can
accomplish their objectives.

There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.

27

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The required information is incorporated by reference into Part II of
this Report from Note 6 of the Notes to the Condensed Consolidated Financial
Statements included in Part I of this Report.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit 99.1 Quarterly Certification Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K:

A report on Form 8-K was filed with the Securities and
Exchange Commission on January 21, 2003 in regard to the disruption in
our supply of crude oil as a result of the general strike in Venezuela.

A report on Form 8-K was filed with the Securities and
Exchange Commission on February 6, 2003. The purpose of this filing was
to furnish information about our Company included in various
disclosures to prospective investors in connection with our offering of
$550 million of senior unsecured notes.

A report on Form 8-K was filed with the Securities and
Exchange Commission on February 21, 2003. The purpose of this report
was to file our financial statements for the year ended December 31,
2002.

A report on Form 8-K was filed with the Securities and
Exchange Commission on February 25, 2003. The purpose of this filing
was to update information in our report on Form 8-K dated February 6,
2003, about our Company included in various disclosures to prospective
investors in connection with our offering of $550 million of senior
unsecured notes.

A report on Form 8-K was filed with the Securities and
Exchange Commission on February 27, 2003 regarding information about
enhancements to our liquidity.

A report on Form 8-K was filed with the Securities and
Exchange Commission on February 28, 2003. The purpose of this report
was to furnish information about our Company included in our News
Release, announcing enhancements to our liquidity.

A report on Form 8-K was filed with the Securities and
Exchange Commission on May 2, 2003. The purpose of this report was to
furnish information included in our News Release about our Company's
first quarter 2003 results.

A report on Form 8-K/A was filed with the Securities and
Exchange Commission on May 6, 2003. The purpose of this report was to
amend information in our report on Form 8-K dated May 2, 2003.

28

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

CITGO PETROLEUM CORPORATION

Date: May 9, 2003 /s/ Larry E. Krieg
----------------------- -------------------------------------
Larry E. Krieg
Controller (Chief Accounting Officer)

29

CERTIFICATIONS

QUARTERLY CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Oswaldo Contreras, President and Chief Executive Officer of CITGO Petroleum
Corporation (the "Registrant"), certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter
ended March 31, 2003 of the Registrant;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by the quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;

4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of the Registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and

30

6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: May 8, 2003 /s/ Oswaldo Contreras
---------------- -----------------------------------
Name: Oswaldo Contreras
Title: Chief Executive Officer

31

QUARTERLY CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Eddie R. Humphrey, Chief Financial Officer of CITGO Petroleum Corporation
(the "Registrant"), certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter
ended March 31, 2003 of the Registrant;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by the quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;

4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of the Registrant's board of directors (or persons
performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and

32

6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Dated: May 8, 2003 /s/ Eddie R. Humphrey
------------------ --------------------------------
Name: Eddie R. Humphrey
Title: Chief Financial Officer

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INDEX TO EXHIBITS