CITGO PETROLEUM CORP - 10-K Annual Report

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United States

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

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

CITGO PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of each Exchange on which registered
------------------- -----------------------------------------
7-7/8% SENIOR NOTES, DUE 2006 NEW YORK STOCK EXCHANGE, INC.

Securities registered pursuant to Section 12(g) of the Act: NONE

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 [ ]

The registrant meets the conditions set forth in General Instruction (I)(1)(a)
and (b) of Form 10-K and is therefore omitting (i) the information otherwise
required by Item 601 of Regulation S-K relating to a list of subsidiaries of the
registrant as permitted by General Instruction (I)(2)(b), (ii) certain
information otherwise required by Item 10 of Form 10-K relating to directors and
executive officers as permitted by General Instruction (I)(2)(c), (iii) certain
information otherwise required by Item 11 of Form 10-K relating to executive
compensation as permitted by General Instruction (I)(2)(c) and (iv) certain
information otherwise required by Item 12 of Form 10-K relating to security
ownership of certain beneficial owners and management as permitted by General
Instruction (I)(2)(c).

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act): Yes [ ] No [X]

Aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant as of June 30, 2003: NONE

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
----------------------------- -----
(Class) (outstanding at February 28, 2004)

DOCUMENTS INCORPORATED BY REFERENCE: None

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CITGO PETROLEUM CORPORATION

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

TABLE OF CONTENTS

PAGE

FACTORS AFFECTING FORWARD LOOKING STATEMENTS............................................... 1

PART I.

Items 1. and 2. Business and Properties................................................... 2
Item 3. Legal Proceedings............................................................ 17
Item 4. Submission of Matters to a Vote of Security Holders.......................... 18

PART II.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........ 19
Item 6. Selected Financial Data...................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 21
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................... 35
Item 8. Financial Statements and Supplementary Data.................................. 39
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................... 40
Item 9A. Controls and Procedures...................................................... 40

PART III.

Item 10. Directors and Executive Officers of the Registrant........................... 41
Item 11. Executive Compensation....................................................... 41
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 41
Item 13. Certain Relationships and Related Transactions............................... 42
Item 14. Principal Accountant Fees and Services....................................... 43

PART IV.

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 44

FACTORS AFFECTING FORWARD LOOKING STATEMENTS

Except for the historical information contained in this Report, certain
of the matters discussed in this Report may be deemed to be "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Specifically, all statements
under the caption "Items 1 and 2 - Business and Properties" and "Item 7 -
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 (as defined herein) are
forward looking statements. Words such as "anticipate," "estimate," "expect,"
"project," "believe" and similar expressions generally identify a
forward-looking statement.

We caution readers that these forward looking statements are subject to
known and unknown risks and uncertainties that may cause actual results to
differ materially from the results that are projected, expressed or implied.
Some of those risks and uncertainties include:

- the availability and cost of crude oil, feedstocks, blending components
and refined products, which can affect our ability to operate our
refineries and our costs;

- accidents, interruptions in transportation, inclement weather and other
events that cause unscheduled shutdowns or otherwise adversely affect
our refineries, pipelines or equipment, or those of our suppliers or
customers;

- prices or demand for CITGO products, which are influenced by general
economic activity, weather patterns (including seasonal fluctuations),
prices of alternative fuels, energy conservation efforts and actions by
competitors;

- environmental and other regulatory requirements, which affect the
content of our products and our 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, which can affect our ability to finance capital
improvements, our costs and our flexibility.

CITGO purchases approximately one-half of its crude oil requirements from
Petroleos de Venezuela, S.A. (as defined herein), its ultimate parent
corporation, under long-term supply agreements, and could be adversely affected
should a supply disruption occur. The table on page 8 shows the history of
deliveries of crude oil from PDVSA over the past three years and can be compared
to contract volume deliveries shown on page 9.

Readers are cautioned not to place undue reliance on these forward
looking statements, which apply only as of the date of this Report. CITGO
disclaims any duty to publicly release any revision to these forward looking
statements to reflect events or circumstances after the date of this Report.

WHERE TO FIND MORE INFORMATION

The public may read and copy any reports or other information that we
file with the SEC at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. These documents
are also available to the public from commercial document retrieval services,
the web site maintained by the SEC at http://www.sec.gov and our web site at
http://www.citgo.com. Copies may be obtained from our web site free of charge.

1

PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

OVERVIEW

CITGO Petroleum Corporation ("CITGO" or the "Company") is a direct
wholly owned operating subsidiary of PDV America, Inc. ("PDV America"), a wholly
owned subsidiary of PDV Holding, Inc. ("PDV Holding"). The Company's ultimate
parent is Petroleos de Venezuela, S.A. ("PDVSA", which may also be used herein
to refer to one or more of its subsidiaries), the national oil company of the
Bolivarian Republic of Venezuela. CITGO and its subsidiaries are engaged in the
refining, marketing and transportation of petroleum products including gasoline,
diesel fuel, jet fuel, petrochemicals, lubricants, asphalt and refined waxes,
mainly within the continental United States east of the Rocky Mountains. The
Company operates as a single segment. (See Consolidated Financial Statements of
CITGO in Item 15a).

CITGO's transportation fuel customers include CITGO branded wholesale
marketers, convenience stores and airlines located mainly east of the Rocky
Mountains. Asphalt is generally marketed to independent paving contractors on
the East and Gulf Coasts and in the Midwest of the United States. Lubricants are
sold principally in the United States to independent marketers, mass marketers
and industrial customers. Petrochemical feedstocks and industrial products are
sold to various manufacturers and industrial companies throughout the United
States. Petroleum coke is sold primarily in international markets. CITGO also
sells lubricants, gasoline and distillates in various Latin American markets
including Puerto Rico, Brazil, Ecuador and Mexico.

COMPETITIVE NATURE OF THE PETROLEUM REFINING BUSINESS

The petroleum refining industry is cyclical and highly volatile,
reflecting capital intensity with high fixed and low variable costs. Petroleum
industry operations and profitability are influenced by a large number of
factors, over some of which individual petroleum refining and marketing
companies have little control. Governmental regulations and policies,
particularly in the areas of taxation, energy and the environment, have a
significant impact on how companies conduct their operations and formulate their
products. Demand for crude oil and its products is largely driven by the
condition of local and worldwide economies, although weather patterns and
taxation relative to other energy sources also play significant parts.
Generally, U.S. refiners compete for sales on the basis of price, brand image
and, in some areas, product quality.

2

REFINING

CITGO's aggregate net interest in rated crude oil refining capacity is
865 thousand barrels per day ("MBPD"). The following table shows the capacity of
each refinery in which CITGO holds an interest and CITGO's share of such
capacity as of December 31, 2003.

CITGO REFINING CAPACITY

TOTAL NET
RATED CITGO SOLOMON
CRUDE OWNERSHIP PROCESS
CITGO REFINING IN REFINING COMPLEXITY
OWNER INTEREST CAPACITY CAPACITY RATING
-------------- -------- -------- ----------- ----------
(%) (MBPD) (MBPD)

LOCATION
Lake Charles, LA CITGO 100 320 320 18.2
Corpus Christi, TX CITGO 100 157 157 16.5
Lemont, IL CITGO 100 167 167 11.7
Paulsboro, NJ CITGO 100 84 84 -
Savannah, GA CITGO 100 28 28 -
Houston, TX LYONDELL-CITGO 41 265 109 15.5
-------- -----------

Total Rated Crude Refining Capacity 1,021 865
======== ===========

The Lake Charles, Corpus Christi and Lemont refineries and the Houston
refinery each have the capability to process large volumes of heavy crude oil
into a flexible slate of refined products. They have Solomon Process Complexity
Ratings of 18.2, 16.5, 11.7 and 15.5, respectively, as compared to an average of
14.0 for U.S. refineries in the most recently available Solomon Associates, Inc.
survey. The rating is an industry measure of a refinery's ability to produce
higher value products, with a higher rating indicating a greater capability to
produce such products.

3

The following table shows CITGO's aggregate interest in refining
capacity, refinery input, and product yield for the three years ended December
31, 2003.

CITGO REFINERY PRODUCTION (1)

YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2003 2002 2001
--------------------- --------------------- --------------------
(MBPD, EXCEPT AS OTHERWISE INDICATED)

RATED REFINING CRUDE CAPACITY AT YEAR END 865 865 865
Refinery Input
Crude oil 801 84% 674 84% 737 83%
Other feedstocks 152 16% 131 16% 150 17%
-------- -------- -------- -------- -------- --------
Total 953 100% 805 100% 887 100%
======== ======== ======== ======== ======== ========

Product Yield
Light fuels
Gasoline 414 43% 379 46% 375 42%
Jet fuel 75 8% 76 9% 76 8%
Diesel/#2 fuel 193 20% 153 19% 172 19%
Asphalt 43 4% 16 2% 44 6%
Petrochemicals and industrial products 241 25% 194 24% 228 25%
-------- -------- -------- -------- -------- --------
Total 966 100% 818 100% 895 100%
======== ======== ======== ======== ======== ========

UTILIZATION OF RATED CRUDE REFINING CAPACITY 93% 78% 85%

- ---------
(1) Includes 41.25% of the Houston refinery production.

CITGO produces its light fuels and petrochemicals primarily through its
Lake Charles, Corpus Christi and Lemont refineries. Asphalt refining operations
are carried out through CITGO's Paulsboro and Savannah refineries. CITGO
purchases refined products from its joint venture refinery in Houston.

4

Lake Charles, Louisiana Refinery. This refinery has a rated refining
capacity of 320 MBPD and is capable of processing large volumes of heavy crude
oil into a flexible slate of refined products, including significant quantities
of high-octane unleaded gasoline and reformulated gasoline.

The following table shows the rated refining capacity, refinery input
and product yield at the Lake Charles refinery for the three years ended
December 31, 2003.

LAKE CHARLES REFINERY PRODUCTION

YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2003 2002 2001
--------------------- --------------------- --------------------
(MBPD, EXCEPT AS OTHERWISE INDICATED)

RATED REFINING CRUDE CAPACITY AT YEAR END 320 320 320
Refinery Input
Crude oil 313 85% 320 92% 317 90%
Other feedstocks 56 15% 28 8% 37 10%
-------- -------- -------- -------- -------- --------
Total 369 100% 348 100% 354 100%
======== ======== ======== ======== ======== ========

Product Yield
Light fuels
Gasoline 179 47% 184 51% 175 48%
Jet fuel 67 18% 68 19% 67 19%
Diesel/#2 fuel 55 15% 45 13% 62 17%
Petrochemicals and industrial products 77 20% 60 17% 57 16%
-------- -------- -------- -------- -------- --------
Total 378 100% 357 100% 361 100%
======== ======== ======== ======== ======== ========

Utilization of Rated Crude Refining Capacity 98% 100% 99%

A project to increase the crude oil distillation capacity of the Lake
Charles refinery by 105 MBPD is currently underway. This project is expected to
be completed in 2005.

The Lake Charles refinery's Gulf Coast location provides it with access
to crude oil deliveries from multiple sources; imported crude oil and feedstock
supplies are delivered by ship directly to the Lake Charles refinery, while
domestic crude oil supplies are delivered by pipeline and barge. In addition,
the refinery is connected by pipelines to the Louisiana Offshore Oil Port and to
terminal facilities in the Houston area through which it can receive crude oil
deliveries. For delivery of refined products, the refinery is connected through
the Lake Charles Pipeline directly to the Colonial and Explorer Pipelines, which
are the major refined product pipelines supplying the northeast and midwest
regions of the United States, respectively. The refinery also uses adjacent
terminals and docks, which provide access for ocean tankers and barges to load
refined products for shipment.

The Lake Charles refinery's main petrochemical products are propylene,
benzene and mixed xylenes. Industrial products include sulphur, residual fuels
and petroleum coke.

5

Corpus Christi, Texas Refinery. The Corpus Christi refinery processes
heavy crude oil into a flexible slate of refined products. This refinery complex
consists of the East and West Plants, located within five miles of each other.

The following table shows rated refining capacity, refinery input and
product yield at the Corpus Christi refinery for the three years ended December
31, 2003.

CORPUS CHRISTI REFINERY PRODUCTION

YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2003 2002 2001
--------------------- --------------------- --------------------
(MBPD, EXCEPT AS OTHERWISE INDICATED)

RATED REFINING CRUDE CAPACITY AT YEAR END 157 157 157
Refinery Input
Crude oil 154 71% 154 73% 154 71%
Other feedstocks 62 29% 57 27% 64 29%
-------- -------- -------- -------- -------- --------
Total 216 100% 211 100% 218 100%
======== ======== ======== ======== ======== ========

Product Yield
Light fuels
Gasoline 95 44% 93 44% 90 42%
Diesel/#2 fuel 60 28% 59 28% 57 26%
Petrochemicals and industrial products 60 28% 58 28% 69 32%
-------- -------- -------- -------- -------- --------
Total 215 100% 210 100% 216 100%
======== ======== ======== ======== ======== ========

Utilization of Rated Crude Refining Capacity 98% 98% 98%

CITGO operates the West Plant under a sublease agreement (the
"Sublease") from Anadarko Petroleum Corporation ("Anadarko"). The basic term of
the Sublease ended on January 1, 2004, but CITGO renewed the lease for a two
year term and may continue to renew the Sublease for successive renewal terms
through January 31, 2011. CITGO has the right to purchase the West Plant from
Anadarko at the end of the basic term, the end of any renewal term, or on
January 31, 2011 at a nominal price. (See Consolidated Financial Statements of
CITGO - Note 14 in Item 15a).

The Corpus Christi refinery's main petrochemical products include
cumene, cyclohexane, and aromatics (including benzene, toluene and xylenes).
These products are used in the manufacture of plastic and building materials.

6

Lemont, Illinois Refinery. The Lemont refinery produces a flexible
slate of refined products from a crude slate which includes approximately 50%
heavy Canadian crude oil.

The following table shows the rated refining capacity, refinery input
and product yield at the Lemont refinery for the three years ended December 31,
2003.

LEMONT REFINERY PRODUCTION

YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2003 2002 2001
--------------------- --------------------- --------------------
(MBPD, EXCEPT AS OTHERWISE INDICATED)

RATED REFINING CRUDE CAPACITY AT YEAR END 167 167 167
Refinery Input
Crude oil 162 92% 69 73% 98 78%
Other feedstocks 15 8% 25 27% 28 22%
-------- -------- -------- -------- -------- --------
Total 177 100% 94 100% 126 100%
======== ======== ======== ======== ======== ========

Product Yield
Light fuels
Gasoline 92 52% 54 59% 68 56%
Diesel/#2 fuel 43 25% 16 17% 24 20%
Petrochemicals and industrial products 41 23% 22 24% 30 24%
-------- -------- -------- -------- -------- --------
Total 176 100% 92 100% 122 100%
======== ======== ======== ======== ======== ========

Utilization of Rated Refining Crude Capacity 97% 41% 59%

Petrochemical products at the Lemont refinery include benzene, toluene
and xylenes, plus a range of ten different aliphatic solvents.

In August 2001, a fire occurred at the crude oil distillation unit of
the Lemont refinery. A new crude unit was operational in May 2002. See
Consolidated Financial Statements of CITGO - Note 16 in Item 15a for further
information.

7

LYONDELL-CITGO Refining LP. Subsidiaries of CITGO and Lyondell Chemical
Company ("Lyondell") are partners in LYONDELL-CITGO Refining LP
("LYONDELL-CITGO"), which owns and operates a 265 MBPD refinery previously owned
by Lyondell and located on the ship channel in Houston, Texas. At December 31,
2003, CITGO's investment in LYONDELL-CITGO was $455 million. In addition, at
December 31, 2003, CITGO held a note receivable from LYONDELL-CITGO in the
approximate amount of $35 million. (See Consolidated Financial Statements of
CITGO -- Note 3 in Item 15a). A substantial amount of the crude oil processed by
this refinery is supplied by PDVSA under a long-term crude oil supply agreement
that expires in the year 2017. For the year ended December 31, 2002,
LYONDELL-CITGO constituted a significant investment for CITGO in a
50-percent-or-less-owned person under SEC regulations. See separate financial
statements for LYONDELL-CITGO in Item 15a.

CRUDE OIL AND REFINED PRODUCT PURCHASES

CITGO owns no crude oil reserves or production facilities, and must
therefore rely on purchases of crude oil and feedstocks for its refinery
operations. Crude oil is CITGO's primary raw material. CITGO buys and sells
crude oil to facilitate procurement and delivery of a desired type or grade of
crude oil to a desired location to supply our refineries, not as an independent
business activity to generate profit. CITGO believes that reflecting the net
result of this activity in cost of sales is an appropriate reflection of the
nature of these transactions as efforts undertaken to acquire raw material. In
addition, because CITGO's refinery operations do not produce sufficient refined
products to meet the demands of its marketers, CITGO purchases refined products,
primarily gasoline, from other refiners, including a number of affiliated
companies. (See "Item 13. Certain Relationships and Related Transactions").

Crude Oil Purchases. The following chart shows CITGO's net purchases of
crude oil for the three years ended December 31, 2003:

CITGO CRUDE OIL PURCHASES

LAKE CHARLES, LA CORPUS CHRISTI, TX LEMONT, IL PAULSBORO, NJ SAVANNAH, GA
------------------ ------------------ ------------------ ------------------ ------------------
2003 2002 2001 2003 2002 2001 2003 2002 2001 2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(MBPD) (MBPD) (MBPD) (MBPD) (MBPD)

SUPPLIERS
PDVSA (2) 139 125 136 134 126 138 3 11 13 39 36 39 21 22 22
Other sources 178 190 185 20 29 10 158 62 78 2 7 3 - - -
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total (1) 317 315 321 154 155 148 161 73 91 41 43 42 21 22 22
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====

(1) Total crude oil purchases do not equal crude oil refinery inputs because of
changes in inventory.

(2) Includes total of contract volume and volume purchased on a spot basis.
Contract volumes for each refinery are shown in the table on page 9. PDVSA works
very closely with CITGO to assure total volume commitments are met.

8

CITGO's largest single supplier of crude oil is PDVSA. CITGO has
entered into long-term crude oil supply agreements with PDVSA with respect to
the crude oil requirements for each of CITGO's Lake Charles, Corpus Christi,
Paulsboro and Savannah refineries. The following table shows the base and
incremental volumes of crude oil contracted for delivery and the volumes of
crude oil actually delivered under these contracts in the three years ended
December 31, 2003.

CITGO CRUDE OIL SUPPLY CONTRACTS WITH PDVSA

VOLUMES OF
CRUDE OIL PURCHASED
CONTRACT CRUDE FOR THE YEAR ENDED
OIL VOLUME DECEMBER 31, CONTRACT
----------------------- -------------------- EXPIRATION
BASE INCREMENTAL (1) 2003 2002 2001 DATE
---- --------------- ---- ---- ---- ----------
(MBPD) (MBPD) (YEAR)

LOCATION
Lake Charles, LA (2) 120 70 123 109 117 2006
Corpus Christi, TX (2) 130 - 134 114 126 2012
Paulsboro, NJ (2) 30 - 29 27 26 2010
Savannah, GA (2) 12 - 12 12 12 2013

- ------------------

(1) The supply agreement for the Lake Charles refinery gives PDVSA the
right to sell to CITGO incremental volumes up to the maximum amount
specified in the table, subject to certain restrictions relating to the
type of crude oil to be supplied, refining capacity and other
operational considerations at the refinery.

(2) Volumes purchased as shown on this table do not equal purchases from
PDVSA (shown in the previous table) as a result of transfers between
refineries of contract crude purchases included here and spot purchases
from PDVSA which are included in the previous table.

These crude oil supply agreements require PDVSA to supply minimum
quantities of crude oil and other feedstocks to CITGO for a fixed period. The
supply agreements differ somewhat for each refinery but generally incorporate
formula prices based on the market value of a slate of refined products deemed
to be produced from each particular grade of crude oil or feedstock, less (i)
specified deemed refining costs; (ii) specified actual costs, including
transportation charges, actual cost of natural gas and electricity, import
duties and taxes; and (iii) a deemed margin, which varies according to the grade
of crude oil or feedstock delivered. Under each supply agreement, deemed margins
and deemed costs are adjusted periodically by a formula primarily based on the
rate of inflation. Because deemed operating costs and the slate of refined
products deemed to be produced for a given barrel of crude oil or other
feedstock do not necessarily reflect the actual costs and yields in any period,
the actual refining margin earned by CITGO under the various supply agreements
will vary depending on, among other things, the efficiency with which CITGO
conducts its operations during such period. These crude supply agreements
contain force majeure provisions which excuse the performance by either party of
its obligations under the agreement under specified circumstances.

The price we pay for crude oil purchased under these crude oil supply
agreements is not directly related to the market price of any other crude oil.
However, the intention of the pricing mechanism in the crude supply agreements
was to reflect market pricing over long periods of time, but there may be
periods in which the price paid for crude oil purchased under those agreements
may be higher or lower than the price that might have been paid in the spot
market. Internal estimates indicate that the pricing mechanism is working as
intended to reflect market prices over long periods of time.

9

Refined Product Purchases. The marketing and sale of refined petroleum
products represents CITGO's revenue generating activity. The demand for those
products in CITGO's market areas exceeds the capacity of its refineries to
produce them so it purchases significant quantities of refined products from
affiliated and non-affiliated suppliers. CITGO must have the right refined
products in the right locations and in the right quantities in order to satisfy
customer supply arrangements and market requirements. Thus, CITGO purchases and
sells refined products of various grades in various locations from other
suppliers. Sales of refined products are reported as revenue upon transfer of
title to the buyer. Purchases of refined product are treated as acquisitions, a
component of cost of sales, upon transfer of title to CITGO.

The following table shows CITGO's purchases of refined products for the
three years ended December 31, 2003.

CITGO REFINED PRODUCT PURCHASES

YEAR ENDED DECEMBER 31,
--------------------------------
2003 2002 2001
-------- ------- --------
(MBPD)

LIGHT FUELS
Gasoline 636 689 640
Jet fuel 83 61 74
Diesel/ #2 fuel 246 239 264
-------- -------- --------
Total 965 989 978
======== ======== ========

As of December 31, 2003, CITGO purchased substantially all of the
gasoline, diesel/ #2 fuel, and jet fuel produced at the LYONDELL-CITGO refinery
under a contract which extends through the year 2017. LYONDELL-CITGO was a major
supplier in 2003 providing CITGO with 118 MBPD of gasoline, 85 MBPD of diesel/#2
fuel, and 19 MBPD of jet fuel. See "--Refining--LYONDELL-CITGO Refining LP".

In October 1998, PDVSA V.I., Inc., an affiliate of PDVSA, acquired a
50% equity interest in HOVENSA, L.L.C. ("HOVENSA"), a joint venture that owns
and operates a refinery in St. Croix, U.S. Virgin Islands. Under the related
product sales agreement, CITGO acquired approximately 149 MBPD of refined
products from the refinery during 2003, approximately one-half of which was
gasoline.

10

MARKETING

CITGO's major products are light fuels (including gasoline, jet fuel,
and diesel fuel), industrial products and petrochemicals, asphalt, lubricants
and waxes. The following table shows revenues and volumes of each of these
product categories for the three years ended December 31, 2003.

CITGO REFINED PRODUCT SALES REVENUES AND VOLUMES

YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------------------- --------------------------------
2003 2002 2001 2003 2002 2001
-------- -------- -------- -------- -------- --------
($ IN MILLIONS) (GALLONS IN MILLIONS)

LIGHT FUELS
Gasoline $ 14,320 $ 11,758 $ 11,316 15,257 15,026 13,585
Jet fuel 1,951 1,402 1,660 2,315 2,003 2,190
Diesel / #2 fuel 5,287 3,462 3,984 6,238 5,031 5,429
ASPHALT 711 597 502 990 902 946
PETROCHEMICALS AND INDUSTRIAL PRODUCTS 2,272 1,485 1,490 2,643 2,190 2,297
LUBRICANTS AND WAXES 598 561 536 261 261 240
-------- -------- -------- -------- -------- --------
Total $ 25,139 $ 19,265 $ 19,488 27,704 25,413 24,687
======== ======== ======== ======== ======== ========

Light Fuels. Gasoline sales accounted for 57% of CITGO's refined
product sales in 2003, 61% in 2002, and 58% in 2001. CITGO supplies CITGO
branded gasoline to approximately 14,000 independently owned and operated CITGO
branded retail outlets located throughout the United States, primarily east of
the Rocky Mountains. CITGO purchases gasoline to supply this marketing network,
as the gasoline production from the Lake Charles, Corpus Christi and Lemont
refineries was only equivalent to approximately 57%, 54% and 55% of the volume
of CITGO branded gasoline sold in 2003, 2002 and 2001, respectively. See
"--Crude Oil and Refined Product Purchases -- Refined Product Purchases".

CITGO's strategy is to enhance the value of the CITGO brand by
delivering quality products and services to the consumer through a large network
of independently owned and operated CITGO branded retail locations. This
enhancement is accomplished through a commitment to quality, dependability and
excellent customer service to its independent marketers, which constitute
CITGO's primary distribution channel.

Sales to independent branded marketers typically are made under
contracts that range from three to seven years. Sales to 7-Eleven(TM)
convenience stores are made under a contract that extends through the year 2006.
Under this contract, CITGO arranges all transportation and delivery of motor
fuels and handles all product ordering. CITGO also acts as processing agent for
the purpose of facilitating and implementing orders and purchases from
third-party suppliers. CITGO receives a processing fee for such services.

CITGO markets jet fuel directly to airline customers at 25 airports,
including such major hub cities as Atlanta, Chicago, Dallas/Fort Worth and
Miami.

CITGO's delivery of light fuels to its customers is accomplished in
part through 52 refined product terminals located throughout CITGO's primary
market territory. Of these terminals, 42 are wholly-owned by CITGO and 10 are
jointly owned. Eleven of CITGO's product terminals have waterborne docking
facilities, which greatly enhance the flexibility of CITGO's logistical system.
Refined product terminals owned or operated by CITGO provide a total storage
capacity of approximately 21 million barrels. Also, CITGO has active exchange
relationships with over 300 other refined product terminals, providing
flexibility and timely response capability to meet distribution needs.

11

Petrochemicals and Industrial Products. CITGO sells petrochemicals in
bulk to a variety of U.S. manufacturers as raw material for finished goods. The
majority of CITGO's cumene production is sold to Mount Vernon Phenol Plant
Partnership, a joint venture phenol production plant in which CITGO and General
Electric Company are partners. This plant produces phenol and acetone for sale
primarily to the principal partner in the phenol plant for the production of
plastics. Sulphur is sold to the U.S. and international fertilizer industries;
cycle oils are sold for feedstock processing and blending; natural gas liquids
are sold to the U.S. fuel and petrochemical industry; petroleum coke is sold
primarily in international markets, through TCP Petcoke Corporation, a joint
venture, for use as kiln and boiler fuel; and residual fuel blendstocks are sold
to a variety of fuel oil blenders.

Asphalt. CITGO asphalt is generally marketed to independent paving
contractors on the East and Gulf Coasts and in the Midwest of the United States
for use in the construction and resurfacing of roadways. CITGO delivers asphalt
through three wholly-owned terminals and twenty-three leased terminals. Demand
for asphalt is seasonal and peaks in the summer months.

Lubricants and Waxes. CITGO markets many different types, grades and
container sizes of lubricants and wax products, with the bulk of sales
consisting of automotive oil and lubricants and industrial lubricants. Other
major lubricant products include 2-cycle engine oil and automatic transmission
fluid.

INTERNATIONAL OPERATIONS

CITGO, through its wholly-owned subsidiary, CITGO International Latin
America, Inc. ("CILA"), sells lubricants, gasoline and distillates in various
Latin American markets including Puerto Rico, Brazil, Ecuador and Mexico.

PIPELINE OPERATIONS

CITGO owns and operates a crude oil pipeline and three products
pipeline systems. CITGO also has equity interests in three crude oil pipeline
companies and six refined product pipeline companies. CITGO's pipeline interests
provide it with access to substantial refinery feedstocks and reliable
transportation to refined product markets, as well as cash flows from dividends.
One of the refined product pipelines in which CITGO has an interest, Colonial
Pipeline, is the largest refined product pipeline in the United States,
transporting refined products from the Gulf Coast to the mid-Atlantic and
eastern seaboard states. CITGO has a 15.8 percent ownership interest in Colonial
Pipeline.

EMPLOYEES

CITGO and its subsidiaries have a total of approximately 4,000
employees, approximately 1,500 of whom are covered by union contracts. Most of
the union employees are employed in refining operations. The remaining union
employees are located primarily at a lubricant plant and various refined product
terminals. All our union contracts will expire by July 1, 2006.

12

ENVIRONMENT AND SAFETY

Environment

CITGO is subject to the federal Clean Air Act ("CAA") which includes
the New Source Review ("NSR") program as well as the Title V air permitting
program; the federal Clean Water Act which includes the National Pollution
Discharge Elimination System program; the Toxic Substances Control Act; and the
federal Resource Conservation and Recovery Act and their equivalent state
programs. CITGO is required to obtain permits under all of these programs and
believes it is in material compliance with the terms of these permits. CITGO
does not have any material Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") liability because the former owners of many of
CITGO's assets have by explicit contractual language assumed all or the material
portion of CERCLA obligations related to those assets. This includes the Lake
Charles refinery and the Lemont refinery.

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 required
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 United States Environmental Protection Agency
("U.S. EPA") regarding "modifications" to refinery equipment under the NSR
provisions of the CAA 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 which 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.

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 the 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, the Company presented a proposal to the
LDEQ revising the 1993 closure plan. In 1998 and 2000, the Company 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. CITGO has incurred remediation costs to date
related to these surface impoundments of approximately $45 million. Based on
currently available information and proposed remedial approach, CITGO currently
anticipates closure and post-closure costs related to these surface impoundments
and related solid waste management units to range from $36 million to $41
million.

The Company's Corpus Christi, Texas refinery and current and former
employees are being investigated by state and federal agencies for alleged
criminal violations of federal environment statutes and

13

regulations, including the CAA and the Migratory Bird Act. The Company is
cooperating with the investigation by producing requested documents and
arranging for the interview of current and former employees. The Company
understands that the investigation may continue for several months at which time
the government will make a final decision as to whether to seek authority to
file any criminal charges. The Company believes that it has defenses to any such
charges. At this time, the Company cannot predict the outcome of, or the amount
or range of any potential loss that would ensue from, any such charges. The
Company has entered into a settlement with the Texas Commission on Environmental
Quality ("TCEQ"), which was approved by the TCEQ on February 11, 2004, regarding
civil charges under applicable laws relating to a portion of these alleged
violations and including all issues which have been subject of prior, pending,
and threatened enforcement proceedings by the TCEQ. That settlement called for a
$1.74 million payment by the Company, of which $870,000 was paid in December
2003 and the balance was paid in March 2004. Further, the settlement will
require the capital expenditures by the Company which will range up to an
aggregate of $21 million to be incurred over a period of years. In addition, the
Company is in settlement discussions with the U.S. EPA related to civil claims
under the NSR and other provisions of the CAA, which, if finalized, would also
address a portion of the alleged violations of federal law discussed in this
paragraph. At this time, the Company cannot predict the final outcome of these
negotiations.

In June 1999, CITGO and numerous other industrial companies received
notice from the U.S. EPA that the U.S. EPA believes these companies have
contributed to contamination in the Calcasieu Estuary, near Lake Charles,
Louisiana and are potentially responsible parties ("PRPs") under the 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 May
2003. CITGO and other PRPs may be potentially responsible for the costs of the
RI/FS, subsequent remedial actions and natural resource damages. Although CITGO
is still reviewing the recent remedial investigation phase of the report and its
implications, CITGO submitted initial comments on the report in July 2003. Also,
the EPA and the LDEQ issued a memorandum of understanding in June 2003 assigning
the primary areas of responsibility between the agencies related to the
Calcasieu Estuary. While the Company disagrees with many of the U.S. EPA's
earlier allegations and conclusions, the Company and other industrial companies
signed in December 2003, a Cooperative Agreement with the LDEQ on issues
relative to the Bayou D'Inde tributary section of the Calcasieu Estuary. The
Company will continue to deal separately with the LDEQ on issues relative to its
refinery operations on another section of the Calcasieu Estuary. The Company
still intends to contest this matter if necessary.

In January and July 2001, CITGO received notices of violation ("NOVs")
from the U.S. EPA alleging violations of the CAA. 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 CAA. 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 be approximately $200 million. Any such
capital costs would be incurred over a period of years, anticipated to be from
2004 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. CITGO 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

14

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 regulations
covering benzene emissions from wastewater treatment operations at the Company's
Lemont, Illinois refinery. CITGO is in settlement discussions with the U.S. EPA.
The Company 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 violations of the Louisiana air quality
regulations at the CITGO's Lake Charles, Louisiana refinery during 2001. The
majority of the alleged violations related to the leak detection and repair
program. The Company is in settlement discussions with the LDEQ. The LDEQ
believes this matter will be consolidated with the matters described in the
previous paragraph related to the EPA's NSR enforcement initiative.

At December 31, 2003, CITGO's balance sheet included an environmental
accrual of $63 million. Results of operations reflect a decline in the accrual
of $5 million during 2003 due primarily to a revision of the Company's estimated
share of costs related to a site which is still under investigation by the U.S.
EPA. CITGO estimates that an additional loss of $20 million is reasonably
possible in connection with environmental matters.

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.

15

Increasingly stringent environmental regulatory provisions and
obligations periodically require additional capital expenditures. During 2003,
CITGO spent approximately $253 million for environmental and regulatory capital
improvements in its operations. Management currently estimates that CITGO will
spend approximately $785 million for environmental and regulatory capital
projects over the five-year period 2004-2008.

2004 2005 2006 2007 2008 TOTAL
-------- -------- -------- -------- -------- -------
(IN MILLIONS)

Tier 2 gasoline (1) $ 75 $ 29 $ 52 $ - $ - $ 156
Ultra low sulfur diesel (2) 21 57 102 18 77 275
Other environmental (3) 111 95 94 31 23 354
-------- -------- -------- -------- -------- --------
Total regulatory/environmental $ 207 $ 181 $ 248 $ 49 $ 100 $ 785
======== ======== ======== ======== ======== ========

- ----------
(1) In February 2000, the EPA promulgated the Tier 2 Motor Vehicle Emission
Standards Final Rule for all passenger vehicles, establishing standards for
sulfur content in gasoline. These regulations mandate that the average
sulfur content of gasoline for highway use produced at any refinery not
exceed 30 parts per million during any calendar year by January 1, 2006,
with a phase-in beginning January 1, 2004. In order to comply with these
regulations, CITGO is installing additional hydroprocessing facilities at
its refineries. (Hydroprocessing facilities remove sulfur from oil by means
of a chemical reaction which occurs when the oil is mixed with hydrogen,
heated and processed over a catalyst.)

(2) Spending on Ultra Low Sulfur Diesel ("ULSD") assumes the EPA will require
ULSD for on-road diesel in 2006 and ULSD for off-road diesel use in 2010.
The ULSD program will require CITGO to make additional capital investments
at its refineries. The estimates shown here are based on the installation
of traditional hydroprocessing facilities. These regulations are not final
and spending could be reduced if certain alternative regulatory schemes
proposed by EPA are adopted. CITGO continues to evaluate new technological
innovations which may reduce the required investment.

(3) Other environmental spending assumes approximately $200 million in spending
to comply with New Source Review standards under the Clean Air Act.

These estimates may vary due to a variety of factors. See "Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources". See also "Factors Affecting
Forward Looking Statements".

Safety

Due to the nature of petroleum refining and distribution, CITGO is
subject to stringent federal and state occupational health and safety laws and
regulations. We strive to achieve excellent safety and health performance. We
believe that safety is tied directly to productivity in our facilities and
financial results. We maintain comprehensive safety management systems including
policies, procedures, recordkeeping, internal reviews, training, incident
reviews and corrective actions. We track not only accidents, but also "near
miss" events and conditions, equipment malfunctions, first aid events and
medical treatments. Each employee in CITGO's facilities has a role in
maintaining safe work conditions and has the authority to stop unsafe acts or
unsafe conditions.

16

ITEM 3. LEGAL PROCEEDINGS

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.

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

MTBE Litigation

CITGO is a defendant in a number of federal and state lawsuits alleging
contamination of private and public water supplies by methyl tertiary butyl
ether ("MTBE"), a gasoline additive. In general, the plaintiffs claim that MTBE
renders the water not potable. In addition to compensatory and punitive damages,
plaintiffs seek injunctive relief to abate the contamination. The Company
intends to defend all of the MTBE lawsuits vigorously.

State Court Litigation

- New York: Four actions are currently pending against the Company and others
in New York state courts. Two have been filed by individual property
owners, one has been filed by a public water supplier, and one is a
purported class action on behalf of private well owners in two New York
communities. Dispositive motions are pending in all except the public water
supplier case. The defendants' motion to dismiss has been denied and the
parties are negotiating a scheduling order in that case. Discovery has not
commenced and a trial date has not been set.

- Illinois: The Company is defending two actions pending in Illinois state
court (Madison County). One is a purported class action on behalf of
Illinois private well owners. The other case was filed by the Village of
East Alton alleging contamination of its public water supplies. Both cases
are scheduled for trial in the fall of 2004.

Federal Court Litigation

Fifty-two MTBE lawsuits have been filed in state courts in Illinois, New York,
New Hampshire, New Jersey, Connecticut, Massachusetts, Vermont, Florida, Iowa,
Indiana, Louisiana, Virginia, Pennsylvania, Kansas and California since
September 30, 2003. To date, CITGO has been served in approximately 32 of
these cases in California, Connecticut, New Hampshire, Illinois, Indiana,
Pennsylvania, Vermont and New York. Most of the lawsuits were filed on behalf
of public water suppliers and allege MTBE contamination of public drinking
water sources. The New Hampshire case was filed by the New Hampshire State
Attorney General to protect the state's water resources. The lawsuit seeks
restoration and remediation, monitoring and testing of all public and private
water supplies in the state, as well as compensatory and punitive damages and
fines. All cases are being removed to federal court, concurrent federal
declaratory judgment actions are being filed by certain of the defendants in
those federal courts, and Tag-Along Notices have been filed with the federal
Judicial Panel on Multidistrict Litigation ("JPML") requesting transfer and
consolidation of all of the cases to the Southern District of New York as part
of MDL 1358, which was created in October 2000 to coordinate similar
litigation (now settled) and which remains administratively open. On December
19, 2003, Judge Shira Scheindlin, to whom MDL 1358 was previously assigned,
entered an order requesting that all MTBE cases, other than those pending

17

before her, be stayed until a decision is made by the JPML whether to transfer
and consolidate the cases as part of MDL 1358. Since that time, all other
recently filed cases have been stayed or are expected to be stayed. Plaintiffs
have moved or will move to remand each of the removed cases. Briefing of the
remand motions filed in two of the cases pending before Judge Scheindlin has
been completed but no decision has been entered. Briefing of the remand motions
filed in the actions that have been stayed will not go forward unless and until
the stay orders are lifted. No discovery has commenced.

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 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. On January 30, 2004, the U.S. Court of Appeals for
the Federal Circuit affirmed the decision of the Court of International Trade.

CITGO has been named as a defendant in approximately 150 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, CITGO's involvement arises not from having been sued directly but because
prior owners of the CITGO refineries have asserted indemnification rights
against CITGO.

CITGO is a defendant in several cases involving employees and
contractor employees allegedly seriously injured at CITGO's refineries due to
CITGO's alleged negligence. CITGO is vigorously defending these cases.

At December 31, 2003, CITGO's balance sheet included an accrual for
lawsuits and claims of $27 million compared with $23 million at December 31,
2002. The increase in the accrual is due primarily to a revision in the
estimated cost to CITGO in resolving various lawsuits and claims. In addition,
CITGO estimates that an additional loss of $5 million is reasonably possible in
connection with such lawsuits and claims.

See also "ITEMS 1. and 2. Business and Properties -- Environment and
Safety" for information regarding various enforcement actions.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The registrant meets the conditions set forth in General Instructions
(I)(1)(a) and (b) of Form 10-K and is therefore omitting the information
otherwise required by Item 4 of Form 10-K relating to submission of matters to a
vote of security holders as permitted by General Instructions (I)(2)(c).

18

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market

The Company's common stock is not traded on any market. All of the
Company's common stock is held by PDV America.

Dividends

On July 25, 2003, CITGO made a $500 million dividend payment to its
parent, PDV America in order to assist PDV America in making a principal payment
on PDV America's $500 million, 7-7/8% senior notes due August 1, 2003. On
December 28, 2003, CITGO made a $796 thousand dividend payment to PDV America.

See Consolidated Financial Statements of CITGO - Note 10 in Item 15a
for a description of restrictions applicable to dividend payments by CITGO.

19

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected historical consolidated
financial and operating data of CITGO as of the end of and for each of the five
years in the period ended December 31, 2003. The following table should be read
in conjunction with the consolidated financial statements of CITGO as of
December 31, 2003 and 2002, and for each of the three years in the period ended
December 31, 2003, included in "Item 8. Financial Statements and Supplementary
Data".

YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2003 2002 2001 2000 1999
----------------------- ---------- ----------- ----------
(DOLLARS IN MILLIONS)

INCOME STATEMENT DATA
Net sales and sales to affiliates $ 25,216 $ 19,358 $ 19,601 $ 22,157 $ 13,334
Equity in earnings of affiliates 118 101 109 59 22
Other income (including insurance recoveries) 161 387 (5) (26) (29)
Net revenues 25,496 19,846 19,705 22,190 13,328
Income before cumulative effect of change
in accounting principle 439 180 392 312 122
Net income 439 180 405 312 122
Other comprehensive income (loss) 4 (22) (1) 1 (3)
Comprehensive income 443 158 404 313 119
Ratio of Earnings to Fixed Charges (1) 5.53x 3.66x 7.08x 5.62x 2.89x
BALANCE SHEET DATA
Total assets $ 7,273 $ 6,987 $ 6,509 $ 6,806 $ 6,642
Long-term debt (excluding current portion)(2) 1,468 1,134 1,351 1,087 1,598
Total debt (3) 1,502 1,347 1,479 1,199 1,694
Shareholder's equity 2,501 2,559 2,401 2,476 2,385

- ----------------

(1) For the purpose of calculating the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes and cumulative effect of
accounting changes plus fixed charges (excluding capitalized interest),
amortization of previously capitalized interest and certain adjustments to
equity in income of affiliates. "Fixed charges" include interest expense,
capitalized interest, amortization of debt issuance costs and a portion of
operating lease rent expense deemed to be representative of interest.

(2) Includes long-term debt to third parties and capital lease obligations.

(3) Includes short-term bank loans, current portion of capital lease obligations
and long-term debt, long-term debt and capital lease obligations.

20

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

EXECUTIVE SUMMARY

CITGO is in the refining and marketing business. We refine crude oil
and other feedstocks into a variety of products which include gasoline, diesel,
fuel oil, and jet fuel, petrochemicals and industrial products, lubricants and
waxes, and asphalt. Products are transported from our refineries primarily by
pipeline and barge and then through terminals to our customers. These products
are sold to wholesale marketers, convenience stores, airlines and to other
manufacturers as feedstock. We sell more of these products than we refine and as
a result, we supplement our own production with purchases from others.

We evaluate our operating performance by attention to the utilization
rates of the refinery equipment, the yield of products from the crude oil input
and the cost of other key components such as natural gas and electricity. We
evaluate our financial performance by focusing on gross margin, i.e., the sales
price of the products above the cost of crude, on products sold. We evaluate the
performance of our specialty products such as petrochemicals and lubricants
against the alternate use value of the hydrocarbons used to produce these
products. In most cases, this alternate use value relates to the price of
gasoline.

CITGO's financial results are a function of making full use of its
refining capacity, maintaining margins on the products it sells, operating its
facilities in a safe manner and maintaining strong cost control wherever
possible. We assess our financial condition by various liquidity measures
including interest coverage, debt coverage, debt-to-capitalization, return on
capital employed and available, but unused borrowing capacity.

CITGO's primary opportunities currently are based on enhancing our
revenues through increasing our crude oil refining capacity, expanding the
processing capacity of other refinery equipment and increasing the sales volume
of fuels and asphalt and through reduction of expenses.

Changes in product quality specifications present the most difficult
challenge to CITGO management for the intermediate term. Tier II Gasoline, Ultra
Low Sulfur Diesel, Group II and III Lube base oils and high performance asphalts
are all being required by the market place over the next 4 to 6 years. Some of
these products are being directly mandated by regulatory agencies, others are
the indirect result of regulations, but ultimately our customers will require
all these products plus possibly others not currently defined.

The challenges to being able to supply this new generation of products
include: planning and executing multi-million dollar capital projects; financing
these projects; and adjusting operating practices and procedures to assure
reliable, high quality supplies to our customers. All this must be done without
impacting our profit and efficiency improvement initiatives.

CITGO has taken a systems approach to addressing the need for new
quality products. Capital projects at our refineries have been scheduled over
several years, taking advantage of flexibility written into the regulations, to
avoid extreme capital spending spikes which could create financing difficulties.

CITGO continues to evaluate technology improvements, and believes that
by staggering our implementation of new quality fuels production capabilities,
we will benefit from technology improvements over time. We have estimated we
will spend $785 million dollars in regulatory capital between 2004 and 2008,
mostly to produce new quality products. This estimate is based on the cost of
current technology. We believe our systems approach to this challenge increases
the likelihood that we may reduce this cost.

The refined products business is inherently volatile, and the primary
business risk for any company engaged in the business is a sudden and radical
movement in market prices. Another major risk in the refined products business
is operational risk, that is the risk of mechanical failure at any operating
asset used

21

to serve customers. A final area of risk is political risk. In the short term,
geopolitical actions could upset the availability or price of crude oil or
products creating market upsets. Over the longer term, changes in laws or
regulations could radically increase the cost of being in the refined products
business.

CITGO operates to minimize our exposure to volatility in the refined
products market place by avoiding significant inventory positions or forward
price commitments.

Operating risk is first addressed at CITGO by sound and stringent
operating practices and procedures. However, in addition to striving for
operational excellence, CITGO carries significant levels of property damage and
business interruption insurance. CITGO's success in mitigating the impact of a
severe fire at the Lemont, Illinois refinery in 2001 illustrates the value of
insurance coverage.

Political risk is almost impossible to totally avoid. However, CITGO's
large and diverse refining and distribution system provides the flexibility to
react to crude and product shortages should they occur. CITGO's Gulf Coast
refineries are complex and flexible enough to process almost any type of crude
oil traded on the world market. CITGO can compete for supply with any Gulf Coast
refiner. Lemont currently processes primarily Canadian crude, but can be
supplied from the U.S. mid-continent or the Gulf Coast if necessary. CITGO also
operates product terminals with import capability in New York Harbor, Miami-Fort
Lauderdale, Tampa, Boston and a number of other locations if it becomes
necessary to further supplement refinery production with increased product
imports.

Political risk associated with increased regulation can only be
addressed on an issue specific basis. CITGO is active in several industry and
state specific associations to monitor statutory and regulatory trends which
might affect the business.

The refined products business continues to be very competitive.
Industry analysts predict demand growth at 1% to 2% per year in the U.S. for the
next 5 to 10 years, creating expansion opportunities for U.S. refineries which
are currently operating at near capacity throughput. While this growth trend
would appear to be positive for refining and marketing companies, the industry
has always exhibited strong competitive tendencies, and recent corporate
consolidations have resulted in cost reduction synergies and economies of scale
which translated to competitive pricing in the market place.

As noted above, the production of lower sulfur content fuels and higher
quality lubricant base stocks and asphalts is definitely a trend for the future.
The high capital requirements associated with facilities equipped to produce
these products may lead to further consolidation of refining capacity into the
hands of financially strong companies. CITGO will continue to monitor these
trends and will take advantage of economic opportunities as they occur.

Major uncertainties for CITGO generally coincide with market and
political risks. While CITGO can only make educated guesses about the future of
the refined products market and political actions which might affect it, the
Company can prepare itself for potential contingencies. By maintaining an
adequate level of financial liquidity, by assuring that its refineries and
distribution assets are flexible and have multiple sources of supply and by
monitoring and analyzing the market on a continuous basis, CITGO believes it is
prepared to adjust to most market contingencies in ways that will not have a
significant negative impact on its performance or future.

Financially, 2003 was an excellent year for CITGO as a result of a high
utilization rate of refining capacity, excellent safety performance and
favorable market conditions. As CITGO continues to emphasize the importance of
efficient refinery operations and its commitment to safety, we will again take
advantage of expected favorable market conditions in 2004 despite significant
refinery maintenance at CITGO's plants in the first quarter. However, CITGO
operates in an industry subject to volatility in earnings. Conditions can change
quickly and results may differ markedly from management's expectations. For
example, because CITGO does not produce any of the crude oil processed at its
refineries, it is exposed to the risk of supply disruption

22

or price spikes resulting from world events. A supply disruption could require
CITGO to reduce its rate of crude oil processing. This would have a negative
effect on profitability. In a similar manner, a spike in crude oil prices that
was not quickly followed by a similar increase in product prices would reduce
profitably. In addition, reactions to perceived credit risks by CITGO's
suppliers and creditors can quickly affect the Company's liquidity should credit
lines or payment terms be restricted.

In February 2003, CITGO issued $550 million of 11-3/8% unsecured senior
notes due in 2011 and CITGO closed on a three year, $200 million senior secured
term loan. In July 2003, CITGO made a dividend payment of $500 million to its
parent, PDV America. This dividend enabled PDV America to make the principal
payment on its $500 million, 7-7/8% senior notes that were due August 1, 2003.

CITGO has sufficient liquidity (defined as cash, available borrowing
capacity and access to an accounts receivable sales facility) to maintain its
current operations and to complete capital projects that are underway. Estimated
capital expenditures for 2004 are approximately $540 million. Of this amount,
$207 million is for regulatory projects, $175 million for strategic projects and
$158 million is for maintenance projects. Liquidity at year end was
approximately $734 million. CITGO has no plans to issue new debt in 2004, but it
will replace the debt maturing in 2004.

OVERVIEW

The following discussion of the financial condition and results of
operations of CITGO should be read in conjunction with the consolidated
financial statements of CITGO included elsewhere herein.

Petroleum refining industry operations and profitability are influenced
by a large number of factors, some of which individual petroleum refining and
marketing companies cannot control. Governmental regulations and policies,
particularly in the areas of taxation, energy and the environment (as to which,
see "ITEMS 1. and 2. Business and Properties - Environment and Safety"), have a
significant impact on petroleum activities, regulating how companies conduct
their operations and formulate their products. Demand for crude oil and refined
products is largely driven by the condition of local and worldwide economies,
although weather patterns and taxation relative to other energy sources also
play a significant part. CITGO's consolidated operating results are affected by
these industry-specific factors and by company-specific factors, such as the
success of marketing programs and refinery operations.

The earnings and cash flows of companies engaged in the refining and
marketing business in the United States are primarily dependent upon producing
and selling quantities of refined products at margins sufficient to cover fixed
and variable costs. The refining and marketing business is characterized by high
fixed costs resulting from the significant capital outlays associated with
refineries, terminals and related facilities. This business is also
characterized by substantial fluctuations in variable costs, particularly costs
of crude oil, feedstocks and blending components, and in the prices realized for
refined products. Crude oil and refined products are commodities whose price
levels are determined by market forces beyond the control of CITGO.

In general, prices for refined products are influenced by the price of
crude oil, feedstocks and blending components, inventory levels and consumer
demand. Although an increase or decrease in the price for crude oil, feedstocks
and blending components generally results in a corresponding increase or
decrease in prices for refined products, inventory levels and consumer demand
can create a lag in the realization of the corresponding increase or decrease in
prices for refined products. The effect of changes in crude oil prices on
CITGO's consolidated operating results therefore depends in part on how quickly
refined product prices adjust to reflect these changes. Although the pricing
formulas under CITGO's crude supply agreements with PDVSA are designed to
provide a measure of stability to CITGO's refining margins, CITGO receives only
approximately 50% of its crude oil requirements under these agreements.
Therefore, a substantial or prolonged increase in crude oil prices without a
corresponding increase in refined product prices, or a substantial or prolonged
decrease in refined product prices without a corresponding decrease in crude oil

23

prices, or a substantial or prolonged decrease in demand for refined products
could have a significant negative effect on CITGO's earnings and cash flows.

CITGO also purchases significant volumes of refined products to
supplement the production from its refineries to meet marketing demands and to
resolve logistical issues. CITGO's earnings and cash flows are also affected by
the cyclical nature of petrochemical prices. As a result of the factors
described above, the earnings and cash flows of CITGO may experience substantial
fluctuations. Inflation was not a significant factor in the operations of CITGO
during the three years ended December 31, 2003.

The cost and available coverage level of property damage and business
interruption insurance to the Company is driven, in part, by company specific
and industry factors. It is also affected by national and international events.
The present environment for CITGO is one characterized by increased cost of
coverage, higher deductibles, and some restrictions in coverage terms. This has
the potential effect of lower profitability in the near term.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with Generally
Accepted Accounting Principles in the United States of America requires that
management apply accounting policies and make estimates and assumptions that
affect results of operations and the reported amounts of assets and liabilities.
The following areas are those that management believes are important to the
financial statements and which require significant judgment and estimation
because of inherent uncertainty.

Environmental Expenditures. The costs to comply with environmental
regulations are significant. Environmental expenditures incurred currently that
relate to present or future revenues are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations and
that do not contribute to current or future revenue generation are expensed. The
Company constantly monitors its compliance with environmental regulations and
responds promptly to issues raised by regulatory agencies. Liabilities are
recorded when environmental assessments and/or cleanups are probable and the
costs can be reasonably estimated. Environmental liabilities are not discounted
to their present value and are recorded without consideration of potential
recoveries from third parties. Subsequent adjustments to estimates, to the
extent required, may be made as more refined information becomes available.

Litigation and Injury Claims. Various lawsuits and claims arising in
the ordinary course of business are pending against the Company. The status of
these lawsuits and claims are continually reviewed by external and internal
legal counsel. These reviews provide the basis for which the Company determines
whether or not to record accruals for potential losses. Accruals for losses are
recorded 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.

Health Care Costs. The cost of providing health care to current
employees and retired employees continues to increase at a significant rate.
Historically, CITGO has absorbed the majority of these cost increases which
reduce profitability and increase the Company's liability. There is no
indication that the trend of increasing health care costs will be reversed in
future periods. Recent federal legislation introduced a prescription drug
benefit under Medicare as well as a federal subsidy to sponsors of certain
retiree health care benefit plans. Authoritative guidance on the accounting for
the federal subsidy is pending but CITGO expects that the net expenditure and
the liability for postretirement healthcare benefits will be reduced as a result
of this legislation. The Company's liability for such health care costs is based
on actuarial calculations that could be subject to significant revision as the
underlying assumptions regarding future health care costs and interest rates
change.

24

Pensions. CITGO's pension cost and liability are based on actuarial
calculations, which are dependent on assumptions concerning discount rates,
expected rates of return on plan assets, employee turnover, estimated retirement
dates, salary levels at retirement and mortality rates. In addition, differences
between actual experience and the assumptions also affect the actuarial
calculations. While management believes that the assumptions used are
appropriate, differences in actual experience or changes in assumptions may
significantly affect the Company's future pension cost and liability.

RESULTS OF OPERATIONS

FOR THE THREE YEARS ENDED DECEMBER 31, 2003

The following table summarizes CITGO's sales revenues and volumes.

CITGO SALES REVENUES AND VOLUMES

YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------ ------------------------
2003 2002 2001 2003 2002 2001
-------- -------- -------- ------ ------ ------
(IN MILLIONS) (GALLONS IN MILLIONS)

Gasoline $ 14,320 $ 11,758 $ 11,316 15,257 15,026 13,585
Jet fuel 1,951 1,402 1,660 2,315 2,003 2,190
Diesel / #2 fuel 5,287 3,462 3,984 6,238 5,031 5,429
Asphalt 711 597 502 990 902 946
Petrochemicals and industrial products 2,272 1,485 1,490 2,643 2,190 2,297
Lubricants and waxes 598 561 536 261 261 240
-------- -------- -------- ------ ------ ------
Total refined product sales $ 25,139 $ 19,265 $ 19,488 27,704 25,413 24,687
Other sales 77 93 113 - - -
-------- -------- -------- ------ ------ ------
Total sales $ 25,216 $ 19,358 $ 19,601 27,704 25,413 24,687
======== ======== ======== ====== ====== ======

The following table summarizes CITGO's cost of sales and operating
expenses.

CITGO COST OF SALES AND OPERATING EXPENSES

YEAR ENDED DECEMBER 31,
2003 2002 2001
-------- -------- --------
($ IN MILLIONS)

Crude oil $ 6,807 $ 5,098 $ 4,898
Refined products 14,075 11,077 10,686
Intermediate feedstocks 1,657 1,489 1,496
Refining and manufacturing costs 1,307 1,233 1,113
Other operating costs and expenses and inventory changes 545 314 542
-------- -------- --------
Total cost of sales and operating expenses $ 24,391 $ 19,211 $ 18,735
======== ======== ========

RESULTS OF OPERATIONS -- 2003 COMPARED TO 2002

Sales revenues and volumes. Sales increased $5.9 billion, representing
a 30% increase from 2002 to 2003. This was due to an increase in average sales
price of 19% and an increase in sales volume of 9%. The primary volume increase
was in diesel/#2 fuel sales. We had an increase in refinery production of
diesel/#2 fuel sales due primarily to the recovery of the Lemont, Illinois
refinery, as well as increased availability of

25

product from our related parties' refineries (See Item 13. Certain Relationships
and Related Transactions). This along with an increase in marketing demand led
to an increase in sales of diesel/#2 fuel. (See CITGO Sales Revenues and Volumes
table above.)

Equity in earnings of affiliates. Equity in earnings of affiliates
increased by approximately $17 million, or 17%, from $101 million in 2002 to
$118 million in 2003. The increase was primarily attributable to an increase of
$7 million from CITGO's investment in pipelines, an increase of $6 million from
CITGO's investment in LYONDELL-CITGO and other earnings from affiliates of $4
million.

Insurance recoveries. We recorded insurance recoveries of $146 million
in 2003 compared to $407 million in 2002. The recoveries related primarily to a
fire which occurred on August 14, 2001 at the Lemont refinery. These recoveries
are, in part, reimbursements for expenses incurred in 2002 and 2001 to mitigate
the effect of the fire on our earnings. We do not expect any additional
insurance recoveries related to the Lemont fire.

Other income (expense) net. Other income (expense) increased $35
million from $(20) million in 2002 to $15 million in 2003. The change relates
primarily to miscellaneous income recorded during 2003 for the sale of use tax
credits and a gain on the early retirement of debt. In contrast, during 2002,
miscellaneous expenses were recorded primarily relating to the loss on the sale
and retirement of assets.

Cost of sales and operating expenses. Cost of sales and operating
expenses increased by $5.2 billion, or 27%, from 2002 to 2003. The increase is
due primarily to a 34% increase in crude oil purchases and a 27% increase in
refined product purchases. The increase in crude oil purchases is due to an
increase in crude oil prices and an increase in volumes purchased, which is due
to the Lemont refinery's increased utilization during 2003. The increase in
refined product purchases is due largely to the increase in refined product
prices during 2003. (See CITGO Cost of Sales and Operating Expenses table
above.)

CITGO purchases refined products to supplement the production from its
refineries to meet marketing demands and resolve logistical issues. The refined
product purchases represented 58% of cost of sales for both 2003 and 2002. These
refined product purchases included purchases from LYONDELL-CITGO and HOVENSA.
CITGO estimates that margins on purchased products, on average, are lower than
margins on produced products due to the fact that CITGO can only receive the
marketing portion of the total margin received on the produced refined products.
However, purchased products are not segregated from CITGO produced products and
margins may vary due to market conditions and other factors beyond the Company's
control. As such, it is difficult to measure the effects on profitability of
changes in volumes of purchased products. In the near term, other than normal
refinery turnaround maintenance, CITGO does not anticipate operational actions
or market conditions which might cause a material change in anticipated
purchased product requirements; however, there could be events beyond the
control of CITGO which impact the volume of refined products purchased. (See
also "Factors Affecting Forward Looking Statements".)

Gross margin. The gross margin for 2003 was $825 million, or 3.3% of
net sales, compared to $147 million or 0.8% of net sales, for 2002. The gross
margin increased from 0.6 cents per gallon in 2002 to 3.0 cents per gallon in
2003 as a result of general market conditions and a high utilization rate of
refining capacity.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased $11 million, or 4 % in 2003. The increase is
primarily related to an increase in benefit costs, incentive compensation, and
expenses related to an early retirement program.

Interest expense. Interest expense increased by $52 million or 78% in
2003. This was due primarily 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 secured term loan in
February 2003.

26

Income taxes. CITGO's provision for income taxes in 2003 was $245
million, representing an effective tax rate of 36%. In 2002, CITGO's provision
for income taxes was $96 million, representing an effective tax rate of 35%.

RESULTS OF OPERATIONS -- 2002 COMPARED TO 2001

Sales revenues and volumes. Sales decreased $243 million, representing
a 1% decrease from 2001 to 2002. This was due to a decrease in average sales
price of 4% offset by an increase in sales volume of 3%. (See CITGO Sales
Revenues and Volumes table above.)

Equity in earnings of affiliates. Equity in earnings of affiliates
decreased by approximately $8 million, or 7% from $109 million in 2001 to $101
million in 2002. An increase in earnings of $4 million attributable to
LYONDELL-CITGO was more than offset by a $12 million reduction in earnings from
CITGO's other investments. For the year ended December 31, 2002, LYONDELL-CITGO
constituted a significant investment for CITGO in a 50-percent-or-less-owned
person under SEC regulations. See separate financial statements for
LYONDELL-CITGO in Item 15a.

Insurance recoveries. The insurance recoveries of $407 million and $53
million included in the years ended December 31, 2002 and 2001, respectively,
relate primarily to a fire which occurred on August 14, 2001 at the Lemont
refinery. These recoveries are, in part, reimbursements for expenses incurred in
2002 and 2001 to mitigate the effect of the fire on the Company's earnings. The
Company expects to recover additional amounts related to this event subject to
final settlement negotiations.

Other income (expense), net. Other income (expense) increased $38
million, or 66% from $(58) million in 2001 to $(20) million in 2002. The
increase is due primarily to the fact that during 2001, the Company recorded
property losses and related expenses totaling $54 million in other income
(expense) related to fires at the Lemont refinery and the Lake Charles refinery.

Cost of sales and operating expenses. Cost of sales and operating
expenses increased by $476 million, or 3%, from 2001 to 2002. (See CITGO Cost of
Sales and Operating Expenses table above.)

CITGO purchases refined products to supplement the production from its
refineries to meet marketing demands and resolve logistical issues. The refined
product purchases represented 58% of cost of sales for 2002 and 57% for 2001.
These refined product purchases included purchases from LYONDELL-CITGO and
HOVENSA. CITGO estimates that margins on purchased products, on average, are
lower than margins on produced products due to the fact that CITGO can only
receive the marketing portion of the total margin received on the produced
refined products. However, purchased products are not segregated from CITGO
produced products and margins may vary due to market conditions and other
factors beyond the Company's control. As such, it is difficult to measure the
effects on profitability of changes in volumes of purchased products. In the
near term, other than normal refinery turnaround maintenance, CITGO does not
anticipate operational actions or market conditions which might cause a material
change in anticipated purchased product requirements; however, there could be
events beyond the control of CITGO which impact the volume of refined products
purchased. (See also "Factors Affecting Forward Looking Statements".)

Gross margin. The gross margin for 2002 was $147 million, or 0.8% of
net sales, compared to $867 million, or 4.4% of net sales, for 2001. The gross
margin decreased from 3.5 cents per gallon in 2001 to 0.6 cents per gallon in
2002 as a result of general market conditions and factors relating specifically
to CITGO including operating problems, weather related shut downs and force
majeure under crude oil supply contracts with PDVSA.

27

Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $7 million, or 2% in 2002, primarily as a
result of a decrease in compensation offset in part by increases in marketing
expenses.

Interest Expense. Interest expense decreased $2 million, or 3% in 2002,
primarily due to the decline in interest rates on CITGO's variable rate debt.

Income taxes. CITGO's provision for income taxes in 2002 was $96
million, representing an effective tax rate of 35%. In 2001, CITGO's provision
for income taxes was $206 million, representing an effective tax rate of 35%.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated net cash provided by operating activities totaled
approximately $995 million in 2003. Operating cash flows were derived primarily
from net income of $439 million, depreciation and amortization of $334 million,
deferred income taxes of $160 million, distributions in excess of equity in
earnings of affiliates of $100 million and changes in working capital of $(71)
million. The change in working capital is primarily the result of increases in
accounts receivable and due from affiliates and decreases in accounts payable
offset, in part, by decreases in inventory. The change in deferred income taxes
is due primarily to changes in the alternative minimum tax credit carryforward
and net operating loss carryforwards as well as recent legislation that allows
increased depreciation to be taken for tax purposes. The change in distributions
in excess of equity in earnings of affiliates is primarily due to the cash
distributions received in 2003 from LYONDELL-CITGO, of which approximately $75
million related to distributions which were payable to CITGO at December 31,
2002. Accounts receivable increased primarily due to the fact that no accounts
receivable had been sold under our accounts receivable sales facility at
December 31, 2003 while $125 million had been sold under this facility at
December 31, 2002. The decrease in accounts payable was primarily attributable
to payables outstanding at the end of 2002 relating to both capital and
turnarounds projects at the Lemont, Illinois refinery. Inventories decreased as
a result of management's decision to reduce inventory volume to more closely
meet current operating requirements.

Net cash used in investing activities in 2003 totaled $418 million
consisting primarily of capital expenditures of $414 million. These capital
expenditures consisted of:

For the year ended
December 31, 2003
------------------

($ in millions)
Regulatory requirements $ 253
Maintenance capital projects 55
Strategic capital expenditures 106
---
Total capital expenditures $ 414
===

Net cash used by financing activities in 2003 totaled $408 million,
consisting primarily of dividend payments of $501 million to PDV America; the
repayments of $279 million on revolving bank loans; the repurchase of $93
million of tax-exempt bonds; the repurchase of $90 million of taxable bonds; the
repurchase of $50 million of our 7-7/8% senior notes due 2006 for a cash payment
of $47.5 million; the payment of $50 million on master shelf agreement notes;
the repayment of loans from affiliates of $39 million; $20 million in debt
issuance costs associated with the 11-3/8% senior notes due 2011, the senior
secured loan, and the repurchase of taxable and tax-exempt bonds; capital lease
payments of $24 million; and $11 million repayments on private placement senior
notes. These payments were offset by proceeds from our senior secured term loan
of $200 million and the proceeds from our 11-3/8% senior notes due in 2011 of
$547 million.

As of December 31, 2003, the Company and its subsidiaries had an
aggregate of $1.5 billion of indebtedness outstanding that matures on various
dates through the year 2033. As of December 31, 2003, the Company's contractual
commitments to make principal payments on this indebtedness were $31 million,
$11 million and $401 million for 2004, 2005 and 2006, respectively. As of
December 31, 2003, the Company has a $260 million, three year, unsecured
revolving bank loan which matures in December 2005. There was no outstanding
balance under this credit agreement at December 31, 2003. As of December 31,
2003, the Company's other principal indebtedness consisted of (i) $547 million
in 11-3/8% senior notes issued in 2003,

28

(ii) $150 million in 7-7/8% senior notes issued in 1996, (iii) a $200 million
senior secured term loan, (iv) $185 million in senior notes issued pursuant to a
master shelf agreement with an insurance company, (v) $34 million in private
placement senior notes issued in 1991, (vi) $332 million in obligations related
to tax exempt bonds issued by various governmental units, and (vii) $25 million
in obligations related to taxable bonds issued by various governmental units.
(See Consolidated Financial Statements of CITGO - Notes 9 and 10 in Item 15a.)

The Company's various debt instruments require maintenance of a
specified minimum net worth and impose restrictions on its ability to:

- incur additional debt unless it meets specified interest coverage and
debt to capitalization ratios;

- place liens on its property, subject to specified exceptions;

- sell assets, subject to specified exceptions;

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

- merge, consolidate or transfer assets.

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

CITGO is in compliance with its obligations under its debt financing
arrangements at December 31, 2003.

Capital expenditure projected amounts for 2004 and 2005 through 2008
are as follows:

CITGO ESTIMATED CAPITAL EXPENDITURES - 2004 THROUGH 2008

2005-
2004 2008
PROJECTED (1) PROJECTED TOTAL
------------- --------- -------
(IN MILLIONS)

Strategic $ 175 $ 669 $ 844
Maintenance 158 378 536
Regulatory / Environmental 207 578 785
------------- --------- -------
Total $ 540 $ 1,625 $ 2,165
============= ========= =======

- ------------------------
(1) These estimates may change as future regulatory events unfold.
See "Factors Affecting Forward Looking Statements."

29

Estimated capital expenditures necessary to comply with the Clean Air
Act and other environmental laws and regulations are summarized below. See
"Factors Affecting Forward Looking Statements."

2004 2005 2006 2007 2008 TOTAL
------ ------ ------ ------ ------ -------
(IN MILLIONS)

Tier 2 gasoline (1) $ 75 $ 29 $ 52 $ - $ - $ 156
Ultra low sulfur diesel (2) 21 57 102 18 77 275
Other environmental (3) 111 95 94 31 23 354
------ ------ ------ ------ ------ -------
Total regulatory/environmental $ 207 $ 181 $ 248 $ 49 $ 100 $ 785
====== ====== ====== ====== ====== =======

- ------------------------
(1) In February 2000, the EPA promulgated the Tier 2 Motor Vehicle Emission
Standards Final Rule for all passenger vehicles, establishing standards
for sulfur content in gasoline. These regulations mandate that the
average sulfur content of gasoline for highway use produced at any
refinery not exceed 30 parts per million during any calendar year by
January 1, 2006, with a phase-in beginning January 1, 2004. In order to
comply with these regulations, CITGO is installing additional
hydroprocessing facilities at its refineries. (Hydroprocessing
facilities remove sulfur from oil by means of a chemical reaction which
occurs when the oil is mixed with hydrogen, heated and processed over a
catalyst.)

(2) Spending on Ultra Low Sulfur Diesel ("ULSD") assumes the EPA will
require ULSD for on-road diesel in 2006 and ULSD for off-road diesel
use in 2010. The ULSD program will require CITGO to make additional
capital investments at its refineries. The estimates shown here are
based on the installation of traditional hydroprocessing facilities.
These regulations are not final and spending could be reduced if
certain alternative regulatory schemes proposed by EPA are adopted.
CITGO continues to evaluate new technological innovations which may
reduce the required investment.

(3) Other environmental spending assumes approximately $200 million in
spending to comply with New Source Review standards under the Clean Air
Act.

CITGO believes that it will have sufficient resources to carry out
planned capital spending programs, including regulatory and environmental
projects in the near term, and to meet currently anticipated future obligations
and other planned expenditures as they arise. The Company periodically evaluates
other sources of capital in the marketplace and anticipates that long-term
capital requirements will be satisfied with current capital resources and future
financing arrangements, including the issuance of debt securities. CITGO's
ability to obtain such financing will depend on numerous factors, including
market conditions, compliance with existing debt covenants and the perceived
creditworthiness of the Company at that time. See also "Factors Affecting
Forward Looking Statements."

CITGO is a member of the PDV Holding consolidated Federal income tax
return. CITGO has a tax allocation agreement with PDV Holding, which is designed
to provide PDV Holding with sufficient cash to pay its consolidated income tax
liabilities. (See Consolidated Financial Statements of CITGO -- Note 1 and Note
4 in Item 15a).

We have outstanding letters of credit that support taxable and
tax-exempt bonds that were issued previously for our benefit. Through December
31, 2003, we repurchased $90 million of taxable bonds and $165 million of
tax-exempt bonds due to the non-renewal of these letters of credit. We will seek
to reissue these bonds, with replacement letters of credit in support or,
alternatively, we will seek to replace these bonds with new bonds that will not
require letter of credit support. As of March 1, 2004 we have obtained letter of
credit support for and have reissued approximately $69 million of the bonds that
were repurchased during 2003. Also, as of March 1, 2004, we have an additional
$219 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 period ending December 31, 2004.

In August 2002, three of the Company's affiliates entered into
agreements to advance excess cash to CITGO 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. There were no

30

amounts outstanding on these notes at December 31, 2003. At December 31, 2002,
the outstanding amounts under these notes were $5 million, $30 million and $4
million, respectively.

As of December 31, 2003, CITGO had an effective shelf registration with
the SEC under which it could have publicly offered up to $400 million principal
amount of debt securities. Due to CITGO's current credit ratings, the shelf
registration statement is not presently available.

CITGO's 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. BB-

CITGO's 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. BB-

CITGO's debt instruments do not contain any covenants that trigger
increased costs or burdens as a result of a change in its securities ratings.
However, certain of CITGO's guarantee agreements, which support approximately
$33 million of PDV Texas, Inc., an affiliate, letters of credit, require CITGO
to cash collateralize the applicable letters of credit upon a reduction of
CITGO's credit rating below a stated level.

CITGO believes that it has adequate liquidity from existing sources to
support its operations for the foreseeable future.

31

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table summarizes future payments for CITGO's contractual
obligations at December 31, 2003.

CONTRACTUAL OBLIGATIONS
AT DECEMBER 31, 2003

2004 2005 2006 2007 2008 THEREAFTER
-------- -------- -------- -------- -------- ----------
($ in millions)

Long-term debt (1) $ 31 $ 11 $ 401 $ 50 $ 45 $ 935
Capital lease obligations (2) 6 6 6 6 6 11
Operating leases (3) 105 61 42 21 15 16
Estimated crude purchase obligations (4) 2,669 2,663 2,384 1,558 1,561 4,933
Estimated product purchase obligations (5) 5,517 4,734 4,543 4,485 4,595 *
Estimated capital project spending
commitments 126 - - - - -
Other commitments (6) 310 309 257 190 190 1,211
-------- -------- -------- -------- -------- ----------
Total contractual cash obligations $ 8,764 $ 7,784 $ 7,633 $ 6,310 $ 6,412 $ 7,106*
======== ======== ======== ======== ======== ==========

- ------------------------

(1) Includes maturities of principal, but excludes interest payments.

(2) Includes amounts classified as interest.

(3) Represents future minimum lease payments for noncancelable
operating leases.

(4) Represents an estimate of contractual crude oil purchase commitments
which assure a portion of CITGO's supply requirements. These supply
contracts specify minimum volumes to be purchased. Prices were
estimated using actual prices paid in December 2003.

(5) Represents an estimate of contractual refined product purchase
commitments which assure a portion of CITGO's supply requirements.
These supply contracts specify minimum volumes to be purchased. Prices
were estimated using actual prices paid in December 2003 or December
2003 market prices as appropriate.

(6) Represents an estimate of contractual commitments to purchase various
commodities and services including hydrogen, electricity, steam, fuel
gas and vessel freight service.

* CITGO intends to continue purchasing a portion of its refined product
supply from related parties. Such purchases currently amount to
approximately $5 billion annually.

(See Consolidated Financial Statements of CITGO -- Notes 4, 10 and 14 in
Item 15a).

The following table summarizes CITGO's contingent commitments at
December 31, 2003.

OTHER COMMERCIAL COMMITMENTS
AT DECEMBER 31, 2003

2004 2005 2006 2007 2008 THEREAFTER
------ ------ ------ ------ ------ ----------
($ in millions)

Letters of credit (1) $ 4 $ - $ - $ - $ - $ -
Guarantees 39 1 2 - 11 -
Surety bonds 68 2 2 - - -
------ ------ ------ ------ ------ ----------
Total commercial commitments $ 111 $ 3 $ 4 $ - $ 11 $ -
====== ====== ====== ====== ====== ==========

- ------------------------

(1) The Company has outstanding letters of credit totaling approximately
$225 million, which includes $221 million related to the Company's
tax-exempt and taxable revenue bonds shown in the table of contractual
obligations above.

(See Consolidated Financial Statements of CITGO -- Note 13 in Item 15a).

32

NEW ACCOUNTING STANDARDS

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.

In January 2003, the Financial Accounting Standards Board ("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. In December 2003,
the FASB issued a revision of FIN 46 (FIN 46R), primarily to clarify the
required accounting for investments in variable interest entities. This standard
replaces FIN 46. For CITGO, which meets the definition of a nonpublic enterprise
for purposes of applying FIN 46R, application is required immediately for
variable interest entities created after December 31, 2003 and for variable
interest entities in which an interest is acquired after that date, and to all
entities that are subject to FIN 46R by January 1, 2005. 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 46R 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 46R will not have a material impact on
its financial position or results of operations.

In April 2003, the FASB issued Statement of Financial Accounting
Standards No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" ("SFAS No. 149"). The changes in SFAS No. 149 improve
financial reporting by requiring that contracts with comparable characteristics
be accounted for similarly. Those changes will result in more consistent
reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149
is effective for contracts entered into or modified after June 30, 2003, except
for certain issues from SFAS No. 133 which have been effective for fiscal
quarters that began prior to June 15, 2003 and for hedging relationships
designated after June 30, 2003. In addition, all provisions of SFAS No. 149
should be applied prospectively. The changes in principle effective with the
adoption of SFAS No. 149 did not have a material effect on the Company's
statements of financial position and results of operations.

The FASB's Emerging Issues Task Force Abstract No. 01-8, "Determining
Whether an Arrangement Contains a Lease" ("EITF 01-8") requires that when CITGO
makes an evaluation of whether an arrangement contains a lease within the scope
of Statement of Financial Accounting Standards No. 13, "Accounting for Leases",
such an assessment should be based on the substance of the arrangement and
should be made at inception of the arrangement based on all of the facts and
circumstances. A reassessment of whether the arrangement contains a lease after
the inception of the arrangement shall be made only if (a) there is a change in
the contractual terms, (b) a renewal option is exercised or an extension is
agreed to by the parties to the arrangement, (c) there is a change in the
determination as to whether or not fulfillment is dependent on

33

specified property, plant, or equipment, or (d) there is a substantial physical
change to the specified property, plant, or equipment. A reassessment of an
arrangement should be based on the facts and circumstances as of the date of
reassessment, including the remaining term of the arrangement. The consensus in
EITF 01-8 should be applied to (a) arrangements agreed to or committed to, if
earlier, after the beginning of an entity's next reporting period beginning
after May 28, 2003, (b) arrangements modified after the beginning of an entity's
next reporting period beginning after May 28, 2003, and (c) arrangements
acquired in business combinations initiated after the beginning of an entity's
next reporting period beginning after May 28, 2003. There was no material impact
upon adoption.

In December 2003, the FASB issued Statement of Financial Accounting
Standards No. 132 (revised 2003), which revises employers' disclosures about
pension plans and other postretirement benefit plans. It does not change the
measurement of those plans required by FASB Statements No. 87, "Employers'
Accounting for Pensions", No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits", and
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions". It retains the disclosure requirements contained in FASB Statement
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits", which it replaces. It requires additional disclosures to those in the
original Statement No. 132 about assets, obligations, cash flows and net
periodic benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. (See Consolidated Financial Statements of CITGO - Note 11
in Item 15a).

PROPOSED ACCOUNTING CHANGE

The American Institute of Certified Public Accountants ("AICPA") has
issued a Statement of Position ("SOP") 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. 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 statement of income. Currently, the AICPA is
re-deliberating its proposed SOP and expects to send a draft of the final SOP to
the FASB in the second quarter of 2004 for its review. The final accounting
requirements and timing of required adoption are not known at this time. At
December 31, 2003, the Company had included turnaround costs of $169 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.

34

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Introduction. CITGO has exposure to price fluctuations of crude oil and
refined products as well as fluctuations in interest rates. To manage these
exposures, management has defined certain benchmarks consistent with its
preferred risk profile for the environment in which the Company operates and
finances its assets. CITGO does not attempt to manage the price risk related to
all of its inventories of crude oil and refined products. As a result, at
December 31, 2003, CITGO was exposed to the risk of broad market price declines
with respect to a substantial portion of its crude oil and refined product
inventories. As of December 31, 2003 CITGO's total crude and refined products
inventory was 46 million barrels. Aggregate commodity derivative positions
entered into for price risk management purposes at that date totaled 1.8 million
barrels. The following disclosures do not attempt to quantify the price risk
associated with such commodity inventories.

Commodity Instruments. CITGO balances its crude oil and petroleum
product supply/demand and manages a portion of its price risk by entering into
petroleum commodity derivatives. Generally, CITGO's risk management strategies
qualified as hedges through December 31, 2000. Effective January 1, 2001, the
Company's 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 December 31, 2003, none of the Company's
commodity derivatives were accounted for as hedges.

NON TRADING COMMODITY DERIVATIVES
OPEN POSITIONS AT DECEMBER 31, 2003

MATURITY NUMBER OF CONTRACT MARKET
COMMODITY DERIVATIVE DATE CONTRACTS VALUE VALUE (2)
- -------------------- ----------------------------- -------- ------------ -------- ---------
Long/(Short) Asset/(Liability)
------------ -------- ---------
($ in millions)

No Lead Gasoline (1) Futures Purchased 2004 315 $ 12.2 $ 12.4
Futures Sold 2004 (396) $ (15.6) $ (15.6)
Listed Call Options Purchased 2004 750 $ - $ 1.8
Listed Call Options Sold 2004 (750) $ - $ (1.2)
Forward Purchase Contracts 2004 2,117 $ 80.2 $ 83.0
Forward Sale Contracts 2004 (1,842) $ (71.2) $ (73.3)

Distillates (1) Futures Purchased 2004 2,211 $ 73.6 $ 82.7
Futures Purchased 2005 4 $ 0.1 $ 0.1
Futures Sold 2004 (400) $ (15.3) $ (15.4)
OTC Call Options Purchased 2004 6 $ - $ -
OTC Put Options Purchased 2004 6 $ - $ -
OTC Call Options Sold 2004 (6) $ - $ -
OTC Put Options Sold 2004 (6) $ - $ -
Forward Purchase Contracts 2004 1,643 $ 60.5 $ 60.7
Forward Sale Contracts 2004 (1,273) $ (46.2) $ (46.8)

Crude Oil (1) Futures Purchased 2004 100 $ 3.3 $ 3.3
Futures Sold 2004 (100) $ (3.3) $ (3.3)
Forward Purchase Contracts 2004 1,287 $ 39.0 $ 39.4
Forward Sale Contracts 2004 (822) $ (27.0) $ (26.7)

- ------------------------

(1) 1,000 barrels per contract

(2) Based on actively quoted prices.

35

NON TRADING COMMODITY DERIVATIVES
OPEN POSITIONS AT DECEMBER 31, 2002

MATURITY NUMBER OF CONTRACT MARKET
COMMODITY DERIVATIVE DATE CONTRACTS VALUE VALUE (4)
--------- ---------- ---- --------- ------ ---------
Long/(Short) Asset/(Liability)
------------ -------------------------------
($ in millions)

No Lead Gasoline (1) Futures Purchased 2003 564 $ 19.9 $ 20.6
Futures Sold 2003 (1,023) $ (35.3) $ (37.6)
Listed Options Purchased 2003 1,225 $ - $ 4.2
Listed Options Sold 2003 (2,225) $ - $ (5.5)
Forward Purchase Contracts 2003 2,577 $ 89.2 $ 92.5
Forward Sales Contracts 2003 (2,364) $ (81.3) $ (86.2)

Distillates (1) Futures Purchased 2003 2,227 $ 73.4 $ 78.7
Futures Purchased 2004 31 $ 0.8 $ 0.9
Futures Sold 2003 (2,953) $ (93.2) $ (96.7)
OTC Options Purchased 2003 66 $ - $ 0.1
OTC Options Sold 2003 (66) $ - $ (0.1)
OTC Swaps (Pay Fixed/Receive Float) (3) 2003 12 $ - $ -
OTC Swaps (Pay Float/Receive Fixed) (3) 2003 (75) $ - $ -
Forward Purchase Contracts 2003 3,134 $ 106.5 $ 111.0
Forward Sale Contracts 2003 (2,944) $ (98.1) $ (104.7)

Crude Oil (1) Futures Purchased 2003 1,986 $ 51.2 $ 54.5
Futures Sold 2003 (1,476) $ (41.8) $ (45.3)
Listed Options Purchased 2003 2,250 $ - $ 2.3
Listed Options Sold 2003 (3,150) $ - $ (3.1)
OTC Swaps (Pay Float/Receive Fixed) (3) 2003 (3,500) $ - $ (3.0)
Forward Purchase Contracts 2003 5,721 $ 160.8 $ 174.4
Forward Sale Contracts 2003 (4,412) $ (129.8) $ (137.2)

Natural Gas (2) Listed Options Purchased 2003 85 $ - $ 0.1
Listed Options Sold 2003 (40) $ - $ (0.1)

Propane (1) OTC Swaps (Pay Fixed / Receive Float) (3) 2003 75 $ - $ 0.5
OTC Swaps (Pay Float / Receive Fixed) (3) 2003 (300) $ - $ (1.5)

- -------------
(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.

36

Debt Related Instruments. CITGO has fixed and floating U.S. currency
denominated debt. CITGO uses interest rate swaps to manage its debt portfolio
toward a benchmark of 40 to 60 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 CITGO's long-term costs. At December 31,
2003 and 2002, CITGO's 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 DECEMBER 31, 2003 AND 2002

NOTIONAL
FIXED PRINCIPAL
VARIABLE RATE INDEX EXPIRATION DATE RATE PAID AMOUNT
- ------------------- --------------- --------- ------
($ in millions)

J.J. Kenny February 2005 5.30% $ 12
J.J. Kenny February 2005 5.27% 15
J.J. Kenny February 2005 5.49% 15
-----
$ 42
=====

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 December 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 $2 million, the offset of which is recorded in the
balance sheet caption other current liabilities.

37

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 DECEMBER 31, 2003

EXPECTED
EXPECTED FIXED AVERAGE FIXED VARIABLE AVERAGE VARIABLE
MATURITIES RATE DEBT INTEREST RATE RATE DEBT INTEREST RATE
- ---------- --------- ------------- --------- -------------
($ in millions) ($ in millions)

2004 $ 31 8.02% $ - -
2005 11 9.30% - -
2006 201 8.10% 200 7.17%
2007 50 8.94% - -
2008 25 7.17% 20 7.67%
Thereafter 745 10.40% 190 8.04%
------ ----- ------ ----
Total $1,063 9.74% $ 410 7.60%
====== ===== ====== ====
Fair Value $1,195 $ 410
====== ======

DEBT OBLIGATIONS
AT DECEMBER 31, 2002

EXPECTED
EXPECTED FIXED AVERAGE FIXED VARIABLE AVERAGE VARIABLE
MATURITIES RATE DEBT INTEREST RATE RATE DEBT INTEREST RATE
- ---------- --------- ------------- --------- -------------
($ in millions) ($ in millions)

2003 $ 61 8.79% $ 129 2.60%
2004 31 8.02% 16 3.78%
2005 11 9.30% 150 5.77%
2006 252 8.06% - -
2007 50 8.94% 12 8.76%
Thereafter 183 7.50% 405 10.22%
------ ---- ------ -----
Total $ 588 8.06% $ 712 7.73%
====== ==== ====== =====
Fair Value $ 567 $ 712
====== ======

38

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements, the Notes to Consolidated
Financial Statements and the Independent Auditors' Report are included in Item
15a of this report.

QUARTERLY RESULTS OF OPERATIONS

The following is a summary of the quarterly results of operations for
the years ended December 31, 2003 and 2002:

1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
($ IN THOUSANDS)

2003

Sales $ 6,375,681 $ 6,021,068 $ 6,502,331 $ 6,317,280
=========== =========== =========== ===========
Cost of sales and
operating expenses $ 6,205,790 $ 5,811,233 $ 6,267,004 $ 6,106,916
=========== =========== =========== ===========
Gross margin $ 169,891 $ 209,835 $ 235,327 $ 210,364
=========== =========== =========== ===========
Net (loss) income $ 139,811 $ 108,709 $ 102,869 $ 87,385
=========== =========== =========== ===========

1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
($ IN THOUSANDS)

2002

Sales $ 3,671,422 $ 4,793,441 $ 5,410,571 $ 5,482,888
=========== =========== =========== ===========
Cost of sales and
operating expenses $ 3,708,908 $ 4,686,882 $ 5,298,606 $ 5,516,925
=========== =========== =========== ===========
Gross margin $ (37,486) $ 106,559 $ 111,965 $ (34,037)
=========== =========== =========== ===========
Net (loss) income $ (15,581) $ 96,284 $ 56,920 $ 42,389
=========== =========== =========== ===========

39

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

We have previously reported the change that we made in our accountants
during 2003. See our Current Report on Form 8-K filed June 30, 2003 (as amended
by a Form 8-K/A filed July 7, 2003) and our Current Report on Form 8-K filed
July 7, 2003.

ITEM 9A. CONTROLS AND PROCEDURES

During the fourth quarter of 2003, 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 thus its access and ability to apply its disclosure controls and
procedures to entities that it does not control or manage are more limited than
is the case for the subsidiaries it controls and manages.

Accordingly, as of December 31, 2003, these officers (principal
executive officer and principal financial officer) concluded that the Company's
disclosure controls and procedures were effective to 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.

40

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The registrant meets the conditions set forth in General Instructions
(I)(1)(a) and (b) of Form 10-K and is therefore omitting the information
otherwise required by Item 10 of Form 10-K relating to directors and executive
officers as permitted by General Instruction (I)(2)(c).

ITEM 11. EXECUTIVE COMPENSATION

The registrant meets the conditions set forth in General Instructions
(I)(1)(a) and (b) of Form 10-K and is therefore omitting the information
otherwise required by Item 11 of Form 10-K relating to executive compensation as
permitted by General Instruction (I)(2)(c).

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The registrant meets the conditions set forth in General Instructions
(I)(1)(a) and (b) of Form 10-K and is therefore omitting the information
otherwise required by Item 12 of Form 10-K relating to security ownership of
certain beneficial owners and management as permitted by General Instruction
(I)(2)(c).

41

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CITGO has entered into several transactions with PDVSA or affiliates of
PDVSA, including crude oil and feedstock supply agreements, agreements for the
purchase of refined products and transportation agreements. Under these
agreements, CITGO purchased approximately $4.2 billion of crude oil, feedstocks
and refined products at market related prices from PDVSA in 2003. At December
31, 2003, $335 million was included in CITGO's current payable to affiliates as
a result of its transactions with PDVSA.

Most of the crude oil and feedstocks purchased by CITGO from PDVSA are
delivered on tankers owned by PDV Marina, S.A., a wholly-owned subsidiary of
PDVSA. In 2003, 73% of the PDVSA contract crude oil delivered to the Lake
Charles and Corpus Christi refineries was delivered on tankers operated by this
PDVSA subsidiary.

LYONDELL-CITGO owns and operates a 265 MBPD refinery in Houston, Texas.
LYONDELL-CITGO was formed in 1993 by subsidiaries of CITGO and Lyondell ("the
Owners"). The heavy crude oil processed by the Houston refinery is supplied by
PDVSA under a long-term crude oil supply agreement through the year 2017. Under
this agreement, LYONDELL-CITGO purchased approximately $1.7 billion of crude oil
and feedstocks at market related prices from PDVSA in 2003. CITGO purchases
substantially all of the gasoline, diesel and jet fuel produced at the Houston
refinery under a long-term contract. (See Consolidated Financial Statements of
CITGO -- Notes 3 and 4 in Item 15a). Various disputes exist between
LYONDELL-CITGO and the partners and their affiliates concerning the
interpretation of these and other agreements between the parties relating to the
operation of the refinery.

CITGO's participation interest in LYONDELL-CITGO was approximately 41%
at December 31, 2003, in accordance with agreements between the Owners
concerning such interest. CITGO held a note receivable from LYONDELL-CITGO of
$35 million at December 31, 2003. The note bears interest at market rates which
were approximately 1.9% at December 31, 2003. Principal and interest are due in
March 2005. In addition, during 2003, CITGO converted approximately $7 million
of accrued interest related to this note to investments in LYONDELL-CITGO.

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. Cash distributions are
allocated to the owners based on participation interest.

In October 1998, PDVSA V.I., Inc., an affiliate of PDVSA, acquired a
50% equity interest in HOVENSA and has the right under a product sales agreement
to assign periodically to CITGO, or other related parties, its option to
purchase 50% of the refined products produced by HOVENSA (less a certain portion
of such products that HOVENSA will market directly in the local and Caribbean
markets). In addition, under the product sales agreement, the PDVSA affiliate
has appointed CITGO as its agent in designating which of its affiliates shall
from time to time take deliveries of the refined products available to it. The
product sales agreement will be in effect for the life of the joint venture,
subject to termination events based on default or mutual agreement (See
Consolidated Financial Statements of CITGO -- Notes 2 and 4 in Item 15a).
Pursuant to the above arrangement, CITGO acquired approximately 149 MBPD of
refined products from the refinery during 2003, approximately one-half of which
was gasoline.

The refined product purchase agreements with LYONDELL-CITGO and HOVENSA
incorporate various formula prices based on published market prices and other
factors. Such purchases totaled $4.9 billion for 2003. At December 31, 2003,
$148 million was included in payables to affiliates as a result of these
transactions.

CITGO had refined product, feedstock, crude oil and other product sales
of $387 million to affiliates, including LYONDELL-CITGO and Mount Vernon Phenol
Plant Partnership, in 2003. At December 31, 2003, $71 million was included in
due from affiliates as a result of these and related transactions.

42

CITGO has guaranteed approximately $50 million of debt of certain
affiliates, including $11 million related to NISCO and $33 million related to
PDV Texas, Inc. (See Consolidated Financial Statements of CITGO -- Note 13 in
Item 15a).

Under a separate guarantee of rent agreement, PDVSA has guaranteed
payment of rent, stipulated loss value and termination value due under the lease
of the Corpus Christi Refinery West Plant facilities. (See Consolidated
Financial Statements of CITGO -- Note 4 in Item 15a).

In August 2002, three affiliates entered into agreements to advance
excess cash to CITGO from time to time under demand notes for amounts of up to a
maximum of $10 million with PDV Texas, Inc., $30 million with PDV America and
$10 million with PDV Holding. The notes bear interest at rates equivalent to
30-day LIBOR plus 0.875% payable quarterly. There were no amounts outstanding on
these notes at December 31, 2003.

The Company and PDV Holding are parties to a tax allocation agreement
that is designed to provide PDV Holding with sufficient cash to pay its
consolidated income tax liabilities. PDV Holding appointed CITGO as its agent to
handle the payment of such liabilities on its behalf. As such, CITGO calculates
the taxes due, allocates the payments among the members according to the
agreement and bills each member accordingly. Each member records its amounts due
or payable to CITGO in a related party payable account. At December 31, 2003,
CITGO had net related party receivables related to federal income taxes of $35
million.

ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES

The following table presents fees for professional audit services
rendered by KPMG LLP and Deloitte & Touche LLP for the audit of the Company's
financial statements for the years ended December 31, 2003 and 2002,
respectively, and fees billed for other services rendered by those firms during
the period they served as auditors for the Company.

2003 2002
--------- ---------
(000s omitted)

Audit fees (1) $ 2,259 $ 1,090
Audit related fees 90 84
Tax fees 127 157
All other fees - 21
--------- ---------
Total $ 2,476 $ 1,352
========= =========

- --------

(1) Audit fees in 2003 include approximately $360 thousand in fees related to
CITGO's registration of $550 million 11-3/8% unsecured senior notes.

CITGO has an audit committee of its board of directors. That committee,
in accordance with their pre-approval policy, pre-approves each engagement of
the independent accountants for any audit or non-audit services before the
accountants are engaged to render those services. A committee member has been
designated to represent the entire committee for purposes of approving any
services not previously approved by the committee. Any services approved by the
designated committee member are reported to the full committee at the next
scheduled audit committee meeting. No de minimis exceptions to this approval
process are allowed under the audit committee's pre-approval policy, and thus,
none of the services described in the preceding table were approved pursuant to
Rule 2-0(c)(7)(i)(C) of Regulation S-X.

43

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K

a. CERTAIN DOCUMENTS FILED AS PART OF THIS REPORT

(1) Financial Statements:

Page
----

CITGO Petroleum Corporation

Independent Auditors' Report from KPMG LLP F-1
Independent Auditors' Report from Deloitte & Touche LLP F-2
Consolidated Balance Sheets at December 31, 2003 and 2002 F-3
Consolidated Statements of Income and Comprehensive Income
for the years ended December 31, 2003, 2002 and 2001 F-4
Consolidated Statements of Shareholder's Equity for the years
ended December 31, 2003, 2002 and 2001 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001 F-6
Notes to Consolidated Financial Statements F-8

LYONDELL-CITGO Refining LP

Report of Independent Auditors F-37
Statements of Income for the years ended December 31, 2003, 2002 and 2001 F-38
Balance Sheets at December 31, 2003 and 2002 F-39
Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001 F-40
Statements of Partners' Capital for the years ended December 31, 2003, 2002 and 2001 F-41
Notes to Financial Statements F-42

(2) Exhibits:

The Exhibit Index in part c. below lists the exhibits that are filed as part
of, or incorporated by reference into, this report.

b. REPORTS ON FORM 8-K

A report on Form 8-K dated October 28, 2003 was filed with the Securities
and Exchange Commission on October 28, 2003 containing a press release dated
October 28, 2003 regarding various financial items for the nine months ended
September 30, 2003.

A report on Form 8-K dated October 31, 2003 was filed with the Securities
and Exchange Commission on October 31, 2003 to furnish information included
in our press release on earnings for the third quarter ended September 30,
2003.

44

C. EXHIBITS

Exhibit
Number Description
- ------ -----------

3.1 Certificate of Incorporation, Certificate of Amendment of
Certificate of Incorporation (incorporated by reference to the
Registrant's Registration Statement on Form 10, File No.
333-3226, Exhibit 3.1 filed with the Commission on April 4,
1996).

3.2 By-laws of CITGO Petroleum Corporation as amended on March 13,
2001 (incorporated by reference to Registrant's 2000 Form 10-K,
File No. 1-14380, Exhibit 3.1(i) filed with the Commission on
March 21, 2001).

4.1 Indenture, dated as of May 1, 1996, between CITGO Petroleum
Corporation and the First National Bank of Chicago, relating to
the 7-7/8% Senior Notes due 2006 of CITGO Petroleum
Corporation, including the form of Senior Note (incorporated by
reference to the Registrant's Registration Statement on Form
10, File No. 333-3226, Exhibit 4.1 filed with the Commission on
April 4, 1996).

4.2 Indenture, dated February 27, 2003, between CITGO Petroleum
Corporation, as Issuer, and The Bank of New York, as Trustee,
relating to the $550,000,000 11-3/8% Senior Notes due 2011 of
CITGO Petroleum Corporation (incorporated by reference to the
Registrant's 2002 Form 10-K, File No. 1-14380, Exhibit 4.2
filed with the Commission on March 24, 3003).

10.1 Crude Supply Agreement between CITGO Petroleum Corporation and
Petroleos de Venezuela, S.A., dated as of September 30, 1986
(incorporated by reference to PDV America, Inc.'s Registration
Statement on Form F-1, File No. 33-63742, Exhibit 10.1 filed
with the Commission on June 2, 1993).

10.2 Supplemental Crude Supply Agreement dated as of September 30,
1986 between CITGO Petroleum Corporation and Petroleos de
Venezuela, S.A (incorporated by reference to PDV America,
Inc.'s Registration Statement on Form F-1, File No. 33-63742,
Exhibit 10.2 filed with the Commission on June 2, 1993).

10.3 Crude Oil and Feedstock Supply Agreement dated as of March 31,
1987 between Champlin Refining Company and Petroleos de
Venezuela, S.A (incorporated by reference to PDV America,
Inc.'s Registration Statement on Form F-1, File No. 33-63742,
Exhibit 10.3 filed with the Commission on June 2, 1993).

10.4 Supplemental Crude Oil and Feedstock Supply Agreement dated as
of March 31, 1987 between Champlin Refining Company and
Petroleos de Venezuela, S.A. (incorporated by reference to PDV
America, Inc.'s Registration Statement on Form F-1, File No.
33-63742, Exhibit 10.4 filed with the Commission on June 2,
1993).

10.5 Contract for the Purchase/Sale of Boscan Crude Oil dated as of
June 2, 1993 between Tradecal, S.A. and CITGO Asphalt Refining
Company (incorporated by reference to PDV America, Inc.'s
Registration Statement on Form F-1, File No. 33-63742, Exhibit
10.1 filed with the Commission on June 2, 1993).

10.6 Restated Contract for the Purchase/Sale of Heavy/Extra Heavy
Crude Oil dated December 28, 1990 among Maraven, S.A., Lagoven,
S.A. and Seaview Oil Company (incorporated by reference to PDV
America, Inc.'s Registration Statement on Form F-1, File No.
33-63742, Exhibit 10.6 filed with the Commission on June 2,
1993).

45

10.7 Sublease Agreement dated as of March 31, 1987 between Champlin
Petroleum Company, Sublessor, and Champlin Refining Company,
Sublessee (incorporated by reference to PDV America, Inc.'s
Registration Statement on Form F-1, File No. 33-63742, Exhibit
10.7 filed with the Commission on June 2, 1993).

10.8 Amended and Restated Limited Liability Company Regulations of
LYONDELL-CITGO Refining Company, Ltd., dated July 1, 1993
(incorporated by reference to PDV America, Inc.'s Registration
Statement on Form F-1, File No. 33-63742, Exhibit 10.9 filed
with the Commission on June 2, 1993).

10.9 Contribution Agreement among Lyondell Petrochemical Company and
LYONDELL-CITGO Refining Company, Ltd. and Petroleos de
Venezuela, S.A (incorporated by reference to PDV America,
Inc.'s Registration Statement on Form F-1, File No. 33-63742,
Exhibit 10.10 filed with the Commission on June 2, 1993).

10.10 Crude Oil Supply Agreement between LYONDELL-CITGO Refining
Company, Ltd. and Lagoven, S.A. dated as of May 5, 1993
(incorporated by reference to PDV America, Inc.'s Registration
Statement on Form F-1, File No. 33-63742, Exhibit 10.11 filed
with the Commission on June 2, 1993).

10.11 Supplemental Supply Agreement dated as of May 5, 1993 between
LYONDELL-CITGO Refining Company, Ltd. and Petroleos de
Venezuela, S.A (incorporated by reference to PDV America,
Inc.'s Registration Statement on Form F-1, File No. 33-63742,
Exhibit 10.12 filed with the Commission on June 2, 1993).

10.12 Tax Allocation Agreement dated as of June 24, 1993 among PDV
America, Inc., VPHI Midwest, Inc., CITGO Petroleum Corporation
and PDV USA, Inc., as amended (incorporated by reference to PDV
America, Inc.'s Registration Statement on Form F-1, File No.
33-63742, Exhibit 10.13 filed with the Commission on June 2,
1993).

10.13 Second Amendment to the Tax Allocation Agreement among PDV
America, Inc., VPHI Midwest, Inc., CITGO Petroleum Corporation
and PDV USA, Inc., dated as of January 1, 1997 (incorporated by
reference to Registrant's 2001 Form 10-K, File No. 1-14380,
Exhibit 10.13(i) filed with the Commission on March 28, 2002).

10.14 Master Shelf Agreement (1994) by and between Prudential
Insurance Company of America and CITGO Petroleum Corporation
($100,000,000), dated March 4, 1994 (incorporated by reference
to the Registrant's Registration Statement on Form 10, File No.
333-3226, Exhibit 10.16 filed with the Commission on April 4,
1996).

10.15 Letter Agreement by and between the Company and Prudential
Insurance Company of America, dated March 4, 1994 (incorporated
by reference to the Registrant's Registration Statement on Form
10, File No. 333-3226, Exhibit 10.17(i) filed with the
Commission on April 4, 1996).

10.16 Letter Amendment No. 1 to Master Shelf Agreement with
Prudential Insurance Company of America, dated November 14,
1994 (incorporated by reference to the Registrant's
Registration Statement on Form 10, File No. 333-3226, Exhibit
10.17(ii) filed with the Commission on April 4, 1996).

10.17 CITGO Senior Debt Securities (1991) Agreement (incorporated by
reference to PDV America, Inc.'s Registration Statement on Form
F-1, File No. 33-63742, Exhibit 10.18 filed with the Commission
on June 2, 1993).

46

10.18 Selling Agency Agreement dated as of October 28, 1997 among
CITGO Petroleum Corporation, Salomon Brothers Inc. and Chase
Securities Inc. (incorporated by reference to Registrant's
Report on Form 8-K, Exhibit 99.1 filed with the Commission on
November 18, 1997).

10.19 Limited Partnership Agreement of LYONDELL-CITGO Refining LP,
dated December 31, 1998 (incorporated by reference to the
Registrant's 1998 Form 10-K, File No. 1-14380, Exhibit 10.24
filed with the Commission on March 17, 1999).

10.20 $260,000,000 Three-Year Credit Agreement dated as of December
11, 2002 among CITGO Petroleum Corporation, Bank of America,
N.A., as Administrative Agent, JP Morgan Chase Bank, as
Syndication Agent, Societe Generale, as Documentation Agent and
the other lenders party thereto (incorporated by reference to
the Registrant's 2002 Form 10-K, File No. 1-14380, Exhibit
10.22 filed with the Commission on March 24, 2003).

10.21 First Amendment to Three-Year Credit Agreement entered into
January 29, 2003, but effective as of December 11, 2002, among
CITGO Petroleum Corporation, Bank of America, N.A., as
Administrative Agent and the other lenders party thereto
(incorporated by reference to the Registrant's 2002 Form 10-K,
File No. 1-14380, Exhibit 10.23 filed with the Commission on
March 24, 2003).

10.22 $200,000,000 Term Loan Agreement dated as of February 27, 2003
among CITGO Petroleum Corporation, Credit Suisse First Boston,
Cayman Island Branch, as Administrative Agent, and the other
lenders party thereto, including Guarantee and Collateral
Agreement among CITGO Petroleum Corporation; CITGO Pipeline
Holding I, LLC; CITGO Pipeline Holding II, LLC and Credit
Suisse First Boston, Cayman Islands Branch (incorporated by
reference to the Registrant's 2002 Form 10-K, File No. 1-14380,
Exhibit 10.24 filed with the Commission on March 24, 2003).

10.23* Purchase and Sale Agreement dated as of February 28, 2003
between CITGO Petroleum Corporation and CITGO Funding Company,
L.L.C.

10.24* Amendment No. 1 dated as of November 26, 2003 to Purchase and
Sale Agreement dated as of February 28, 2003.

10.25* Receivables Purchase Agreement dated as of February 28, 2003
among CITGO Funding Company, L.L.C., CITGO Petroleum
Corporation, Asset One Securitization, LLC and Societe
Generale.

10.26* Amendment No. 1 dated as of November 26, 2003 to Receivables
Purchase Agreement dated as of February 28, 2003.

12.1* Computation of Ratio of Earnings to Fixed Charges.

23.1* Consent of Independent Auditors of CITGO Petroleum Corporation.

23.2* Consent of Independent Auditors of CITGO Petroleum Corporation.

23.3* Consent of Independent Auditors of CITGO Petroleum Corporation.

23.4* Consent of Independent Auditors of CITGO Petroleum Corporation.

23.5* Consent of Independent Accountants of LYONDELL-CITGO Refining LP.

23.6* Consent of Independent Accountants of LYONDELL-CITGO Refining LP.

31.1* Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934 as to the Annual Report on Form
10-K for the fiscal year ended December 31, 2003 filed by Luis
E. Marin, President and Chief Executive Officer.

47

31.2* Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934 as to the Annual Report on Form
10-K for the fiscal year ended December 31, 2003 filed by Eddie
R. Humphrey, Chief Financial Officer.

32.1* Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 United States Code as to the Annual Report on Form
10-K for the fiscal year ended December 31, 2003 filed by Luis
E. Marin, President and Chief Executive Officer.

32.2* Certification Pursuant to Section 1350 of Chapter 63 of
Title 18 United States Code as to the Annual Report on Form
10-K for the fiscal year ended December 31, 2003 filed by Eddie
R. Humphrey, Chief Financial Officer.

- --------
* Filed Herewith

48

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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

/s/ LARRY KRIEG
-----------------------------------------
Larry Krieg
Controller (Chief Accounting Officer)

Date: March 27, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.

Signatures Title Date
---------- ----- ----

By /s/ LUIS VIERMA Chairman of the Board March 27, 2004
-------------------------- and Director
Luis Vierma

By /s/ NELSON MARTINEZ Director March 27, 2004
--------------------------
Nelson Martinez

By /s/ WILLIAM PADRON Director March 27, 2004
--------------------------
William Padron

By /s/ LUIS E. MARIN President, Chief Executive March 27, 2004
-------------------------- Officer and Director
Luis E. Marin

By /s/ ANTONIO J. RIVERO Executive Vice President March 27, 2004
-------------------------- and Director
Antonio J. Rivero

By /s/ EDDIE R. HUMPHREY Senior Vice President and March 27, 2004
-------------------------- Chief Financial and
Eddie R. Humphrey Administration Officer

49

CITGO PETROLEUM
CORPORATION

Consolidated Financial Statements as of
December 31, 2003 and 2002, and for
Each of the Three Years in the Period
Ended December 31, 2003, and
Independent Auditors' Report

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholder of
CITGO Petroleum Corporation:

We have audited the accompanying consolidated balance sheet of CITGO Petroleum
Corporation and subsidiaries ("the Company") as of December 31, 2003, and the
related consolidated statements of income and comprehensive income,
shareholder's equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the financial statements of LYONDELL-CITGO Refining
LP ("LCR"), a 41.25 percent owned investee company. The Company's investment in
LCR at December 31, 2003 was $455 million, and its equity in earnings of LCR was
$84 million for the year then ended. The financial statements of LCR were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for LCR, is based solely
on the report of the other auditors.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the report of
the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of CITGO Petroleum Corporation and subsidiaries as of
December 31, 2003, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.

KPMG LLP

Tulsa, Oklahoma
March 11, 2004

F-1

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholder of
CITGO Petroleum Corporation:

We have audited the accompanying consolidated balance sheet of CITGO Petroleum
Corporation and subsidiaries as of December 31, 2002, and the related
consolidated statements of income and comprehensive income, shareholder's
equity and cash flows for the years ended December 31, 2002 and 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of CITGO Petroleum Corporation and
subsidiaries at December 31, 2002, and the results of their operations and
their cash flows for the years ended December 31, 2002 and 2001 in conformity
with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Tulsa, Oklahoma
February 14, 2003

F-2

CITGO PETROLEUM CORPORATION

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

DECEMBER 31,
--------------------------------
2003 2002
--------------- -------------

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 202,008 $ 33,025
Accounts receivable, net 1,060,333 905,178
Due from affiliates 71,336 93,615
Inventories 1,017,613 1,090,915
Prepaid expenses and other 28,003 64,767
------------ ------------
Total current assets 2,379,293 2,187,500

PROPERTY, PLANT AND EQUIPMENT - Net 3,907,203 3,750,166

RESTRICTED CASH 6,886 23,486

INVESTMENTS IN AFFILIATES 647,649 716,469

OTHER ASSETS 332,462 309,291
------------ ------------

$ 7,273,493 $ 6,986,912
============ ============

LIABILITIES AND SHAREHOLDER'S EQUITY

CURRENT LIABILITIES:
Accounts payable $ 766,331 $ 830,769
Payables to affiliates 486,058 417,634
Taxes other than income 173,932 229,072
Other 255,953 308,198
Current portion of long-term debt 31,364 190,664
Current portion of capital lease obligation 2,336 22,713
------------ ------------
Total current liabilities 1,715,974 1,999,050

LONG-TERM DEBT 1,442,100 1,109,861

CAPITAL LEASE OBLIGATION 25,969 24,251

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 319,911 247,762

OTHER NONCURRENT LIABILITIES 308,248 211,950

DEFERRED INCOME TAXES 959,807 834,880

COMMITMENTS AND CONTINGENCIES (Note 13)

SHAREHOLDER'S EQUITY:
Common stock - $1.00 par value, 1,000 shares authorized, issued and outstanding 1 1
Additional capital 1,659,698 1,659,698
Retained earnings 863,093 925,114
Accumulated other comprehensive loss (21,308) (25,655)
------------ ------------
Total shareholder's equity 2,501,484 2,559,158
------------ ------------

$ 7,273,493 $ 6,986,912
============ ============

See notes to consolidated financial statements.

F-3

CITGO PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003
(DOLLARS IN THOUSANDS)

2003 2002 2001

REVENUES:
Net sales $ 24,829,305 $ 19,080,845 $ 19,343,263
Sales to affiliates 387,055 277,477 257,905
------------ ------------ ------------
25,216,360 19,358,322 19,601,168

Equity in earnings of affiliates 118,268 101,326 108,915
Insurance recoveries 146,165 406,570 52,868
Other income (expense), net 14,965 (19,735) (58,103)
------------ ------------ ------------
25,495,758 19,846,483 19,704,848
------------ ------------ ------------

COST OF SALES AND EXPENSES:
Cost of sales and operating expenses (including purchases
of $9,109,938, $6,779,798 and $6,558,203 from affiliates) 24,390,943 19,211,316 18,734,652
Selling, general and administrative expenses 295,597 284,871 292,127
Interest expense, excluding capital lease 119,737 67,394 69,164
Capital lease interest charge 5,271 7,017 9,128
Minority interest - - 1,971
------------ ------------ ------------
24,811,548 19,570,598 19,107,042
------------ ------------ ------------

INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 684,210 275,885 597,806

INCOME TAXES 245,436 95,873 206,222
------------ ------------ ------------

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 438,774 180,012 391,584

CUMULATIVE EFFECT, ACCOUNTING FOR DERIVATIVES,
NET OF RELATED INCOME TAXES OF $7,977 - - 13,600
------------ ------------ ------------

NET INCOME 438,774 180,012 405,184

OTHER COMPREHENSIVE INCOME (LOSS):
Cash flow hedges:
Cumulative effect, accounting for derivatives, net of related
income taxes of $(850) - - (1,450)
Less: reclassification adjustment for derivative losses included
in net income, net of related income taxes of $172 in 2003,
$182 in 2002 and $265 in 2001 304 310 469
------------ ------------ ------------

304 310 (981)

Foreign currency translation gain (loss), net of related
income taxes of $168 in 2003, and $(78) in 2002 302 (172) -

Minimum pension liability adjustment, net of deferred
taxes of $2,151 in 2003, $12,835 in 2002 and $69 in 2001 3,741 (22,328) (119)
------------ ------------ ------------

Total other comprehensive income (loss) 4,347 (22,190) (1,100)
------------ ------------ ------------

COMPREHENSIVE INCOME $ 443,121 $ 157,822 $ 404,084
============ ============ ============

See notes to consolidated financial statements.

F-4

CITGO PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003
(DOLLARS AND SHARES IN THOUSANDS)

ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)
-------------------------------------------
COMMON STOCK MINIMUM FOREIGN CASH TOTAL
--------------- ADDITIONAL RETAINED PENSION CURRENCY FLOW SHAREHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS LIABILITY TRANSLATION HEDGES TOTAL EQUITY

BALANCE, JANUARY 1, 2001 1 $ 1 $ 1,659,698 $ 818,818 $ (2,365) $ - $ - $ (2,365) $ 2,476,152

Net income - - - 405,184 - - - - 405,184

Other comprehensive loss - - - - (119) - (981) (1,100) (1,100)

Dividend paid to
parent, PDV America - - - (478,900) - - - - (478,900)
--- ---- ----------- --------- -------- ----- ------ -------- --------

BALANCE, DECEMBER 31, 2001 1 1 1,659,698 745,102 (2,484) - (981) (3,465) 2,401,336

Net income - - - 180,012 - - - - 180,012

Other comprehensive (loss) income - - - - (22,328) (172) 310 (22,190) (22,190)
--- ---- ----------- --------- -------- ----- ------ -------- --------

BALANCE, DECEMBER 31, 2002 1 1 1,659,698 925,114 (24,812) (172) (671) (25,655) 2,559,158

Net income - - - 438,774 - - - - 438,774

Other comprehensive income - - - - 3,741 302 304 4,347 4,347

Dividends paid to
parent, PDV America - - - 500,795) - - - - (500,795)
--- ---- ----------- --------- -------- ----- ------ -------- --------

BALANCE, DECEMBER 31, 2003 1 $ 1 $ 1,659,698 $ 863,093 $(21,071) $ 130 $ (367) $(21,308) $ 2,501,484
=== ==== =========== ========= ======== ===== ====== ======== ===========

See notes to consolidated financial statements.

F-5

CITGO PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003
(DOLLARS IN THOUSANDS)

2003 2002 2001

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 438,774 $ 180,012 $ 405,184
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 333,626 298,686 288,882
Provision for losses on accounts receivable 15,066 17,458 6,239
Deferred income taxes 159,791 37,642 115,025
Distributions in excess of equity in earnings of affiliates 100,071 22,313 44,521
Other adjustments 18,329 3,992 24,680
Changes in operating assets and liabilities:
Accounts receivable and due from affiliates (155,126) (40,009) 427,771
Inventories 73,302 18,431 42,960
Prepaid expenses and other current assets 6,478 62,465 (84,280)
Accounts payable and other current liabilities (68,508) 315,266 (625,313)
Other assets (98,568) (128,466) (90,984)
Other liabilities 171,794 30,483 29,802
--------- --------- ---------
Total adjustments 556,255 638,261 179,303
--------- --------- ---------
Net cash provided by operating activities 995,029 818,273 584,487
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (413,704) (711,834) (253,465)
Proceeds from sales of property, plant and equipment 4,015 919 3,866
Decrease (increase) in restricted cash 16,600 (23,486) -
Investments in LYONDELL-CITGO Refining LP (21,208) (32,000) (31,800)
Investments in and advances to other affiliates (3,800) (22,484) (11,435)
--------- --------- ---------
Net cash used in investing activities (418,097) (788,885) (292,834)
--------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments of short-term bank loans - - (37,500)
Net (repayments of) proceeds from revolving bank loans (279,300) (112,200) 391,500
Proceeds from senior notes due 2011 546,590 - -
Proceeds from senior secured term loan 200,000 - -
Repurchase of senior notes due 2006 (47,500) - -
(Payments on) proceeds from loans from affiliates (39,000) 39,000 -
Payments on private placement senior notes (11,364) (11,364) (39,935)
Payments of master shelf agreement notes (50,000) (25,000) -
Payments on taxable bonds (90,000) (31,000) (28,000)
(Payments on) proceeds from issuance of tax-exempt bonds (93,400) 68,502 28,000
Payments of capital lease obligations (23,601) (20,358) (26,649)
Repayments of other debt - (8,305) (14,845)
Dividends paid to parent, PDV America (500,795) - (478,900)
Debt issuance costs (19,579) - -
--------- --------- ---------
Net cash used in financing activities (407,949) (100,725) (206,329)
--------- --------- ---------

(Continued)

F-6

CITGO PETROLEUM CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003
(DOLLARS IN THOUSANDS)

2003 2002 2001

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 168,983 $ (71,337) $ 85,324

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 33,025 104,362 19,038
--------- --------- ---------

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 202,008 $ 33,025 $ 104,362
========= ========= =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized $ 100,492 $ 72,970 $ 83,972
========= ========= =========
Income taxes, net of refunds of $45,794 in 2003
and $50,733 in 2002 $ 110,965 $ (45,745) $ 296,979
========= ========= =========

SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Investment in LYONDELL-CITGO Refining LP (Note 3) $ (6,840) $ - $ -
========= ========= =========

See notes to consolidated financial statements. (Concluded)

F-7

CITGO PETROLEUM CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003

1. SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS - CITGO Petroleum Corporation ("CITGO") is a
subsidiary of PDV America, Inc. ("PDV America"), an indirect wholly owned
subsidiary of Petroleos de Venezuela, S.A. ("PDVSA"), the national oil
company of the Bolivarian Republic of Venezuela.

CITGO manufactures or refines and markets transportation fuels as well as
lubricants, refined waxes, petrochemicals, asphalt and other industrial
products. CITGO owns and operates three crude oil refineries (Lake
Charles, Louisiana, Corpus Christi, Texas, and Lemont, Illinois) and two
asphalt refineries (Paulsboro, New Jersey, and Savannah, Georgia) with a
combined aggregate rated crude oil refining capacity of 756 thousand
barrels per day ("MBPD"). CITGO also owns a minority interest in
LYONDELL-CITGO Refining LP, a limited partnership that owns and operates a
refinery in Houston, Texas, with a rated crude oil refining capacity of
265 MBPD. CITGO's consolidated financial statements also include accounts
relating to a lubricant and wax plant, pipelines, and equity interests in
pipeline companies and petroleum storage terminals.

CITGO's transportation fuel customers include CITGO branded wholesale
marketers, convenience stores and airlines located mainly east of the
Rocky Mountains. Asphalt is generally marketed to independent paving
contractors on the East and Gulf Coasts and the Midwest of the United
States. Lubricants are sold principally in the United States to
independent marketers, mass marketers and industrial customers.
Petrochemical feedstocks and industrial products are sold to various
manufacturers and industrial companies throughout the United States.
Petroleum coke is sold primarily in international markets. CITGO also
sells lubricants, gasoline and distillates in various Latin American
markets including Puerto Rico, Brazil, Ecuador and Mexico.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of CITGO and its subsidiaries (collectively referred
to as the "Company"). All subsidiaries are wholly owned. All material
intercompany transactions and accounts have been eliminated.

The Company's investments in less than majority-owned affiliates are
accounted for by the equity method. The excess of the carrying value of
the investments over the equity in the underlying net assets of the
affiliates is amortized on a straight-line basis over 40 years, which is
based upon the estimated useful lives of the affiliates' assets.

ESTIMATES, RISKS AND UNCERTAINTIES - The preparation of financial
statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

CITGO's operations can be influenced by domestic and international
political, legislative, regulatory and legal environments. In addition,
significant changes in the prices or availability of crude oil and refined
products could have a significant impact on CITGO's results of operations
for any particular year.

IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically evaluates the
carrying value of long-lived assets to be held and used when events and
circumstances warrant such a review. The carrying value of a

F-8

long-lived asset is considered impaired when the separately identifiable
anticipated undiscounted net cash flow from such asset is less than its
carrying value. In that event, a loss is recognized based on the amount by
which the carrying value exceeds the fair value of the long-lived asset.
Fair value is determined primarily using the anticipated net cash flows
discounted at a rate commensurate with the risk involved. Losses on
long-lived assets to be disposed of are determined in a similar manner,
except that fair values are reduced for disposal costs.

REVENUE RECOGNITION - Revenue is generated from the sale of refined
petroleum products to bulk purchasers, wholesale purchasers and final
consumers. CITGO's transportation fuel customers include CITGO branded
wholesale marketers, convenience stores and airlines located mainly east
of the Rocky Mountains. Asphalt is generally marketed to independent
paving contractors on the East and Gulf Coasts and the Midwest of the
United States. Lubricants are sold principally in the United States to
independent marketers, mass marketers and industrial customers.
Petrochemical feedstocks and industrial products are sold to various
manufacturers and industrial companies throughout the United States.
Petroleum coke is sold primarily in international markets. CITGO also
sells lubricants, gasoline and distillates in various Latin American
markets including Puerto Rico, Brazil, Ecuador and Mexico.

Revenue recognition occurs at the point that title to the refined
petroleum product is transferred to the customer. That transfer is
determined from the delivery terms of the customer's contract. In the case
of bulk purchasers, delivery and title transfer may occur while the
refined petroleum products are in transit, if agreed by the purchaser; or
may occur when the hydrocarbons are transferred into a storage facility at
the direction of the purchaser. In the case of wholesale purchasers,
delivery and title transfer generally occurs when the refined petroleum
products are transferred from a storage facility to the transport truck.
Direct sales to the final consumer make up an immaterial portion of
revenue recognized by CITGO.

SUPPLY AND MARKETING ACTIVITIES - The Company engages in the buying and
selling of crude oil to supply its refineries. The net results of this
activity are recorded in cost of sales. The Company also engages in the
buying and selling of refined products to facilitate the marketing of its
refined products. The results of this activity are recorded in cost of
sales and sales.

Refined product exchange transactions that do not involve the payment or
receipt of cash are not accounted for as purchases or sales. Any resulting
volumetric exchange balances are accounted for as inventory in accordance
with the Company's last-in, first-out ("LIFO") inventory method. Exchanges
that are settled through payment or receipt of cash are accounted for as
purchases or sales.

EXCISE TAXES - The Company collects excise taxes on sales of gasoline and
other motor fuels. Excise taxes of approximately $3.5 billion, $3.2
billion, and $3.3 billion were collected from customers and paid to
various governmental entities in 2003, 2002, and 2001, respectively.
Excise taxes are not included in sales revenue.

CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of highly
liquid short-term investments and bank deposits with initial maturities of
three months or less.

INVENTORIES - Crude oil and refined product inventories are stated at the
lower of cost or market and cost is determined using the LIFO method.
Materials and supplies are valued using the average cost method.

PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is reported
at cost, less accumulated depreciation. Depreciation is based upon the
estimated useful lives of the related assets using the straight-line
method. Depreciable lives are generally as follows: buildings and
leaseholds - 10 to 24 years; machinery and equipment - 5 to 24 years; and
vehicles - 3 to 10 years.

F-9

Upon disposal or retirement of property, plant and equipment, the cost and
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized.

The Company capitalizes interest on projects when construction entails
major expenditures over extended time periods. Such interest is allocated
to property, plant and equipment and amortized over the estimated useful
lives of the related assets. Interest capitalized totaled $9 million, $4
million, and $2 million, during 2003, 2002, and 2001, respectively.

RESTRICTED CASH - The Company has restricted cash consisting of highly
liquid investments held in trust accounts in accordance with tax exempt
revenue bonds due 2032. Funds are released solely for financing the
qualified capital expenditures as defined in the bond agreement.

COMMODITY AND INTEREST RATE DERIVATIVES - The Company uses futures,
forwards, swaps and options primarily to reduce its exposure to market
risk. The Company also enters into various interest rate swap agreements
to manage its risk related to interest rate change on its debt.

The Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"), on January 1, 2001. Certain of the derivative instruments
identified at January 1, 2001 under the provisions of SFAS No. 133 had
been previously designated in hedging relationships that addressed the
variable cash flow exposure of forecasted transactions; under the
transition provisions of SFAS No. 133, on January 1, 2001 the Company
recorded an after-tax, cumulative-effect-type transition charge of $1.5
million to accumulated other comprehensive income related to these
derivatives. Certain of the derivative instruments identified at January
1, 2001, under the provisions of SFAS No. 133 had been previously
designated in hedging relationships that addressed the fair value of
certain forward purchase and sale commitments; under the transition
provisions of SFAS No. 133, on January 1, 2001 the Company recorded fair
value adjustments to the subject derivatives and related commitments
resulting in the recording of a net after-tax, cumulative-effect-type
transition charge of $0.2 million to net income. The remaining derivatives
identified at January 1, 2001 under the provisions of SFAS No. 133,
consisting of certain forward purchases and sales, had not previously been
considered derivatives under accounting principles generally accepted in
the United States of America; under the transition provisions of SFAS No.
133, on January 1, 2001 the Company recorded an after-tax,
cumulative-effect-type benefit of $13.8 million to net income related to
these derivatives. The Company did not elect prospective hedge accounting
for derivatives existing at the date of adoption of SFAS No. 133.

Effective January 1, 2001, fair values of derivatives are recorded in
other current assets or other current liabilities, as applicable, and
changes in the fair value of derivatives not designated in hedging
relationships are recorded in income. Effective January 1, 2001, the
Company's 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.

REFINERY MAINTENANCE - Costs of major refinery turnaround maintenance are
charged to operations over the estimated period between turnarounds.
Turnaround periods range approximately from one to seven years.
Unamortized costs are included in other assets. Amortization of refinery
turnaround costs is included in depreciation and amortization expense.
Amortization was $88 million, $75 million, and $69 million for 2003, 2002,
and 2001, respectively. Ordinary maintenance is expensed as incurred.

The American Institute of Certified Public Accountants ("AICPA") has
issued a Statement of Position ("SOP") 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. The exposure draft
indicates that this change will be required to be adopted for fiscal years
beginning after

F-10

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 statement of
income. Currently, the AICPA is re-deliberating its proposed SOP and
expects to send a draft of the final SOP to the Financial Accounting
Standards Board ("FASB") in the second quarter of 2004 for its review. The
final accounting requirements and timing of required adoption are not
known at this time. At December 31, 2003, the Company had included
turnaround costs of $169 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.

ENVIRONMENTAL EXPENDITURES - Environmental expenditures that relate to
current or future revenues are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past
operations and that do not contribute to current or future revenue
generation are expensed. Liabilities are recorded when environmental
assessments and/or cleanups are probable and the costs can be reasonably
estimated. Environmental liabilities are not discounted to their present
value and are recorded without consideration of potential recoveries from
third parties. Subsequent adjustments to estimates, to the extent
required, may be made as more refined information becomes available.

INCOME TAXES - The Company is included in the consolidated U.S. federal
income tax return filed by PDV Holding, Inc., the direct parent of PDV
America. The Company's current and deferred income tax expense has been
computed on a stand-alone basis using an asset and liability approach.

NEW ACCOUNTING STANDARDS - 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.

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. In December 2003, the FASB issued a revision of
FIN 46 (FIN 46R), primarily to clarify the required accounting for
investments in variable interest entities. This standard replaces FIN 46.
For CITGO, which meets the definition of a nonpublic enterprise for
purposes of applying FIN 46R, application is required immediately for
variable interest entities created after December 31, 2003 and for
variable interest entities in which an interest is acquired after that
date, and to all entities that are subject to FIN 46R by January 1, 2005.
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 46R 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

F-11

first year restated. CITGO expects that the application of FIN 46R will
not have a material impact on its financial position or results of
operations.

In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" ("SFAS No. 149"). The changes in SFAS No. 149 improve
financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. Those changes will result in
more consistent reporting of contracts as either derivatives or hybrid
instruments. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003, except for certain issues from SFAS No. 133
which have been effective for fiscal quarters that began prior to June 15,
2003 and for hedging relationships designated after June 30, 2003. In
addition, all provisions of SFAS No. 149 should be applied prospectively.
The changes in principle effective with the adoption of SFAS No. 149 did
not have a material effect on the Company's statements of financial
position and results of operations.

The FASB's Emerging Issues Task Force Abstract No. 01-8, "Determining
Whether an Arrangement Contains a Lease" ("EITF 01-8") requires that when
CITGO makes an evaluation of whether an arrangement contains a lease
within the scope of Statement of Financial Accounting Standards No. 13,
"Accounting for Leases", such an assessment should be based on the
substance of the arrangement and should be made at inception of the
arrangement based on all of the facts and circumstances. A reassessment of
whether the arrangement contains a lease after the inception of the
arrangement shall be made only if (a) there is a change in the contractual
terms, (b) a renewal option is exercised or an extension is agreed to by
the parties to the arrangement, (c) there is a change in the determination
as to whether or not fulfillment is dependent on specified property,
plant, or equipment, or (d) there is a substantial physical change to the
specified property, plant, or equipment. A reassessment of an arrangement
should be based on the facts and circumstances as of the date of
reassessment, including the remaining term of the arrangement. The
consensus in EITF 01-8 should be applied to (a) arrangements agreed to or
committed to, if earlier, after the beginning of an entity's next
reporting period beginning after May 28, 2003, (b) arrangements modified
after the beginning of an entity's next reporting period beginning after
May 28, 2003, and (c) arrangements acquired in business combinations
initiated after the beginning of an entity's next reporting period
beginning after May 28, 2003. There was no material impact upon adoption.

In December 2003, the FASB issued Statement of Financial Accounting
Standards No. 132 (revised 2003), which revises employers' disclosures
about pension plans and other postretirement benefit plans. It does not
change the measurement of those plans required by FASB Statements No. 87,
"Employers' Accounting for Pensions", No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", and No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". It retains the disclosure
requirements contained in FASB Statement No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which it replaces. It
requires additional disclosures to those in the original Statement No. 132
about assets, obligations, cash flows and net periodic benefit cost of
defined benefit pension plans and other defined benefit postretirement
plans. (See Note 11).

F-12

2. REFINERY AGREEMENTS

An affiliate of PDVSA has a 50 percent equity interest in a joint venture
that owns and operates a refinery in St. Croix, U.S. Virgin Islands
("HOVENSA") and has the right under a product sales agreement to assign
periodically to CITGO, or other related parties, its option to purchase 50
percent of the refined products produced by HOVENSA (less a certain
portion of such products that HOVENSA will market directly in the local
and Caribbean markets). In addition, under the product sales agreement,
the PDVSA affiliate has appointed CITGO as its agent in designating which
of its affiliates shall from time to time take deliveries of the refined
products available to it. The product sales agreement will be in effect
for the life of the joint venture, subject to termination events based on
default or mutual agreement (Note 4). Pursuant to the above arrangement,
CITGO acquired approximately 149 MBPD, 100 MBPD, and 106 MBPD of refined
products from HOVENSA during 2003, 2002, and 2001, respectively,
approximately one-half of which was gasoline.

3. 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 (Note 4).

As of December 31, 2003, CITGO has a note receivable from LYONDELL-CITGO
of $35 million. The note bears interest at market rates, which were
approximately 1.9 percent, 2.4 percent, and 2.2 percent at December 31,
2003, 2002 and 2001. Principal and interest are due in March 2005.
Accordingly, the note and related accrued interest is included in the
balance sheet caption other assets in the accompanying consolidated
balance sheets. In addition, during 2003, CITGO converted $6.8 million of
accrued interest related to this note to investments in LYONDELL-CITGO.

F-13

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:

DECEMBER 31,
------------------------------------
2003 2002 2001
(000S OMITTED)

Carrying value of investment $ 454,679 $ 518,279 $ 507,940
Notes receivable 35,278 35,278 35,278
Participation interest 41% 41% 41%
Equity in net income $ 83,503 $ 77,902 $ 73,983
Cash distributions received 177,799 88,663 116,177

Summary of LYONDELL-CITGO's financial position:
Current assets $ 316,000 $ 357,000 $ 227,000
Noncurrent assets 1,321,000 1,400,000 1,434,000
Current liabilities:
Current portion of long-term debt - - 50,000
Distributions payable to partners 36,000 181,000 29,000
Other 350,000 333,000 298,000
Noncurrent liabilities (including debt of $450,000
at December 31, 2003, 2002 and 2001) 828,000 840,000 776,000
Partners' capital 423,000 403,000 508,000

Summary of operating results:
Revenue $4,162,000 $3,392,000 $3,284,000
Gross profit 320,000 299,000 317,000
Net income 228,000 213,000 203,000

LYONDELL-CITGO has a $450 million credit facility and a $70 million
working capital revolving credit facility, both of which expire in June
2004. Management of LYONDELL-CITGO and the Owners are pursuing a
refinancing of these facilities and expect to complete the refinancing
before they expire. On March 11, 2004, LYONDELL-CITGO entered into an
agreement with a major financial institution to refinance the facilities
on a long-term basis, with interest of LIBOR plus 3%, but in no event more
than LIBOR plus 8%, and with other terms substantially similar to the
current facilities. The closing of the new facility is subject to normal
conditions of closing, as well as the maintenance of certain financial and
operating ratios. Based on this agreement, the $450 million term bank loan
amount has been classified by LYONDELL-CITGO in its balance sheet as
long-term debt at December 31, 2003.

F-14

4. RELATED PARTY TRANSACTIONS

The Company 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. The Company
purchased $4.2 billion, $3.3 billion, and $3.0 billion of crude oil,
feedstocks and other products from wholly owned subsidiaries of PDVSA in
2003, 2002, and 2001, respectively, under these and other purchase
agreements. At December 31, 2003 and 2002, $335 million and $262 million,
respectively, were included in payables to affiliates as a result of these
transactions.

These crude oil supply agreements require PDVSA to supply minimum
quantities of crude oil and other feedstocks to CITGO. The supply
agreements differ somewhat for each refinery but generally incorporate
formula prices based on the market value of a slate of refined products
deemed to be produced from each particular grade of crude oil or
feedstock, less (i) specified deemed refining costs; (ii) specified actual
costs, including transportation charges, actual cost of natural gas and
electricity, import duties and taxes; and (iii) a deemed margin, which
varies according to the grade of crude oil or feedstock delivered. Under
each supply agreement, deemed margins and deemed costs are adjusted
periodically by a formula primarily based on the rate of inflation.
Because deemed operating costs and the slate of refined products deemed to
be produced for a given barrel of crude oil or other feedstock do not
necessarily reflect the actual costs and yields in any period, the actual
refining margin earned by CITGO under the various supply agreements will
vary depending on, among other things, the efficiency with which CITGO
conducts its operations during such period.

The price CITGO pays for crude oil purchased under these crude oil supply
agreements is not directly related to the market price of any other crude
oil. However, the intention of the pricing mechanism in the crude supply
agreements was to reflect market pricing over long periods of time, but
there may be periods in which the price paid for crude oil purchased under
those agreements may be higher or lower than the price that might have
been paid in the spot market. Internal estimates indicate that the pricing
mechanism is working as intended to reflect market prices over long
periods of time.

The Company also purchases refined products from various other affiliates
including LYONDELL-CITGO and HOVENSA, under long-term contracts. These
agreements incorporate various formula prices based on published market
prices and other factors. Such purchases totaled $4.9 billion, $3.5
billion, and $3.4 billion for 2003, 2002, and 2001, respectively. At
December 31, 2003 and 2002, $148 million and $110 million, respectively,
were included in payables to affiliates as a result of these transactions.

The Company had refined product, feedstock, and other product sales to
affiliates, primarily at market-related prices, of $387 million, $277
million, and $248 million in 2003, 2002, and 2001, respectively. At
December 31, 2003 and 2002, $71 million and $94 million, respectively, was
included in due from affiliates as a result of these and related
transactions.

Under a separate guarantee of rent agreement, PDVSA has guaranteed payment
of rent, stipulated loss value and terminating value due under the lease
of the Corpus Christi refinery facilities described in Note 14. The
Company has also guaranteed debt of certain affiliates (Note 13).

In August 2002, three affiliates entered into agreements to advance cash
to CITGO 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, Inc. ("PDV Holding").
The notes bear interest at rates equivalent to 30-day LIBOR plus 0.875%,
payable quarterly. There were no amounts outstanding on these notes at
December 31, 2003. Amounts outstanding on these notes at December 31,

F-15

2002 were $5 million, $30 million and $4 million due to PDV Texas, PDV
America and PDV Holding, respectively and are included in payables to
affiliates in the accompanying 2002 consolidated balance sheet.

The Company and PDV Holding are parties to a tax allocation agreement that
is designed to provide PDV Holding with sufficient cash to pay its
consolidated income tax liabilities. PDV Holding appointed CITGO as its
agent to handle the payment of such liabilities on its behalf. As such,
CITGO calculates the taxes due, allocates the payments among the members
according to the agreement and bills each member accordingly. Each member
records its amounts due from or payable to CITGO in a related party
payable account. At December 31, 2003 and 2002, CITGO had net related
party receivables related to federal income taxes of $35 million and $25
million, respectively.

Prior to the formation of PDV Holding as the common parent in the 1997 tax
year, the Company and PDV America were parties to a tax allocation
agreement. In 1998, $8 million due from CITGO to PDV America under this
agreement for the 1997 tax year was classified as a noncash contribution
of capital. In 1999, $11 million due from PDV America to CITGO under this
agreement for the 1998 tax year was classified as a noncash dividend.
Amendment No. 2 to the Tax Allocation Agreement was executed during 2000;
this amendment eliminated the provisions of the agreement that provided
for these noncash contribution and dividend classifications effective with
the 1997 tax year. Consequently, the classifications made in the prior two
years were reversed in 2000. In the event that CITGO should cease to be
part of the consolidated federal income tax group, any amounts included in
shareholder's equity under this agreement are required to be settled
between the parties in cash (net $2 million payable to PDV America at
December 31, 2003 and 2002).

At December 31, 2003 and 2002, CITGO has federal income taxes payable of
$5 million and $20 million, respectively, included in other current
liabilities.

5. ACCOUNTS RECEIVABLE

2003 2002
(000S OMITTED)

Trade $ 972,534 $ 766,824
Credit card 93,830 116,246
Other 18,468 39,313
----------- -----------
1,084,832 922,383
Allowance for uncollectible accounts (24,499) (17,205)
----------- -----------
$ 1,060,333 $ 905,178
=========== ===========

Sales are made on account, based on pre-approved unsecured credit terms
established by CITGO management. The Company also has a proprietary credit
card program which allows commercial customers to purchase fuel at CITGO
branded outlets. Allowances for uncollectible accounts are established
based on several factors that include, but are not limited to, analysis of
specific customers, historical trends, current economic conditions and
other information.

The Company has a limited purpose consolidated subsidiary, CITGO Funding
Corporation ("CITGO Funding"), which established a non-recourse agreement
to sell an undivided interest in specified trade accounts receivables
("pool") to independent third parties. Under the terms of the agreement,
new receivables are added to the pool as collections (administered by
CITGO) reduce previously sold receivables. CITGO pays specified fees
related to its sale of receivables under the program. The amount sold to
third-parties at any one time under the trade accounts receivable sales
agreement is limited to a maximum of $275 million (increased from $200
million through an amendment in November 2003).

F-16

As of December 31, 2003 and 2002, $652 million and $765 million,
respectively, of CITGO's accounts receivable comprised the designated pool
of trade receivables owned by CITGO Funding. The pool of receivables had a
weighted average life of 4.7 and 5.0 days at December 31, 2003 and 2002,
respectively. As of December 31, 2003, none of the receivables in the
designated pool had been sold to the third party and the entire amount was
retained by CITGO Funding. As of December 31, 2002, $125 million of the
receivables in the designated pool were sold to the third party and the
remaining amount was retained by CITGO Funding. This retained interest,
which is included in receivables, net in the consolidated balance sheets,
is recorded at fair value. Due to (i) a short average collection cycle for
such trade receivables, (ii) CITGO's positive collection history, and
(iii) the characteristics of such trade accounts receivables, the fair
value of CITGO's retained interest approximates the total amount of trade
accounts receivable reduced by the amount of trade accounts receivable
sold to the third-party under the facility.

CITGO recorded no gains or losses associated with the sales in the years
ended December 31, 2003 and 2002 other than the fees incurred by CITGO
related to this facility, which were included in other income (expense),
net in the consolidated statements of income. Such fees were $6 million,
$3 million and $8 million for the years ended December 31, 2003, 2002 and
2001, respectively. The third party's interests in CITGO trade accounts
receivables were never in excess of the sales facility limits at any time
under this program.

CITGO is responsible for servicing the transferred receivables for which
it receives a monthly servicing fee equal to 1% per annum times the
average outstanding amount of receivables in the program for the prior
month. Because the servicing fee is an intercompany obligation from CITGO
Funding to CITGO, CITGO does not believe that it incurs incremental costs
associated with the activity. CITGO has not, on a consolidated basis,
recorded any servicing assets or liabilities related to this servicing
activity.

6. INVENTORIES

2003 2002
(000S OMITTED)

Refined product $ 686,483 $ 781,495
Crude oil 239,974 221,422
Materials and supplies 91,156 87,998
---------- ----------
$1,017,613 $1,090,915
========== ==========

At December 31, 2003 and 2002, estimated net market values exceeded
historical cost by approximately $707 million and $572 million,
respectively.

The reduction of hydrocarbon LIFO inventory quantities resulted in a
liquidation of prior years' LIFO layers and decreased cost of goods sold
by $66 million and $29 million in 2003 and 2002, respectively.

F-17

7. PROPERTY, PLANT AND EQUIPMENT

2003 2002
(000S OMITTED)

Land $ 137,010 $ 138,156
Buildings and leaseholds 442,765 431,899
Machinery and equipment 4,985,068 4,532,889
Vehicles 35,209 24,597
Construction in process 300,361 384,869
----------- -----------
5,900,413 5,512,410
Accumulated depreciation and amortization (1,993,210) (1,762,244)
----------- -----------
$ 3,907,203 $ 3,750,166
=========== ===========

Depreciation expense for 2003, 2002, and 2001 was $237 million, $223
million, and $220 million, respectively.

Net losses on disposals and retirements of property, plant and equipment
were approximately $3 million, $5 million, and $24 million in 2003, 2002,
and 2001, respectively.

8. INVESTMENTS IN AFFILIATES

In addition to LYONDELL-CITGO, the Company's investments in affiliates
consist of equity interests of 6.8 percent to 50 percent in joint interest
pipelines and terminals, including a 15.79 percent interest in Colonial
Pipeline Company; a 49.5 percent partnership interest in Nelson Industrial
Steam Company ("NISCO"), which is a qualified cogeneration facility; a 49
percent partnership interest in Mount Vernon Phenol Plant; and a 25
percent interest in The Needle Coker Company. The carrying value of these
investments exceeded the Company's equity in the underlying net assets by
approximately $125 million and $138 million at December 31, 2003 and 2002,
respectively.

At December 31, 2003 and 2002, NISCO had a partnership deficit. CITGO's
share of this deficit, as a general partner, was $31 million and $34
million at December 31, 2003 and 2002, respectively, which is included in
other noncurrent liabilities in the accompanying consolidated balance
sheets.

Information on the Company's investments, including LYONDELL-CITGO,
follows:

DECEMBER 31,
------------------------------
2003 2002 2001
(000S OMITTED)

Company's investments in affiliates
(excluding NISCO) $647,649 $716,469 $700,701
Company's equity in net income of affiliates 118,268 101,326 108,915
Dividends and distributions received from affiliates 218,338 123,639 153,435

F-18

Selected financial information provided by the affiliates is summarized as
follows:

DECEMBER 31,
------------------------------------
2003 2002 2001
(000S OMITTED)

Summary of financial position:
Current assets $ 636,379 $ 740,019 $ 566,204
Noncurrent assets 3,372,509 3,396,209 3,288,950
Current liabilities (including debt of $43,902,
$52,417 and $685,089 at December 31,
2003, 2002, and 2001, respectively) 778,974 846,623 1,240,391
Noncurrent liabilities (including debt of
$2,121,018, $2,185,502 and $1,460,196
at December 31, 2003, 2002, and 2001,
respectively) 2,830,317 2,863,505 2,082,573

Summary of operating results:
Revenues $5,909,974 $4,906,397 $4,603,136
Gross profit 918,327 879,907 781,630
Net income 504,548 449,779 397,501

9. SHORT-TERM BANK LOANS

As of December 31, 2003, the Company had no short-term borrowing
facilities. As of December 31, 2002, the Company had established $90
million of uncommitted, unsecured, short-term borrowing facilities with
various banks. Interest rates on these facilities were determined daily
based upon the federal funds' interest rates, and maturity options varied
up to 30 days. The weighted average interest rate actually incurred under
these facilities in 2002 was 2.5 percent. The Company had no borrowings
outstanding under these facilities at December 31, 2002.

F-19

10. LONG-TERM DEBT AND FINANCING ARRANGEMENTS

2003 2002
(000S OMITTED)

Revolving bank loans $ - $ 279,300

Senior Secured Term Loan, due 2006 with variable interest rate 200,000 -

Senior Notes, $200 million face amount, due 2006 with
interest rate of 7-7/8% 149,946 199,898

Senior Notes, $550 million face amount, due 2011 with
interest rate of 11-3/8% 546,949 -

Private Placement Senior Notes, due 2004 to 2006 with an
interest rate of 9.30% 34,091 45,455

Master Shelf Agreement Senior Notes, due 2004 to
2009 with interest rates from 7.17% to 8.94% 185,000 235,000

Tax-Exempt Bonds, due 2004 to 2033 with variable
and fixed interest rates 332,478 425,872

Taxable Bonds, due 2026 to 2028 with variable interest rates 25,000 115,000
----------- -----------

1,473,464 1,300,525
Current portion of long-term debt (31,364) (190,664)
----------- -----------

$ 1,442,100 $ 1,109,861
=========== ===========

REVOLVING BANK LOANS - The Company has a $260 million, three-year,
unsecured revolving bank loan maturing in December 2005. There was no
outstanding balance under this credit agreement at December 31, 2003. The
Company also had a $260 million, 364-day, revolving bank facility at
December 31, 2002. This bank facility matured in December 2003 and was not
renewed.

SENIOR SECURED TERM LOAN - The Company has outstanding a senior secured
term loan under an agreement with a syndication of banks. The senior loan
is secured by our equity interest in two pipeline companies. Interest is
paid quarterly and is based on a floating rate which was 8.25% at December
31, 2003. Principal is due and payable February 27, 2006.

SHELF REGISTRATION - SENIOR NOTES - In February 2003, the Company issued
$550 million aggregate principal amount of 11-3/8% unsecured senior notes
due February 1, 2011. In connection with this debt issuance, CITGO
redeemed $50 million principal amount of its 7-7/8% senior notes due 2006.

In April 1996, the Company filed a registration statement with the
Securities and Exchange Commission relating to the shelf registration of
$600 million of debt securities. In May 1996, CITGO issued $200 million
aggregate principle amount of 7-7/8% unsecured senior notes due 2006. Due
to CITGO's credit ratings, the shelf registration is not presently
available.

PRIVATE PLACEMENT - At December 31, 2003, the Company has outstanding
approximately $34 million of privately placed, unsecured Senior Notes.
Principal amounts are payable in annual installments in November and
interest is payable semiannually in May and November.

F-20

MASTER SHELF AGREEMENT - At December 31, 2003, the Company has
outstanding $185 million of privately-placed senior notes under an
unsecured Master Shelf Agreement with an insurance company. The notes
have various fixed interest rates and maturities.

COVENANTS - The various debt agreements above contain certain covenants
that, depending upon the level of the Company's capitalization and
earnings, could impose limitations on the Company's ability to pay
dividends, incur additional debt, place liens on property, and sell
fixed assets. The Company's debt instruments described above do not
contain any covenants that trigger prepayment or increased costs as a
result of a change in its debt ratings. The Company was in compliance
with the debt covenants at December 31, 2003.

TAX-EXEMPT BONDS - At December 31, 2003, through state entities, CITGO
has outstanding $42 million of industrial development bonds for certain
Lake Charles and Lemont port facilities and pollution control equipment
and $290 million of environmental revenue bonds to finance a portion of
the Company's environmental facilities at its Lake Charles and Corpus
Christi refineries and at the LYONDELL-CITGO refinery. The bonds bear
interest at various fixed and floating rates, which ranged from 2.1
percent to 8.3 percent at December 31, 2003 and ranged from 2.1 percent
to 8.0 percent at December 31, 2002. Additional credit support for the
variable rate bonds is provided through letters of credit.

TAXABLE BONDS - At December 31, 2003, through a state entity, the
Company has outstanding $25 million of taxable environmental revenue
bonds to finance a portion of the environmental facilities at the
LYONDELL-CITGO refinery. Such bonds are secured by letter of credit and
have a floating interest rate (2.3 percent at December 31, 2003 and 2.5
percent at December 31, 2002). At the option of the Company and upon
the occurrence of certain specified conditions, all or any portion of
such taxable bonds may be converted to tax-exempt bonds. During 2003,
2002 and 2001, $-0-, $31 million and $28 million of originally issued
taxable bonds were converted to tax-exempt bonds.

DEBT MATURITIES - Future maturities of long-term debt as of December
31, 2003, are: 2004 - $31.4 million, 2005 - $11.3 million, 2006 -
$401.3 million, 2007 - $50.0 million, 2008 - $44.9 million and $934.6
million thereafter.

INTEREST RATE SWAP AGREEMENTS - The Company has entered into the
following interest rate swap agreements to reduce the impact of
interest rate changes on its variable interest rate debt:

NOTIONAL PRINCIPAL AMOUNT
-------------------------
EXPIRATION FIXED RATE 2003 2002
VARIABLE RATE INDEX DATE PAID (000s OMITTED)

J.J. Kenny February 2005 5.30% $ 12,000 $ 12,000
J.J. Kenny February 2005 5.27% 15,000 15,000
J.J. Kenny February 2005 5.49% 15,000 15,000
-------- --------
$ 42,000 $ 42,000
======== ========

Effective January 1, 2001, changes in the fair value of these
agreements are recorded in other income (expense). The fair value of
these agreements at December 31, 2003, based on the estimated amount
that CITGO would receive or pay to terminate the agreements as of that
date and taking into account current interest rates, was a loss of $2
million, the offset of which is recorded in the balance sheet caption
other current liabilities.

F-21

11. EMPLOYEE BENEFIT PLANS

EMPLOYEE SAVINGS - CITGO sponsors three qualified defined contribution
retirement and savings plans covering substantially all eligible
salaried and hourly employees. Participants make voluntary
contributions to the plans and CITGO makes contributions, including
matching of employee contributions, based on plan provisions. CITGO
expensed $22 million, $23 million and $20 million related to its
contributions to these plans in 2003, 2002 and 2001, respectively.

PDV Midwest Refining, L.L.C. ("PDVMR") is a subsidiary of CITGO. It
sponsors a defined contribution plan. This plan was frozen as of May 1,
1997 and no further contributions to the plan could be made after that
date and there will be no new participants in the plan.

PENSION BENEFITS - CITGO sponsors three qualified noncontributory
defined benefit pension plans, two covering eligible hourly employees
and one covering eligible salaried employees. CITGO also sponsors three
nonqualified defined benefit plans for certain eligible employees.

In 2003, CITGO offered an enhanced retirement program to eligible
salaried and hourly employees. Approximately $21 million of incremental
pension benefits were expensed under this program.

PDVMR sponsors a qualified and a nonqualified plan, frozen at their
current levels on April 30, 1997. The plans cover former employees of
the partnership who were participants in the plans as of April 30,
1997.

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - In addition to pension
benefits, CITGO also provides certain health care and life insurance
benefits for eligible salaried and hourly employees at retirement.
These benefits are subject to deductibles, copayment provisions and
other limitations and are primarily funded on a pay-as-you-go basis.
CITGO reserves the right to change or to terminate the benefits at any
time.

F-22

OBLIGATIONS AND FUNDED STATUS - December 31, 2003 is the measurement
date used to determine pension and other post retirement benefit
measurements for the plans. The following sets forth the changes in
benefit obligations and plan assets for the CITGO and PDVMR pension and
the CITGO postretirement plans for the years ended December 31, 2003
and 2002, and the funded status of such plans reconciled with amounts
reported in the Company's consolidated balance sheets:

PENSION BENEFITS OTHER BENEFITS
---------------------- ----------------------
2003 2002 2003 2002
(000s OMITTED) (000s OMITTED)

CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 449,655 $ 390,507 $ 334,151 $ 260,696
Service cost 19,901 17,171 8,800 7,191
Interest cost 29,330 27,881 22,223 18,603
Amendments (8,764) 30 (4,020) -
Actuarial liability loss 39,183 28,449 62,320 55,654
Plan merger/acquisitions 5,337 - - -
Benefits paid (18,742) (14,383) (8,949) (7,993)
--------- --------- --------- ---------

Benefit obligation at end of year 515,900 449,655 414,525 334,151
--------- --------- --------- ---------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 290,594 324,241 1,182 1,115
Actual return on plan assets 59,519 (28,552) (9) 67
Plan merger/acquisitions 4,594 - - -
Employer contribution 23,747 9,288 8,949 7,993
Benefits paid (18,742) (14,383) (8,949) (7,993)
Enhanced retirement program benefits paid (16,371) - - -
--------- --------- --------- ---------

Fair value of plan assets at end of year 343,341 290,594 1,173 1,182
--------- --------- --------- ---------
Funded status (172,559) (159,061) (413,352) (332,969)
Unrecognized net actuarial loss (gain) 89,564 90,860 87,461 75,206
Unrecognized prior service cost (6,070) 1,973 (4,020) -
Unrecognized net obligation (asset) (104) (207) - -
--------- --------- --------- ---------

Net amount recognized $ (89,169) $ (66,435) $(329,911) $(257,763)
========= ========= ========= =========
Amounts recognized in the Company's
consolidated balance sheets consist of:
Accrued benefit liability $(114,250) $ (97,126) $(329,911) $(257,763)
Intangible asset 2,308 - -
Accumulated other comprehensive income 25,081 28,383 - -
--------- --------- --------- ---------

Net amount recognized $ (89,169) $ (66,435) $(329,911) $(257,763)
========= ========= ========= =========

The accumulated benefit obligation for all defined benefit plans was
$435 million and $368 million at December 31, 2003 and 2002,
respectively.

F-23

COMPONENTS OF NET PERIODIC BENEFIT COST

PENSION BENEFITS OTHER BENEFITS
-------------------------------- --------------------------------
2003 2002 2001 2003 2002 2001
(000s OMITTED) (000s OMITTED)

Components of net periodic benefit cost:
Service cost $ 19,901 $ 17,171 $ 15,680 $ 8,800 $ 7,191 $ 5,754
Interest cost 29,330 27,880 25,732 22,223 18,603 15,708
Expected return on plan assets (26,254) (30,293) (30,586) (71) (67) (63)
Amortization of prior service cost (766) 350 351 - - -
Amortization of net gain at date
of adoption (152) (268) (268) - - -
Recognized net actuarial loss (gain) 3,224 534 (3,018) 50,145 11,288 -
-------- -------- -------- -------- -------- --------

Net periodic benefit cost $ 25,283 $ 15,374 $ 7,891 $ 81,097 $ 37,015 $ 21,399
======== ======== ======== ======== ======== ========

Actuarial gains (or losses) related to the postretirement benefit
obligation are recognized as a component of net postretirement benefit
cost by the amount the beginning of year unrecognized net gain (or
loss) exceeds 7.5 percent of the accumulated postretirement benefit
obligation.

ADDITIONAL INFORMATION

PENSION BENEFITS OTHER BENEFITS
------------------ -----------------
2003 2002 2003 2002

WEIGHTED-AVERAGE ASSUMPTIONS USED TO
DETERMINE BENEFIT OBLIGATIONS AT DECEMBER 31:
Discount rate 6.25% 6.75% 6.25% 6.75%
Rate of compensation increase 4.46% 5.00% - -

PENSION BENEFITS OTHER BENEFITS
----------------- -----------------
2003 2002 2003 2002

WEIGHTED-AVERAGE ASSUMPTIONS USED
TO DETERMINE NET PERIODIC BENEFIT COSTS
FOR THE YEARS ENDED DECEMBER 31:
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected long-term return on plan assets 8.50% 9.00% 8.50% 9.00%
Rate of compensation increase 5.00% 5.00% - -

CITGO's expected long-term rate of return on plan assets is intended to
generally reflect the historical returns of the assets in its
investment portfolio. The weighted average return at December 31, 2003
on indices representing CITGO's investment portfolio is 7.94% over the
past 10 years and 8.84% over the past 15 years.

F-24

For measurement purposes, a 10 percent pre-65 and an 11 percent post-65
annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2003. These rates are assumed to decrease 1
percent per year to an ultimate level of 5 percent by 2009 for pre-65
and 2010 for post-65 participants, and to remain at that level
thereafter.

Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point
change in assumed health care cost trend rates would have the following
effects:

1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
(000's OMITTED)

Increase (decrease) in total of service and interest cost
components $ 5,789 $ (4,578)
Increase (decrease) in postretirement benefit obligation 69,283 (55,471)

On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 ("the Act") was signed into law. The Act
introduces a prescription drug benefit under Medicare (Medicare Part D)
as well as a federal subsidy to sponsors of retiree health care benefit
plans that provide a benefit that is at least actuarially equivalent to
Medicare Part D. On January 12, 2004, the FASB Staff issued FASB Staff
Position No. FAS 106-1, "Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of
2003". This Staff Position permits a sponsor of a postretirement health
care plan that provides a prescription drug benefit to make a one-time
election to defer accounting for the effects of the Act. The Company
has elected to defer accounting for the effects of the Act. As a
result, measures of the accumulated postretirement benefit cost and net
periodic postretirement benefit cost do not reflect the effects of the
Act. Specific authoritative guidance from the FASB on the accounting
for the federal subsidy is pending and that guidance, when issued,
could require the Company to change previously reported information.

F-25

PLAN ASSETS

The CITGO qualified plans' assets include:

PERCENTAGE OF PLAN ASSETS
AS OF DECEMBER 31,
TARGET -------------------------
ALLOCATION 2003 2002
---------- ------- ------

ASSET CATEGORY:
Domestic equity 40% 40.10% 33.94%
International equity 20% 20.10% 18.22%
Fixed income 40% 39.20% 46.73%
Cash - 0.60% 1.11%
--- ------ ------
Total 100% 100.00% 100.00%
=== ====== ======

The PDVMR qualified plan's assets include:

PERCENTAGE OF PLAN ASSETS
AS OF DECEMBER 31,
TARGET -------------------------
ALLOCATION 2003 2002
---------- --------- -------

ASSET CATEGORY:
Domestic equity 60% 60.00% 49.48%
International equity 10% 12.30% 12.27%
Fixed income 30% 27.20% 36.15%
Cash - 0.50% 2.10%
--- ------ ------
Total 100% 100.00% 100.00%
=== ====== ======

The investment return objective for these assets is to achieve returns
that meet or exceed the actuarial discount rate over time. This is to
be accomplished using a well-diversified portfolio structure. The
Company periodically reviews the asset allocation to determine whether
it remains appropriate for achieving the investment return objective.

CONTRIBUTIONS - CITGO's policy is to fund the qualified pension plans
in accordance with applicable laws and regulations and not to exceed
the tax deductible limits. CITGO estimates that it will contribute $58
million to these plans in 2004. The nonqualified plans are funded as
necessary to pay retiree benefits. The plan benefits for each of the
qualified pension plans are primarily based on an employee's years of
plan service and compensation as defined by each plan.

CITGO's policy is to fund its postretirement benefits other than
pensions obligation on a pay-as-you-go basis. CITGO estimates that it
will contribute $10 million to these plans in 2004.

F-26

12. INCOME TAXES

The provisions for income taxes are comprised of the following:

2003 2002 2001
(000s OMITTED)

Current:
Federal $ 86,139 $ 47,087 $ 84,960
State 1,924 751 5,686
Foreign 70 222 -
-------- -------- --------
88,133 48,060 90,646
Deferred 157,303 47,813 115,576
-------- -------- --------

$245,436 $ 95,873 $206,222
======== ======== ========

The federal statutory tax rate differs from the effective tax rate due
to the following:

2003 2002 2001

Federal statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of federal benefit 1.3% 2.4% 0.9%
Dividend exclusions (1.4)% (3.0)% (1.2)%
Other 1.0% 0.4% (0.2)%
---- ---- ----
Effective tax rate 35.9% 34.8% 34.5%
==== ==== ====

Deferred income taxes reflect the net tax effects of (i) temporary
differences between the financial and tax bases of assets and
liabilities, and (ii) loss and tax credit carryforwards. The tax
effects of significant items comprising the Company's net deferred tax
liability as of December 31, 2003 and 2002 are as follows:

2003 2002
(000s OMITTED)

Deferred tax liabilities:
Property, plant and equipment $ 779,481 $ 754,990
Inventories 95,495 81,912
Investments in affiliates 192,458 173,603
Other 155,646 95,886
---------- ----------
1,223,080 1,106,391
---------- ----------
Deferred tax assets:
Postretirement benefit obligations 124,272 99,234
Employee benefit accruals 58,345 58,002
Alternative minimum tax credit carryforwards 8,812 64,687
Net operating loss carryforwards 5,752 25,997
Marketing and promotional accruals 4,652 4,815
Other 56,065 48,275
---------- ----------
257,898 301,010
---------- ----------
Net deferred tax liability (of which $5,375 is included in current liabilities
at December 31, 2003 and $29,499 is included in current assets at
December 31, 2002.) $ 965,182 $ 805,381
========== ==========

F-27

The Company's alternative minimum tax credit carryforwards are
available to offset regular federal income taxes in future years
without expiration, subject to certain alternative minimum tax
limitations.

13. 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.

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

MTBE Litigation

CITGO is a defendant in a number of federal and state lawsuits alleging
contamination of private and public water supplies by methyl tertiary
butyl ether ("MTBE"), a gasoline additive. In general, the plaintiffs
claim that MTBE renders the water not potable. In addition to
compensatory and punitive damages, plaintiffs seek injunctive relief to
abate the contamination. The Company intends to defend all of the MTBE
lawsuits vigorously.

State Court Litigation

- New York: Four actions are currently pending against the Company
and others in New York state courts. Two have been filed by
individual property owners, one has been filed by a public water
supplier, and one is a purported class action on behalf of private
well owners in two New York communities. Dispositive motions are
pending in all except the public water supplier case. The
defendants' motion to dismiss has been denied and the parties are
negotiating a scheduling order in that case. Discovery has not
commenced and a trial date has not been set.

- Illinois: The Company is defending two actions pending in Illinois
state court (Madison County). One is a purported class action on
behalf of Illinois private well owners. The other case was filed
by the Village of East Alton alleging contamination of its public
water supplies. Both cases are scheduled for trial in the fall of
2004.

Federal Court Litigation

Fifty-two MTBE lawsuits have been filed in state courts in Illinois,
New York, New Hampshire, New Jersey, Connecticut, Massachusetts,
Vermont, Florida, Iowa, Indiana, Louisiana, Virginia, Pennsylvania,
Kansas and California since September 30, 2003. To date, CITGO has
been served in approximately 32 of these cases in California,
Connecticut, New Hampshire, Illinois, Indiana, Pennsylvania, Vermont
and New York. Most of the lawsuits were filed on behalf of public
water suppliers and allege MTBE contamination of public drinking
water sources. The New Hampshire case was filed by the New Hampshire
State Attorney General to protect the state's water resources. The
lawsuit seeks restoration and remediation, monitoring and testing of
all public and private water supplies in the state, as well as
compensatory and punitive damages and fines. All cases are being
removed to federal court, concurrent federal declaratory judgment
actions are being filed by certain of the defendants in those federal
courts, and Tag-Along Notices have been filed with the federal
Judicial Panel on Multidistrict Litigation

F-28

("JPML") requesting transfer and consolidation of all of the cases to
the Southern District of New York as part of MDL 1358, which was
created in October 2000 to coordinate similar litigation (now
settled) and which remains administratively open. On December 19,
2003, Judge Shira Scheindlin, to whom MDL 1358 was previously
assigned, entered an order requesting that all MTBE cases, other than
those pending before her, be stayed until a decision is made by the
JPML whether to transfer and consolidate the cases as part of MDL
1358. Since that time, all other recently filed cases have been
stayed or are expected to be stayed. Plaintiffs have moved or will
move to remand each of the removed cases. Briefing of the remand
motions filed in two of the cases pending before Judge Scheindlin has
been completed but no decision has been entered. Briefing of the
remand motions filed in the actions that have been stayed will not go
forward unless and until the stay orders are lifted. No discovery has
commenced.

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 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. On
January 30, 2004, the U.S. Court of Appeals for the Federal Circuit
affirmed the decision of the Court of International Trade.

CITGO has been named as a defendant in approximately 150 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, CITGO's involvement arises not from having
been sued directly but because prior owners of the CITGO refineries
have asserted indemnification rights against CITGO.

CITGO is a defendant in several cases involving employees and
contractor employees allegedly seriously injured at CITGO's refineries
due to CITGO's alleged negligence. CITGO is vigorously defending these
cases.

At December 31, 2003, CITGO's balance sheet included an accrual for
lawsuits and claims of $27 million compared with $23 million at
December 31, 2002. The increase in the accrual is due primarily to a
revision in the estimated cost to CITGO in resolving various lawsuits
and claims. In addition, CITGO estimates that an additional loss of $5
million is reasonably possible in connection with such lawsuits and
claims.

ENVIRONMENTAL COMPLIANCE AND REMEDIATION - CITGO is subject to the
federal Clean Air Act ("CAA") which includes the New Source Review
("NSR") program as well as the Title V air permitting program; the
federal Clean Water Act which includes the National Pollution Discharge
Elimination System program; the Toxic Substances Control Act; and the
federal Resource Conservation and Recovery Act and their equivalent
state programs. CITGO is required to obtain permits under all of these
programs and believes it is in material compliance with the terms of
these permits. CITGO does not have any material

F-29

Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") liability because the former owners of many of CITGO's
assets have by explicit contractual language assumed all or the
material portion of CERCLA obligations related to those assets. This
includes the Lake Charles refinery and the Lemont refinery.

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 required 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 United States Environmental Protection Agency
("U.S. EPA") regarding "modifications" to refinery equipment under the
NSR provisions of the CAA 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 which 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.

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 the 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, the Company presented a proposal to the LDEQ revising the 1993
closure plan. In 1998 and 2000, the Company 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. CITGO has incurred
remediation costs to date related to these surface impoundments of
approximately $45 million. Based on currently available information and
proposed remedial approach, CITGO currently anticipates closure and
post-closure costs related to these surface impoundments and related
solid waste management units to range from $36 million to $41 million.

The Company's Corpus Christi, Texas refinery is being investigated by
state and federal agencies for alleged criminal violations of federal
environment statutes and regulations, including the CAA and the
Migratory Bird Act. The Company is cooperating with the investigation
by producing requested documents and arranging for the interview of
current and former employees. The Company understands that the
investigation may continue for several months at which time the
government will make a final decision as to whether to seek authority
to file any criminal charges. The Company believes that it has defenses
to any such charges. At this time, the Company cannot predict the
outcome of, or the amount or range of any potential loss that would
ensue from, any such charges. The Company has entered into a settlement
with the Texas Commission on Environmental Quality ("TCEQ"), which was
approved by the TCEQ on February 11, 2004, regarding civil charges
under applicable laws relating to a portion of these alleged

F-30

violations and including all issues which have been subject of prior,
pending, and threatened enforcement proceedings by the TCEQ. That
settlement called for a $1.74 million payment by the Company, of which
$870,000 was paid in December 2003 and the balance was paid in March
2004. Further, the settlement will require the capital expenditures by
the Company which will range up to an aggregate of $21 million to be
incurred over a period of years. In addition, the Company is in
settlement discussions with the U.S. EPA related to civil claims under
the NSR and other provisions of the CAA, which, if finalized, would
also address a portion of the alleged violations of federal law
discussed in this paragraph. At this time, the Company cannot predict
the final outcome of these negotiations.

In June 1999, CITGO and numerous other industrial companies received
notice from the U.S. EPA that the U.S. EPA believes these companies
have contributed to contamination in the Calcasieu Estuary, near Lake
Charles, Louisiana and are potentially responsible parties ("PRPs")
under the 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 May 2003. CITGO and other PRPs may
be potentially responsible for the costs of the RI/FS, subsequent
remedial actions and natural resource damages. Although CITGO is still
reviewing the recent remedial investigation phase of the report and its
implications, CITGO submitted initial comments on the report in July
2003. Also, the EPA and the LDEQ issued a memorandum of understanding
in June 2003 assigning the primary areas of responsibility between the
agencies related to the Calcasieu Estuary. While the Company disagrees
with many of the U.S. EPA's earlier allegations and conclusions, the
Company and other industrial companies signed in December 2003, a
Cooperative Agreement with the LDEQ on issues relative to the Bayou
D'Inde tributary section of the Calcasieu Estuary. The Company will
continue to deal separately with the LDEQ on issues relative to its
refinery operations on another section of the Calcasieu Estuary. The
Company still intends to contest this matter if necessary.

In January and July 2001, CITGO received notices of violation ("NOVs")
from the U.S. EPA alleging violations of the CAA. 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 CAA. 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 be approximately $200 million. Any such
capital costs would be incurred over a period of years, anticipated to
be from 2004 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. CITGO 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
regulations covering benzene emissions from wastewater treatment
operations at the Company's Lemont, Illinois refinery. CITGO is in
settlement discussions with the U.S. EPA. The Company believes this
matter will be consolidated with the matters described in the previous
paragraph.

F-31

In June 2002, a Consolidated Compliance Order and Notice of Potential
Penalty was issued by the LDEQ alleging violations of the Louisiana air
quality regulations at the CITGO's Lake Charles, Louisiana refinery
during 2001. The majority of the alleged violations related to the leak
detection and repair program. The Company is in settlement discussions
with the LDEQ. The LDEQ believes this matter will be consolidated with
the matters described in the previous paragraph related to the EPA's
NSR enforcement initiative.

At December 31, 2003, CITGO's balance sheet included an environmental
accrual of $63 million. Results of operations reflect a decline in the
accrual of $5 million during 2003 due primarily to a revision of the
Company's estimated share of costs related to a site which is still
under investigation by the U.S. EPA. CITGO estimates that an additional
loss of $20 million is reasonably possible in connection with
environmental matters.

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.

Increasingly stringent environmental regulatory provisions and
obligations periodically require additional capital expenditures.
During 2003, CITGO spent approximately $253 million for environmental
and regulatory capital improvements in its operations. Management
currently estimates that CITGO will spend approximately $785 million
for environmental and regulatory capital projects over the five-year
period 2004-2008. These estimates may vary due to a variety of factors.

SUPPLY AGREEMENTS - The Company purchases the crude oil processed at
its refineries and also purchases refined products to supplement the
production from its refineries to meet marketing demands and resolve
logistical issues. In addition to supply agreements with various
affiliates (Notes 2 and 4), the Company has various other crude oil,
refined product and feedstock purchase agreements with unaffiliated
entities with terms ranging from monthly to annual renewal. The Company
believes these sources of supply are reliable and adequate for its
current requirements.

THROUGHPUT AGREEMENTS - The Company has throughput agreements with
certain pipeline affiliates (Note 8). These throughput agreements may
be used to secure obligations of the pipeline affiliates. Under these
agreements, the Company may be required to provide its pipeline
affiliates with additional funds through advances against future
charges for the shipping of petroleum products. The Company currently
ships on these pipelines and has not been required to advance funds in
the past. At December 31, 2003, the Company has no fixed and
determinable, unconditional purchase obligations under these
agreements.

COMMODITY DERIVATIVE ACTIVITY - As of December 31, 2003 the Company'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 December 31,
2003, the balance sheet captions other current assets and other current
liabilities include $16 million and $6 million, respectively, related
to the fair values of open commodity derivatives.

F-32

GUARANTEES - As of December 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 and financing debt incurred
by an equity investment as shown in the following table:

Expiration
Date
----------

(000s omitted)

Letters of credit $32,981 2004-2005

Bank debt
Equity investment 5,500 2004
Customers 2,301 2005-2009

Financing debt of customers
Customer equipment acquisition 1,001 2004-2007
Equipment acquisition - NISCO 11,303 2008
-------
Total $53,086
=======

In each case, if the debtor fails to meet its obligation, CITGO could
be obligated to make the required payment. 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., the direct parent of PDV America. In
the event of debtor default on the 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. 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. In the event
of debtor default on financing debt incurred by an equity investee,
CITGO has no recourse.

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.

OTHER CREDIT AND OFF-BALANCE SHEET RISK INFORMATION AS OF DECEMBER 31,
2003 - The Company has outstanding letters of credit totaling
approximately $225 million, which includes $221 million related to
CITGO's tax-exempt and taxable revenue bonds (Note 10).

The Company has also acquired surety bonds totaling $72 million
primarily due to requirements of various government entities. The
Company does not expect liabilities to be incurred related to such
letters of credit or surety bonds.

Neither the Company nor the counterparties are required to
collateralize their obligations under interest rate swaps or
over-the-counter derivative commodity agreements. The Company is
exposed to credit loss in the

F-33

event of nonperformance by the counterparties to these agreements. The
Company does not anticipate nonperformance by the counterparties, which
consist primarily of major financial institutions.

Management considers the credit risk to the Company related to its
commodity and interest rate derivatives to be insignificant during the
periods presented.

14. LEASES

The Company leases certain of its Corpus Christi refinery facilities
under a capital lease. The basic term of the lease expired on January
1, 2004; however, the Company renewed the lease for a two year term and
may continue to renew the lease until January 31, 2011, the date of its
option to purchase the facilities for a nominal amount. A portion of an
operating unit at the Corpus Christi refinery is also considered a
capital lease. The basic term of the lease expires on February 1, 2009
at which time the Company may purchase the leased unit for a nominal
amount. Capitalized costs included in property, plant and equipment
related to the leased assets were approximately $215 million at
December 31, 2003 and $209 million at December 31, 2002. Accumulated
amortization related to the leased assets was approximately $143
million and $134 million at December 31, 2003 and 2002, respectively.
Amortization is included in depreciation expense.

The Company also has various noncancelable operating leases, primarily
for product storage facilities, office space, computer equipment,
vessels and vehicles. Rent expense on all operating leases totaled $116
million in 2003, $102 million in 2002, and $77 million in 2001. Future
minimum lease payments for the capital lease and noncancelable
operating leases are as follows:

CAPITAL OPERATING
LEASE LEASES TOTAL
YEAR (000s OMITTED)

2004 $ 5,956 $105,312 $111,268
2005 5,956 61,450 67,406
2006 5,956 42,189 48,145
2007 5,956 20,912 26,868
2008 5,956 15,401 21,357
Thereafter 11,157 15,603 26,760
------- -------- --------
Total minimum lease payments 40,937 $260,867 $301,804
======== ========
Amount representing interest (12,632)
-------
Present value of minimum lease payments 28,305
Current portion (2,336)
-------
$25,969
=======

F-34

15. FAIR VALUE INFORMATION

The following estimated fair value amounts have been determined by the
Company, using available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required
in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated
fair value amounts.

The carrying amounts of cash equivalents approximate fair values. The
carrying amounts and estimated fair values of the Company's other
financial instruments are as follows:

2003 2002
---------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
(000s OMITTED) (000s OMITTED)

LIABILITIES:
Long-term debt $ 1,473,464 $ 1,605,835 $ 1,300,524 $ 1,285,795

DERIVATIVE AND OFF-BALANCE
SHEET FINANCIAL INSTRUMENTS -
UNREALIZED LOSSES:
Interest rate swap agreements (2,106) (2,106) (3,450) (3,450)
Guarantees of debt - (1,805) - (2,012)
Letters of credit - (7,664) - (6,548)
Surety bonds - (422) - (303)

SHORT-TERM BANK LOANS AND LONG-TERM DEBT - The fair value of short-term
bank loans and long-term debt is based on interest rates that are
currently available to the Company for issuance of debt with similar
terms and remaining maturities.

INTEREST RATE SWAP AGREEMENTS - The fair value of these agreements is
based on the estimated amount that the Company would receive or pay to
terminate the agreements at the reporting dates, taking into account
current interest rates and the current creditworthiness of the
counterparties.

GUARANTEES, LETTERS OF CREDIT AND SURETY BONDS - The estimated fair
value of contingent guarantees of third-party debt, letters of credit
and surety bonds is based on fees currently charged for similar
one-year agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the
reporting dates.

The fair value estimates presented herein are based on pertinent
information available to management as of the reporting dates. Although
management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements
since that date, and current estimates of fair value may differ
significantly from the amounts presented herein.

F-35

16. INSURANCE RECOVERIES

On August 14, 2001, a fire occurred at the crude oil distillation unit
of the Lemont refinery. 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. 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 years ended December 31, 2003 and 2002, the Company recorded
$146 million and $407 million, respectively, of insurance recoveries
primarily related to these fires. The Company received cash proceeds of
$146 million and $442 million during the years ended December 31, 2003
and 2002, respectively. In July 2003, the Company received the final
payment related to the Lemont fire.

******

F-36

REPORT OF INDEPENDENT AUDITORS

To the Partnership Governance Committee
of LYONDELL-CITGO Refining LP:

In our opinion, the accompanying balance sheets and the related statements of
income, of partners' capital and of cash flows present fairly, in all material
respects, the financial position of LYONDELL-CITGO Refining LP (the
"Partnership") at December 31, 2003 and 2002, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP
Houston, Texas
March 2, 2004, except for matters discussed in Note 2, as to
which the date is March 11, 2004

F-37

LYONDELL-CITGO REFINING LP

STATEMENTS OF INCOME

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
MILLIONS OF DOLLARS 2003 2002 2001
- ------------------- -------- --------- --------

SALES AND OTHER OPERATING REVENUES $ 4,162 $ 3,392 $ 3,284

OPERATING COSTS AND EXPENSES:
Cost of sales:
Crude oil and feedstock 3,209 2,546 2,379
Operating and other expenses 633 547 588
Selling, general and administrative expenses 56 53 61
-------- --------- --------
3,898 3,146 3,028
-------- --------- --------
Operating income 264 246 256

Interest expense (37) (32) (52)
Interest income 1 --- 1
Other expense --- (1) (2)
-------- --------- --------

NET INCOME $ 228 $ 213 $ 203
======== ========= ========

See Notes to Financial Statements.

F-38

LYONDELL-CITGO REFINING LP

BALANCE SHEETS

DECEMBER 31,
------------------------
MILLIONS OF DOLLARS 2003 2002
--------- ---------

ASSETS
Current assets:
Cash and cash equivalents $ 43 $ 101
Accounts receivable:
Trade, net 51 47
Related parties 121 106
Inventories 98 93
Prepaid expenses and other current assets 3 10
--------- ---------
Total current assets 316 357
--------- ---------

Property, plant and equipment 2,495 2,392
Construction projects in progress 67 159
Accumulated depreciation and amortization (1,322) (1,239)
--------- ---------
1,240 1,312
Other assets, net 81 88
--------- ---------

Total assets $ 1,637 $ 1,757
========= =========

LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable:
Trade $ 71 $ 69
Related parties and affiliates 224 212
Distribution payable to Lyondell Partners 21 106
Distribution payable to CITGO Partners 15 75
Accrued liabilities 55 52
--------- ---------
Total current liabilities 386 514
--------- ---------

Long-term debt 450 450
Loan payable to Lyondell Partners 229 229
Loan payable to CITGO Partners 35 35
Other liabilities 114 126
--------- ---------
Total long-term liabilities 828 840
--------- ---------

Commitments and contingencies

Partners' capital:
Partners' accounts 442 432
Accumulated other comprehensive loss (19) (29)
--------- ---------
Total partners' capital 423 403
--------- ---------

Total liabilities and partners' capital $ 1,637 $ 1,757
========= =========

See Notes to Financial Statements.

F-39

LYONDELL-CITGO REFINING LP

STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
MILLIONS OF DOLLARS 2003 2002 2001
- ------------------- ------ ------- -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 228 $ 213 $ 203
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 113 116 108
Net loss (gain) on disposition of assets 27 1 (3)
Other --- 1 2
Changes in assets and liabilities that provided (used) cash:
Accounts receivable (19) (59) 113
Inventories (5) 37 (40)
Accounts payable 14 70 (88)
Other assets and liabilities 16 (18) (15)
------ ------- -------
Cash provided by operating activities 374 361 280
------ ------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (46) (65) (109)
Proceeds from sale of property, plant and equipment --- 2 8
Other --- (3) 5
------ ------- -------
Cash used in investing activities (46) (66) (96)
------ ------- -------

CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Lyondell Partners (253) (126) (165)
Distributions to CITGO Partners (178) (89) (116)
Contributions from Lyondell Partners 30 46 45
Contributions from CITGO Partners 21 32 32
Net (repayment) borrowing under lines of credit --- (50) 30
Payment of debt issuance costs (6) (10) (8)
------ ------- -------
Cash used in financing activities (386) (197) (182)
------ ------- -------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (58) 98 2
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 101 3 1
------ ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 43 $ 101 $ 3
====== ======= =======

See Notes to Financial Statements.

F-40

LYONDELL-CITGO REFINING LP

STATEMENTS OF PARTNERS' CAPITAL

PARTNERS' ACCOUNTS ACCUMULATED
------------------------------- OTHER
LYONDELL CITGO COMPREHENSIVE COMPREHENSIVE
MILLIONS OF DOLLARS PARTNERS PARTNERS TOTAL INCOME (LOSS) INCOME (LOSS)
- ------------------- -------- -------- ------- ------------- -------------

BALANCE AT JANUARY 1, 2001 $ 3 $ 505 $ 508 $ ---

Net income 129 74 203 --- $ 203
Cash contributions 45 32 77 --- ---
Distributions to Partners (165) (116) (281) --- ---
Other comprehensive (loss)-
minimum pension liability (15) (15)
-------- -------- ------- ------- -------
Comprehensive income $ 188
=======

BALANCE AT DECEMBER 31, 2001 12 495 507 (15)

Net income 135 78 213 --- $ 213
Cash contributions 46 32 78 --- ---
Distributions to Partners (215) (151) (366) --- ---
Other comprehensive (loss)-
minimum pension liability (14) (14)
-------- -------- ------- ------- -------
Comprehensive income $ 199
=======

BALANCE AT DECEMBER 31, 2002 (22) 454 432 (29)

Net income 144 84 228 --- $ 228
Cash contributions 30 21 51 --- ---
Other contributions 10 7 17 --- ---
Distributions to Partners (168) (118) (286) --- ---
Other comprehensive income -
minimum pension liability 10 10
-------- -------- ------- ------- -------
Comprehensive income $ 238
=======

BALANCE AT DECEMBER 31, 2003 $ (6) $ 448 $ 442 $ (19)
======== ======== ======= =======

See Notes to Financial Statements.

F-41

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS

1. THE PARTNERSHIP

LYONDELL-CITGO Refining LP ("LCR" or the "Partnership") was formed on July 1,
1993 by subsidiaries of Lyondell Chemical Company ("Lyondell") and CITGO
Petroleum Corporation ("CITGO") primarily in order to own and operate a refinery
("Refinery") located on the Houston Ship Channel in Houston, Texas.

Lyondell owns its interest in the Partnership through wholly owned subsidiaries,
Lyondell Refining Partners, LP ("Lyondell LP") and Lyondell Refining Company
("Lyondell GP"). Lyondell LP and Lyondell GP together are known as Lyondell
Partners. CITGO holds its interest through CITGO Refining Investment Company
("CITGO LP") and CITGO Gulf Coast Refining, Inc. ("CITGO GP"), both wholly owned
subsidiaries of CITGO. CITGO LP and CITGO GP together are known as CITGO
Partners. Lyondell Partners and CITGO Partners together are known as the
Partners. LCR will continue in existence until it is dissolved under the terms
of the Limited Partnership Agreement (the "Agreement").

The Partners have agreed to allocate cash distributions based on an ownership
interest that was determined by certain contributions instead of allocating such
amounts based on their capital account balances. Based upon these contributions,
Lyondell Partners and CITGO Partners had ownership interests of approximately
59% and 41%, respectively, as of December 31, 2003. Net income as shown on the
statements of partners' capital is made up of two components which are allocated
to the partners on different bases: depreciation expense, which is allocated to
each partner in proportion to contributed assets, and net income other than
depreciation expense, which is allocated to each partner based on ownership
interests.

2. SUBSEQUENT EVENT

At December 31, 2003, LCR had $450 million outstanding under an eighteen-month
term bank loan facility and a $70 million working capital revolving credit
facility (the "Facilities"), both of which expire in June 2004 (see Note 9).
Management of LCR, Lyondell and CITGO are pursuing a refinancing of the
Facilities and expect to complete the refinancing before the Facilities expire.
On March 11, 2004, LCR entered into an agreement with a major financial
institution to refinance the Facilities on a long-term basis, with interest of
LIBOR plus 3%, but in no event more than LIBOR plus 8%, and with other terms
substantially similar to the current Facilities. The closing of the new facility
is subject to normal conditions of closing, as well as the maintenance of
certain financial and operating ratios. Based on this agreement, the $450
million term bank loan amount has been classified in the balance sheet as
long-term debt at December 31, 2003.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition - Revenue from product sales is recognized as risk and title
to the product transfer to the customer, which usually occurs when shipment is
made. Under the terms of a long-term product sales agreement, CITGO buys all of
the gasoline, jet fuel, low sulfur diesel, heating oils, coke and sulfur
produced at the Refinery, which represents over 70% of LCR revenues, at
market-based prices.

Cash and Cash Equivalents -- Cash equivalents consist of highly liquid debt
instruments such as certificates of deposit, commercial paper and money market
accounts. Cash equivalents include instruments with maturities of three months
or less when acquired. Cash equivalents are stated at cost, which approximates
fair value. The Partnership's policy is to invest cash in conservative, highly
rated instruments and to limit the amount of credit exposure to any one
institution.

Accounts Receivable -- The Partnership sells its products primarily to CITGO and
to other industrial concerns in the petrochemical and refining industries. The
Partnership performs ongoing credit evaluations of its customers' financial
condition and in certain circumstances, requires letters of credit from them.
The Partnership's allowance

F-42

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

for doubtful accounts receivable, which is reflected in the Balance Sheets as a
reduction of accounts receivable-trade, totaled $25,000 at both December 31,
2003 and 2002.

Inventories -- Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out ("LIFO") method for substantially all
inventories, except for materials and supplies, which are valued using the
average cost method.

Inventory exchange transactions, which involve fungible commodities and do not
involve the payment or receipt of cash, are not accounted for as purchases and
sales. Any resulting volumetric exchange balances are accounted for as inventory
in accordance with the normal LIFO valuation policy.

Property, Plant and Equipment -- Property, plant and equipment are recorded at
cost. Depreciation is computed using the straight-line method over the estimated
useful asset lives, generally, 24 years for major manufacturing equipment, 24 to
30 years for buildings, 5 to 10 years for light equipment and instrumentation,
10 years for office furniture and 5 years for information system equipment. Upon
retirement or sale, LCR removes the cost of the asset and the related
accumulated depreciation from the accounts and reflects any resulting gain or
loss in the Statement of Income. LCR's policy is to capitalize interest cost
incurred on debt during the construction of major projects exceeding one year.

Long-Lived Asset Impairment -- LCR evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that a carrying amount of
an asset may not be recoverable. When it is probable that undiscounted future
cash flows will not be sufficient to recover an asset's carrying amount, the
asset is written down to its estimated fair value. Long-lived assets to be
disposed of are reported at the lower of carrying amount or estimated fair value
less costs to sell the assets.

Turnaround Maintenance and Repair Costs -- Costs of maintenance and repairs
exceeding $5 million incurred in connection with turnarounds of major units at
the Refinery are deferred and amortized using the straight-line method over the
period until the next planned turnaround, generally 4 to 6 years. These costs
are necessary to maintain, extend and improve the operating capacity and
efficiency rates of the production units.

Identifiable Intangible Assets -- Costs to purchase and to develop software for
internal use are deferred and amortized on a straight-line basis over periods of
3 to 10 years. Other intangible assets are carried at amortized cost and
primarily consist of deferred debt issuance costs. These assets are amortized
using the straight-line method over their estimated useful lives or the term of
the related agreement, if shorter.

Environmental Remediation Costs -- Anticipated expenditures related to
investigation and remediation of contaminated sites, which include operating
facilities and waste disposal sites, are accrued when it is probable a liability
has been incurred and the amount of the liability can reasonably be estimated.
Estimated expenditures have not been discounted to present value.

Income Taxes -- The Partnership is not subject to federal income taxes as income
is reportable directly by the individual partners; therefore, there is no
provision for federal income taxes in the accompanying financial statements.

Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Accounting and Reporting Changes -- Effective January 1, 2003, LCR implemented
Statement of Financial Accounting Standards ("SFAS") No. 145, Rescission of FASB
Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. The primary impact of the statement on LCR is the classification of
gains or losses that result from the early extinguishment of debt as an element
of income before extraordinary items. Previously, such gains and losses were
classified as extraordinary items. The Income Statement reflects these

F-43

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

changes for all periods presented. LCR incurred losses on early extinguishment
of debt of $1 million and $2 million for the years ended December 31, 2002 and
2001, respectively.

Effective December 31, 2003, LCR adopted the disclosure requirements of SFAS No.
132 (Revised 2003), Employers' Disclosures about Pensions and Other
Postretirement Benefits, issued by the Financial Accounting Standards Board
("FASB") in December 2003, and requiring more details about pension plan assets,
benefit obligations, cash flows, benefit costs and related information (see note
12).

In January 2004, the FASB issued FASB Staff Position ("FSP") FAS 106-1,
Accounting and Disclosure Requirements Related to the Medicare Prescription Drug
Improvement and Modernization Act of 2003. The FSP permits a sponsor of retiree
health benefit plan to make a one-time election to defer recognition of the
effects of the new Medicare legislation in accounting for its plans under SFAS
No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions,
or in making disclosures related to its plans required by SFAS No. 132 (Revised
2003), Employers' Disclosures about Pensions and Other Postretirement Benefits,
until the FASB develops and issues authoritative guidance on accounting for
subsidies provided by the Act. Such FASB guidance could require a change in
currently reported information. LCR elected to make the one-time deferral and is
currently evaluating the effect of FSP FAS 106-1.

Effective January 1, 2003, LCR adopted SFAS No. 143, Accounting for Asset
Retirement Obligations, which address obligations associated with retirement of
tangible long-lived assets, and SFAS No. 146, Accounting for Exit or Disposal
Activities, which address the recognition, measurement and recording of costs
associated with exit and disposal activities, including restructuring activities
and facility closings. LCR's adoption of the provisions of SFAS No. 143 and SFAS
No. 146 had no material impact on its financial statements.

In December 2003, the FASB issued FASB Interpretation No. 46 (Revised December
2003), Consolidation of Variable Interest Entities ("FIN 46R"), primarily to
clarify the required accounting for interests in variable interest entities
("VIEs"). This standard replaces FASB Financial Interpretation No. 46,
Consolidation of Variable Interest Entities, that was issued in January 2003 to
address certain situations in which a company should include in its financial
statements the assets, liabilities and activities of another entity. LCR's
application of FIN 46R, has no material impact on its financial statements.

Reclassifications -- Certain previously reported amounts have been reclassified
to conform to classifications adopted in 2003.

4. RELATED PARTY TRANSACTIONS

LCR is party to agreements with the following related parties:

- CITGO

- CITGO Partners

- Equistar Chemicals, LP ("Equistar"), in which Lyondell holds a 70.5%
interest

- Lyondell

- Lyondell Partners

- PDVSA

- PDVSA Oil

- Petrozuata Financial, Inc.

- TCP Petcoke Corporation

LCR buys a substantial portion of its crude oil supply at deemed product-based
prices, adjusted for certain indexed items (see Note 13), from PDVSA Oil under
the terms of a long-term crude oil supply agreement ("Crude Supply Agreement").

F-44

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

Under the terms of a long-term product sales agreement, CITGO buys all of the
finished gasoline, jet fuel, low sulfur diesel, heating oils, coke and sulfur
produced at the Refinery at market-based prices.

LCR is party to a number of raw materials, product sales and administrative
service agreements with Lyondell, CITGO and Equistar. These include a hydrogen
take-or-pay contract with Equistar (see Note 13). In addition, a processing
agreement provides for the production of alkylate and methyl tertiary butyl
ether for the Partnership at Equistar's Channelview, Texas petrochemical
complex.

Under the terms of a lubricant facility operating agreement, CITGO operates the
lubricant blending and packaging facility in Birmingport, Alabama while the
Partnership retained ownership. During 2003, a decision was made to discontinue
the lubes blending and packaging operations at the facility in Birmingport,
Alabama and the facility was permanently shut down. Lubes blending and packaging
operations are now conducted at CITGO or other locations. Under the terms of the
lubricant sales agreements, CITGO buys paraffinic lubricants base oil,
naphthenic lubricants, white mineral oils and specialty oils from the
Partnership.

Related party transactions are summarized as follows:

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
MILLIONS OF DOLLARS 2003 2002 2001
- ------------------- ------ ------ ------

LCR billed related parties for the following:
Sales of products:
CITGO $3,010 $2,488 $2,309
Equistar 227 217 203
Lyondell --- 1 ---
TCP Petcoke Corporation 33 17 40
Services and cost sharing arrangements:
Equistar --- 1 2
Lyondell 1 1 3

Related parties billed LCR for the following:
Purchase of products:
CITGO 201 78 80
Equistar 445 324 359
Lyondell 4 1 ---
PDVSA 1,742 1,259 1,474
Petrozuata --- 22 ---
Transportation charges:
CITGO 1 1 1
Equistar 4 3 3
PDVSA --- 3 3
Services and cost sharing arrangements:
CITGO 6 8 3
Equistar 21 17 19
Lyondell 2 3 3

See Note 9 for information regarding LCR master notes payable to Lyondell
Partners and CITGO Partners.

5. SUPPLEMENTAL CASH FLOW INFORMATION

At December 31, 2003, 2002 and 2001, construction in progress included
approximately $5 million, $6 million and $11 million, respectively, of non-cash
additions which related to accounts payable accruals.

F-45

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

During 2003, 2002 and 2001, LCR paid interest of $20 million, $26 million and
$38 million, respectively. No interest costs were capitalized in 2003, 2002 or
2001.

In June 2003, the Partners agreed to contribute part of the outstanding accrued
interest payable to the respective Partners' capital accounts based on their
relative ownership interests of approximately 59% for Lyondell Partners and 41%
for CITGO Partners. Accordingly, $10 million and $7 million of Lyondell Partners
and CITGO Partners accrued interest, respectively, was reclassified to the
respective Partners' capital accounts.

6. INVENTORIES

Inventories consisted of the following components at December 31:

MILLIONS OF DOLLARS 2003 2002
- ------------------- ---- ----

Finished goods $ 16 $ 29
Raw materials 69 51
Materials and supplies 13 13
---- ----
Total inventories $ 98 $ 93
==== ====

In 2003 and 2002, all inventory, excluding materials and supplies, were valued
using the LIFO method. The excess of replacement cost of inventories over the
carrying value was approximately $163 million at December 31, 2003.

7. OTHER ASSETS

The components of other assets, at cost, and the related accumulated
amortization were as follows at December 31:

2003 2002
------------------------------- --------------------------------
ACCUMULATED ACCUMULATED
MILLIONS OF DOLLARS COST AMORTIZATION NET COST AMORTIZATION NET
------ ------------ ----- ------- ------------ -----

Intangible assets:
Turnaround costs $ 58 $ (27) $ 31 $ 58 $ (16) $ 42
Software costs 38 (21) 17 38 (19) 19
Debt issuance costs 16 (11) 5 10 (1) 9
Catalyst costs 11 (6) 5 16 (12) 4
Other 2 -- 2 3 -- 3
------ ----- ----- ------ ------- -----
Total intangible assets $ 125 $ (65) 60 $ 125 $ (48) 77
====== ===== ===== ====== =======
Company-owned life insurance 5 5
Other 16 6
----- -----
Total other assets $ 81 $ 88
===== =====

Scheduled amortization of these intangible assets for the next five years is
estimated at $20 million in 2004, $15 million in 2005, $12 million in 2006, $3
million in 2007 and $3 million in 2008.

F-46

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

Depreciation and amortization expense is summarized as follows:

FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
MILLIONS OF DOLLARS 2003 2002 2001
- ------------------- ------ ------ -----

Property, plant and equipment $ 90 $ 89 $ 83
Turnaround costs 12 13 11
Software costs 5 5 6
Other 6 9 8
------ ------ ------
Total depreciation and amortization $ 113 $ 116 $ 108
====== ====== ======

In addition to the depreciation and amortization shown above, amortization of
debt issuance costs of $11 million, $5 million and $8 million in 2003, 2002 and
2001, respectively, is included in interest expense in the Statements of Income.

8. ACCRUED LIABILITIES

Accrued liabilities consisted of the following components at December 31:

MILLIONS OF DOLLARS 2003 2002
- ------------------- ---- ----

Payroll and benefits $ 25 $ 22
Taxes other than income 25 23
Interest 2 3
Other 3 4
---- ----
Total accrued liabilities $ 55 $ 52
==== ====

9. FINANCING ARRANGEMENTS

In December 2002, LCR completed a refinancing of its credit facilities with a
new $450 million term bank loan facility and a $70 million working capital
revolving credit facility that mature in June 2004. The December 2002
refinancing replaced an eighteen-month credit facility consisting of a $450
million term loan and a $70 million revolving credit facility with a group of
banks, that would have expired in January 2003. The facilities are secured by
substantially all of the assets of LCR. At December 31, 2003 and 2002, $450
million was outstanding under the bank term loan facility with weighted-average
interest rates of 4.1% and 4.5%, respectively. Interest for this facility was
determined by base rates or eurodollar rates at the Partnership's option. The
$70 million working capital revolving credit facility is utilized for general
business purposes and for letters of credit. At December 31, 2003, no amounts
were outstanding under this facility. At December 31, 2003, LCR had outstanding
letters of credit totaling $13 million.

Both facilities contain covenants that require LCR to maintain a minimum net
worth and maintain certain financial ratios defined in the agreements. The
facilities also contain other customary covenants which limit the Partnership's
ability to modify certain significant contracts, incur significant additional
debt or liens, dispose of assets, make restricted payments as defined in the
agreements or merge or consolidate with other entities. LCR was in compliance
with all such covenants at December 31, 2003.

Also during the December 2002 refinancing, the Partners and LCR agreed to renew
and extend a number of existing notes due to Lyondell Partners and CITGO
Partners with master notes to each Partner. The master notes extended the due
date from July 1, 2003 to December 7, 2004, and are subordinate to the two bank
credit facilities. At December 31, 2003 and 2002, Lyondell Partners and CITGO
Partners loans were $229 million and $35 million, respectively, and both loans
had weighted-average interest rates of 2.2%, which were based on eurodollar
rates.

F-47

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

Interest to both Partners was paid at the end of each calendar quarter through
June 30, 1999, but is now deferred in accordance with the restrictions included
in the $450 million term bank loan facility. Subsequent to December 31, 2003,
the due date of the master notes was extended to March 31, 2005. Accordingly,
these amounts have been reflected as long-term liabilities in the Balance Sheet
at December 31, 2003.

10. LEASE COMMITMENTS

LCR leases crude oil storage facilities, computer equipment, office equipment
and other items under noncancelable operating lease arrangements for varying
periods. As of December 31, 2003, future minimum lease payments for the next
five years and thereafter, relating to all noncancelable operating leases with
terms in excess of one year were as follows:

MILLIONS OF DOLLARS
- -------------------

2004 $ 73
2005 37
2006 34
2007 28
2008 18
Thereafter 104
-------
Total minimum lease payments $ 294
=======

Operating lease net rental expenses for 2003, 2002 and 2001 were approximately
$63 million, $34 million and $32 million, respectively.

11. FINANCIAL INSTRUMENTS

The fair value of all financial instruments included in current assets and
current liabilities, including cash and cash equivalents, accounts receivable
and accounts payable, approximated their carrying value due to their short
maturity. The fair value of long-term loans payable approximated their carrying
value because of their variable interest rates.

12. PENSION AND OTHER POSTRETIREMENT BENEFITS

LCR has defined benefit pension plans, which cover full-time regular employees.
Retirement benefits are based on years of service and the employee's highest
three consecutive years of compensation during the last ten years of service.
LCR funds the plans through periodic contributions to pension trust funds as
required by applicable law. LCR also has one unfunded supplemental nonqualified
retirement plan, which provides pension benefits for certain employees in excess
of the tax-qualified plans' limit. In addition, LCR sponsors unfunded
postretirement benefit plans other than pensions, which provide medical and life
insurance benefits. The postretirement medical plan is contributory, while the
life insurance plan is noncontributory. The measurement date for LCR's pension
and other postretirement benefit plans is December 31, 2003.

F-48

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

The following table provides a reconciliation of benefit obligations, plan
assets and the funded status of the plans:

OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
--------------------- --------------------
MILLIONS OF DOLLARS 2003 2002 2003 2002
------------------- -------- -------- -------- -------

CHANGE IN BENEFIT OBLIGATION:
Benefit obligation, January 1 $ 124 $ 97 $ 35 $ 31
Service cost 6 6 1 1
Interest cost 7 8 2 2
Plan amendments --- 1 --- ---
Actuarial (gain) loss (3) 15 3 3
Benefits paid (9) (3) (2) (2)
-------- -------- -------- -------
Benefit obligation, December 31 125 124 39 35
-------- -------- -------- -------

CHANGE IN PLAN ASSETS:
Fair value of plan assets, January 1 49 39
Actual return on plan assets 10 (5)
Partnership contributions 1 18
Benefits paid (9) (3)
-------- --------
Fair value of plan assets, December 31 51 49
-------- --------

Funded status (74) (75) (39) (35)
Unrecognized actuarial and investment loss 46 59 16 14
Unrecognized prior service cost (benefit) 2 3 (16) (19)
-------- -------- -------- -------
Net amount recognized $ (26) $ (13) $ (39) $ (40)
======== ======== ======= =======

AMOUNTS RECOGNIZED IN THE
BALANCE SHEET CONSIST OF:
Accrued benefit liability $ (47) $ (45) $ (39) $ (40)
Intangible asset 2 3 --- ---
Accumulated other comprehensive income 19 29 --- ---
-------- -------- -------- -------
Net amount recognized $ (26) $ (13) $ (39) $ (40)
======== ======== ======= =======

ADDITIONAL INFORMATION
Accumulated benefit obligation for defined
benefit plans, December 31 $ 98 $ 93
Increase (decrease) in minimum liability
included in other comprehensive income (10) 14

Pension plans with projected and accumulated benefit obligations and accumulated
benefit obligations in excess of the fair value of assets are summarized as
follows at December 31:

MILLIONS OF DOLLARS 2003 2002
------------------- ------ ------

Projected benefit obligations $ 125 $ 124
Accumulated benefit obligations 98 93
Fair value of assets 51 49

F-49

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

Net periodic pension and other postretirement benefit costs included the
following components:

OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
---------------- --------
MILLIONS OF DOLLARS 2003 2002 2001 2003 2002 2001
- ------------------- ------ ------ ------ ------ ------ ------

COMPONENTS OF NET PERIODIC
BENEFIT COST:
Service cost $ 7 $ 6 $ 5 $ 1 $ 1 $ 1
Interest cost 7 8 6 2 2 2

Actual (gain) loss on plan assets (10) 5 3 --- --- ---
Less unrecognized gain (loss) 6 (9) (7) --- --- ---
------ ------ ------ ------ ------ ------
Recognized gain on plan assets (4) (4) (4) --- --- ---

Amortization of prior service costs --- --- --- (3) (3) (3)
Actuarial loss amortization 4 3 2 1 1 1
====== ====== ====== ====== ====== ======
Net periodic benefit cost $ 14 $ 13 $ 9 $ 1 $ 1 $ 1
====== ====== ====== ====== ====== ======

The weighted-average assumptions used in determining net benefit liabilities
were as follows at December 31:

PENSION OTHER POSTRETIREMENT
BENEFITS BENEFITS
-------- --------
2003 2002 2003 2002
---- ---- ---- ----

Discount rate 6.25% 6.50% 6.25% 6.50%
Rate of compensation increase 4.50% 4.50% --- ---

The weighted-average assumptions used in determining net periodic benefit cost
were as follows:

OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------------------- --------------------------------
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----

Discount rate 6.50% 6.50% 7.00% 6.50% 6.50% 7.00%
Expected return on plan assets 8.00% 9.50% 9.50% --- --- ---
Rate of compensation increase 4.50% 4.50% 4.50% --- --- ---

Management's goal is to manage pension investments over the long term to achieve
optimal returns with an acceptable level of risk and volatility. Targeted assets
allocations of 55% U.S. equity securities, 15% non-U.S. equity securities and
30% fixed income securities were adopted in 2003 for the plans based on
recommendations by LCR's independent pension investment advisor. Investment
policies prohibit investments in securities issued by an affiliate, such as
Lyondell, or investment in speculative, derivative instruments. The investments
are marketable securities that provide sufficient liquidity to meet expected
benefit obligation payments.

Prior to 2003, LCR's expected long-term rate of return on plan assets of 9.5%
had been based on the average level or earnings that its independent pension
investment advisor had advised could be expected to be earned over time, using
the expected returns for the above-noted asset allocations that had been
recommended by the advisor, and had

F-50

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

been adopted for the plans. Over the three-year period ended December 31, 2003,
LCR's actual return on plan assets was averaging 2% per year. In 2003, LCR
reviewed its asset allocation and expected long-term rate of return assumptions
and obtained an updated asset allocation study from the independent pension
investment advisor, including updated expectations for long-term market earnings
rates for various classes of investments. Based on this review, LCR reduced its
expected long-term rate of return on plan assets to 8% and did not significantly
change its plan asset allocations.

LCR's pension plan weighted-average asset allocations by asset category were as
follows at December 31:

ASSET CATEGORY 2003 POLICY 2003 2002
- -------------- ----------- ---- ----

U.S. equity securities 55% 53% 48%
Non-U.S. equity securities 15% 18% 20%
Fixed income securities 30% 29% 32%
--- --- ---
Total 100% 100% 100%
=== === ===

LCR expects to contribute approximately $7 million to its pension plans in 2004.

As of December 31, 2003, future expected benefit payments, which reflect
expected future service, as appropriate, were as follows:

PENSION OTHER
MILLIONS OF DOLLARS BENEFITS BENEFITS
- ------------------- -------- ---------

2004 $ 6 $ 2
2005 6 2
2006 8 2
2007 9 3
2008 10 3
2009 through 2013 78 15
---- ---
Total $117 $27
==== ===

The assumed annual rate of increase in the per capita cost of covered health
care benefits as of December 31, 2003 was 10% for 2004, 7% for 2005 through 2007
and 5% thereafter. The health care cost trend rate assumption does not have a
significant effect on the amounts reported due to limits on LCR's maximum
contribution level to the medical plan. To illustrate, increasing or decreasing
the assumed health care cost trend rates by one percentage point in each year
would not change the accumulated postretirement benefit liability as of December
31, 2003 and would not have a material effect on the aggregate service and
interest cost components of the net periodic postretirement benefit cost for the
year then ended.

LCR also maintains voluntary defined contribution savings plans for eligible
employees. Contributions to the plans by LCR were $5 million in each of the
three years ended December 31, 2003.

13. COMMITMENTS AND CONTINGENCIES

Commitments--LCR has various purchase commitments for materials, supplies and
services incident to the ordinary conduct of business, generally for quantities
required for LCR's business and at prevailing market prices. LCR is party to
various unconditional purchase obligation contracts as a purchaser for products
and services, principally take-or-pay contracts for hydrogen, electricity and
steam. At December 31, 2003, future minimum payments under

F-51

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

these contracts with noncancelable contract terms in excess of one year and
fixed minimum payments were as follows:

MILLIONS OF DOLLARS
- -------------------

2004 $ 50
2005 53
2006 48
2007 46
2008 46
Thereafter through 2021 385
--------
Total minimum contract payments $ 628
========

Total LCR purchases under these agreements were $107 million, $68 million and
$94 million during 2003, 2002 and 2001, respectively. A substantial portion of
the future minimum payments and purchases were related to a hydrogen take-or-pay
agreement with Equistar (see Note 4).

Crude Supply Agreement--Under the Crude Supply Agreement ("CSA"), which will
expire on December 31, 2017, PDVSA Oil is required to sell, and LCR is required
to purchase 230,000 barrels per day of extra heavy Venezuelan crude oil, which
constitutes approximately 86% of the Refinery's refining capacity of 268,000
barrels per day of crude oil (see Note 4). Since April 1998, PDVSA Oil has, from
time to time, declared itself in a force majeure situation and subsequently
reduced deliveries of crude oil. Such reductions in deliveries were purportedly
based on announced OPEC production cuts. At such times, PDVSA Oil informed LCR
that the Venezuelan government, through the Ministry of Energy and Mines, had
instructed that production of certain grades of crude oil be reduced. In certain
circumstances, PDVSA Oil made payments under a different provision of the CSA in
partial compensation for such reductions.

In January 2002, PDVSA Oil again declared itself in a force majeure situation
and beginning in March 2002, reduced deliveries of crude oil to LCR. Although
deliveries increased to contract levels of 230,000 barrels per day during the
third quarter 2002, PDVSA Oil did not revoke its January 2002 force majeure
declaration during 2002. A national work stoppage in Venezuela began in early
December 2002 and disrupted deliveries of crude oil to LCR under the CSA. PDVSA
Oil again declared a force majeure and reduced deliveries of crude oil to LCR.
In March 2003, PDVSA Oil notified LCR that the force majeure had been lifted
with respect to CSA crude oil.

LCR has consistently contested the validity of the reductions in deliveries by
PDVSA Oil's and PDVSA under the CSA. The parties have different interpretations
of the provisions of the contracts concerning the delivery of crude oil. The
contracts do not contain dispute resolution procedures and the parties have been
unable to resolve their commercial dispute. As a result, in February 2002, LCR
filed a lawsuit against PDVSA and PDVSA Oil in connection with the force majeure
declarations, which LCR is continuing to litigate.

From time to time, Lyondell and PDVSA have had discussions covering both a
restructuring of the CSA and a broader restructuring of the LCR partnership. LCR
is unable to predict whether changes in either arrangement will occur. There are
various possible outcomes associated with these matters. One possible outcome is
that they will be settled through the ongoing negotiations of the parties
involved, leading to agreements of mutual benefit. A negotiated settlement of
these issues between the parties may or may not include monetary payments.

Subject to the consent of the other partner and rights of first offer and first
refusal, the Partners each have a right to transfer their interest in LCR to
unaffiliated third parties in certain circumstances.

Depending on then-current market conditions, any breach or termination of the
CSA, or reduction in supply thereunder, would require LCR to purchase all or a
portion of its crude oil in the merchant market, could subject LCR to
significant volatility and price fluctuations and could adversely affect the
Partnership. There can be no assurance that alternative crude oil supplies with
similar margins would be available for purchase by LCR.

F-52

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

Environmental Remediation--With respect to liabilities associated with the
Refinery, Lyondell generally has retained liability for events that occurred
prior to July 1, 1993 and certain ongoing environmental projects at the Refinery
under the Contribution Agreement, retained liability section. LCR generally is
responsible for liabilities associated with events occurring after June 30, 1993
and ongoing environmental compliance inherent to the operation of the Refinery.

LCR's policy is to be in compliance with all applicable environmental laws. LCR
is subject to extensive national, state and local environmental laws and
regulations concerning emissions to the air, discharges onto land or waters and
the generation, handling, storage, transportation, treatment and disposal of
waste materials. Many of these laws and regulations provide for substantial
fines and potential criminal sanctions for violations. Some of these laws and
regulations are subject to varying and conflicting interpretations. In addition,
the Partnership cannot accurately predict future developments, such as
increasingly strict environmental laws, inspection and enforcement policies, as
well as higher compliance costs therefrom, which might affect the handling,
manufacture, use, emission or disposal of products, other materials or hazardous
and non-hazardous waste. Some risk of environmental costs and liabilities is
inherent in particular operations and products of the Partnership, as it is with
other companies engaged in similar businesses, and there is no assurance that
material costs and liabilities will not be incurred. In general, however, with
respect to the capital expenditures and risks described above, the Partnership
does not expect that it will be affected differently than the rest of the
refining industry where LCR is located.

LCR estimates that it has a liability of approximately $1 million at December
31, 2003 related to future assessment and remediation costs. Lyondell has a
contractual obligation to reimburse LCR for approximately half of this
liability. Accordingly, LCR has reflected a current liability for the remaining
portion of this liability that will not be reimbursed by Lyondell. In the
opinion of management, there is currently no material estimable range of loss in
excess of the amount recorded. However, it is possible that new information
associated with this liability, new technology or future developments such as
involvement in investigations by regulatory agencies, could require LCR to
reassess its potential exposure related to environmental matters.

Clean Air Act--The eight-county Houston/Galveston region has been designated a
severe non-attainment area for ozone by the U.S. Environmental Protection Agency
("EPA"). Emission reduction controls for nitrogen oxides ("NOx") must be
installed at the Refinery located in the Houston/Galveston region during the
next several years. Revised rules adopted by the regulatory agencies changed the
required NOx reduction levels from 90% to 80%. Under the revised 80% standard,
LCR estimates that incremental capital expenditures would range between $50
million and $55 million. However, this estimate could be affected by increased
costs for stricter proposed controls over highly reactive, volatile organic
compounds ("HRVOC"). LCR is still assessing the impact of the proposed HRVOC
revisions and there can be no guarantee as to the ultimate capital cost of
implementing any final plan developed to ensure ozone attainment by the 2007
deadline. The timing and amount of these expenditures are also subject to
regulatory and other uncertainties, as well as obtaining the necessary permits
and approvals.

The Clean Air Act also specified certain emissions standards for vehicles, and
in 1998, the EPA concluded that additional controls on gasoline and diesel fuel
were necessary. New standards for gasoline were finalized in 1999 and will
require refiners to produce a low sulfur gasoline by 2004, with final compliance
by 2006. A new "on-road" diesel standard was adopted in January 2001 and will
require refiners of on-road diesel fuel to produce 80% as ultra low sulfur
diesel ("ULSD") by June 2006 and 100% by the end of 2009, with less stringent
standards for "off-road" diesel fuel. To date, the "off-road" diesel fuel
standards have not been finalized. These gasoline and diesel fuel standards will
result in increased capital investment for LCR.

In 2003, LCR developed alternative approaches to complying with the low sulfur
gasoline standard and the new diesel fuel standard that will lead to an
approximate $300 million reduction in overall estimated capital expenditures for
these projects. As a result, LCR recognized impairment of value of $25 million
of project costs incurred to date. The revised estimated spending for these
projects, excluding the $25 million charge, totaled between $165 million and
$205 million. LCR significantly reduced the estimated costs for implementing the
new diesel standards as a result of its ability to retrofit current production
units. The revised estimated costs for implementing the new diesel standards
also reflects LCR's implementation strategy for producing and marketing ULSD and
"off-road" diesel. LCR has spent approximately $23 million, excluding the $25
million charge, as of December 31, 2003 for both the

F-53

LYONDELL-CITGO REFINING LP

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

gasoline and diesel fuel standard projects. In addition, these standards could
result in higher operating costs for LCR.

General - LCR is involved in various lawsuits and proceedings. Subject to the
uncertainty inherent in all litigation, management believes the resolution of
these proceedings will not have a material adverse effect on the financial
position, liquidity or results of operations of LCR.

In the opinion of management, any liability arising from the matters discussed
in this note is not expected to have a material adverse effect on the financial
position or liquidity of LCR. However, the adverse resolution in any reporting
period of one or more of these matters discussed in this note could have a
material impact on LCR's results of operations for that period which may be
mitigated by contribution or indemnification obligations of others, or by any
insurance coverage that may be available.

F-54

EXHIBIT INDEX

Exhibit
Number Description
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3.1 Certificate of Incorporation, Certificate of Amendment of Certificate
of Incorporation (incorporated by reference to the Registrant's
Registration Statement on Form 10, File No. 333-3226, Exhibit 3.1 filed
with the Commission on April 4, 1996).

3.2 By-laws of CITGO Petroleum Corporation as amended on March 13, 2001
(incorporated by reference to Registrant's 2000 Form 10-K, File No.
1-14380, Exhibit 3.1(i) filed with the Commission on March 21, 2001).

4.1 Indenture, dated as of May 1, 1996, between CITGO Petroleum Corporation
and the First National Bank of Chicago, relating to the 7-7/8% Senior
Notes due 2006 of CITGO Petroleum Corporation, including the form of
Senior Note (incorporated by reference to the Registrant's Registration
Statement on Form 10, File No. 333-3226, Exhibit 4.1 filed with the
Commission on April 4, 1996).

4.2 Indenture, dated February 27, 2003, between CITGO Petroleum
Corporation, as Issuer, and The Bank of New York, as Trustee, relating
to the $550,000,000 11-3/8% Senior Notes due 2011 of CITGO Petroleum
Corporation (incorporated by reference to the Registrant's 2002 Form
10-K, File No. 1-14380, Exhibit 4.2 filed with the Commission on March
24, 3003).

10.1 Crude Supply Agreement between CITGO Petroleum Corporation and
Petroleos de Venezuela, S.A., dated as of September 30, 1986
(incorporated by reference to PDV America, Inc.'s Registration
Statement on Form F-1, File No. 33-63742, Exhibit 10.1 filed with the
Commission on June 2, 1993).

10.2 Supplemental Crude Supply Agreement dated as of September 30, 1986
between CITGO Petroleum Corporation and Petroleos de Venezuela, S.A
(incorporated by reference to PDV America, Inc.'s Registration
Statement on Form F-1, File No. 33-63742, Exhibit 10.2 filed with the
Commission on June 2, 1993).

10.3 Crude Oil and Feedstock Supply Agreement dated as of March 31, 1987
between Champlin Refining Company and Petroleos de Venezuela, S.A
(incorporated by reference to PDV America, Inc.'s Registration
Statement on Form F-1, File No. 33-63742, Exhibit 10.3 filed with the
Commission on June 2, 1993).

10.4 Supplemental Crude Oil and Feedstock Supply Agreement dated as of March
31, 1987 between Champlin Refining Company and Petroleos de Venezuela,
S.A. (incorporated by reference to PDV America, Inc.'s Registration
Statement on Form F-1, File No. 33-63742, Exhibit 10.4 filed with the
Commission on June 2, 1993).

10.5 Contract for the Purchase/Sale of Boscan Crude Oil dated as of June 2,
1993 between Tradecal, S.A. and CITGO Asphalt Refining Company
(incorporated by reference to PDV America, Inc.'s Registration
Statement on Form F-1, File No. 33-63742, Exhibit 10.1 filed with the
Commission on June 2, 1993).

10.6 Restated Contract for the Purchase/Sale of Heavy/Extra Heavy Crude Oil
dated December 28, 1990 among Maraven, S.A., Lagoven, S.A. and Seaview
Oil Company (incorporated by reference to PDV America, Inc.'s
Registration Statement on Form F-1, File No. 33-63742, Exhibit 10.6
filed with the Commission on June 2, 1993).

10.7 Sublease Agreement dated as of March 31, 1987 between Champlin
Petroleum Company, Sublessor, and Champlin Refining Company, Sublessee
(incorporated by reference to PDV America, Inc.'s Registration
Statement on Form F-1, File No. 33-63742, Exhibit 10.7 filed with the
Commission on June 2, 1993).

10.8 Amended and Restated Limited Liability Company Regulations of
LYONDELL-CITGO Refining Company, Ltd., dated July 1, 1993 (incorporated
by reference to PDV America, Inc.'s Registration Statement on Form F-1,
File No. 33-63742, Exhibit 10.9 filed with the Commission on June 2,
1993).

10.9 Contribution Agreement among Lyondell Petrochemical Company and
LYONDELL-CITGO Refining Company, Ltd. and Petroleos de Venezuela, S.A
(incorporated by reference to PDV America, Inc.'s Registration
Statement on Form F-1, File No. 33-63742, Exhibit 10.10 filed with the
Commission on June 2, 1993).

10.10 Crude Oil Supply Agreement between LYONDELL-CITGO Refining Company,
Ltd. and Lagoven, S.A. dated as of May 5, 1993 (incorporated by
reference to PDV America, Inc.'s Registration Statement on Form F-1,
File No. 33-63742, Exhibit 10.11 filed with the Commission on June 2,
1993).

10.11 Supplemental Supply Agreement dated as of May 5, 1993 between
LYONDELL-CITGO Refining Company, Ltd. and Petroleos de Venezuela, S.A
(incorporated by reference to PDV America, Inc.'s Registration
Statement on Form F-1, File No. 33-63742, Exhibit 10.12 filed with the
Commission on June 2, 1993).

10.12 Tax Allocation Agreement dated as of June 24, 1993 among PDV America,
Inc., VPHI Midwest, Inc., CITGO Petroleum Corporation and PDV USA,
Inc., as amended (incorporated by reference to PDV America, Inc.'s
Registration Statement on Form F-1, File No. 33-63742, Exhibit 10.13
filed with the Commission on June 2, 1993).

10.13 Second Amendment to the Tax Allocation Agreement among PDV America,
Inc., VPHI Midwest, Inc., CITGO Petroleum Corporation and PDV USA,
Inc., dated as of January 1, 1997 (incorporated by reference to
Registrant's 2001 Form 10-K, File No. 1-14380, Exhibit 10.13(i) filed
with the Commission on March 28, 2002).

10.14 Master Shelf Agreement (1994) by and between Prudential Insurance
Company of America and CITGO Petroleum Corporation ($100,000,000),
dated March 4, 1994 (incorporated by reference to the Registrant's
Registration Statement on Form 10, File No. 333-3226, Exhibit 10.16
filed with the Commission on April 4, 1996).

10.15 Letter Agreement by and between the Company and Prudential Insurance
Company of America, dated March 4, 1994 (incorporated by reference to
the Registrant's Registration Statement on Form 10, File No. 333-3226,
Exhibit 10.17(i) filed with the Commission on April 4, 1996).

10.16 Letter Amendment No. 1 to Master Shelf Agreement with Prudential
Insurance Company of America, dated November 14, 1994 (incorporated by
reference to the Registrant's Registration Statement on Form 10, File
No. 333-3226, Exhibit 10.17(ii) filed with the Commission on April 4,
1996).

10.17 CITGO Senior Debt Securities (1991) Agreement (incorporated by
reference to PDV America, Inc.'s Registration Statement on Form F-1,
File No. 33-63742, Exhibit 10.18 filed with the Commission on June 2,
1993).

10.18 Selling Agency Agreement dated as of October 28, 1997 among CITGO
Petroleum Corporation, Salomon Brothers Inc. and Chase Securities Inc.
(incorporated by reference to Registrant's Report on Form 8-K, Exhibit
99.1 filed with the Commission on November 18, 1997).

10.19 Limited Partnership Agreement of LYONDELL-CITGO Refining LP, dated
December 31, 1998 (incorporated by reference to the Registrant's 1998
Form 10-K, File No. 1-14380, Exhibit 10.24 filed with the Commission on
March 17, 1999).

10.20 $260,000,000 Three-Year Credit Agreement dated as of December 11, 2002
among CITGO Petroleum Corporation, Bank of America, N.A., as
Administrative Agent, JP Morgan Chase Bank, as Syndication Agent,
Societe Generale, as Documentation Agent and the other lenders party
thereto (incorporated by reference to the Registrant's 2002 Form 10-K,
File No. 1-14380, Exhibit 10.22 filed with the Commission on March 24,
2003).

10.21 First Amendment to Three-Year Credit Agreement entered into January 29,
2003, but effective as of December 11, 2002, among CITGO Petroleum
Corporation, Bank of America, N.A., as Administrative Agent and the
other lenders party thereto (incorporated by reference to the
Registrant's 2002 Form 10-K, File No. 1-14380, Exhibit 10.23 filed with
the Commission on March 24, 2003).

10.22 $200,000,000 Term Loan Agreement dated as of February 27, 2003 among
CITGO Petroleum Corporation, Credit Suisse First Boston, Cayman Island
Branch, as Administrative Agent, and the other lenders party thereto,
including Guarantee and Collateral Agreement among CITGO Petroleum
Corporation; CITGO Pipeline Holding I, LLC; CITGO Pipeline Holding II,
LLC and Credit Suisse First Boston, Cayman Islands Branch (incorporated
by reference to the Registrant's 2002 Form 10-K, File No. 1-14380,
Exhibit 10.24 filed with the Commission on March 24, 2003).

10.23* Purchase and Sale Agreement dated as of February 28, 2003 between CITGO
Petroleum Corporation and CITGO Funding Company, L.L.C.

10.24* Amendment No. 1 dated as of November 26, 2003 to Purchase and Sale
Agreement dated as of February 28, 2003.

10.25* Receivables Purchase Agreement dated as of February 28, 2003 among
CITGO Funding Company, L.L.C., CITGO Petroleum Corporation, Asset One
Securitization, LLC and Societe Generale.

10.26* Amendment No. 1 dated as of November 26, 2003 to Receivables Purchase
Agreement dated as of February 28, 2003.

12.1* Computation of Ratio of Earnings to Fixed Charges.

23.1* Consent of Independent Auditors of CITGO Petroleum Corporation.

23.2* Consent of Independent Auditors of CITGO Petroleum Corporation.

23.3* Consent of Independent Auditors of CITGO Petroleum Corporation.

23.4* Consent of Independent Auditors of CITGO Petroleum Corporation.

23.5* Consent of Independent Accountants of LYONDELL-CITGO Refining LP.

23.6* Consent of Independent Accountants of LYONDELL-CITGO Refining LP.

31.1* Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934 as to the Annual Report on Form 10-K
for the fiscal year ended December 31, 2003 filed by Luis E. Marin,
President and Chief Executive Officer.

31.2* Certification Pursuant to Rule 13a-14(a) and 15d-14(a) of the
Securities Exchange Act of 1934 as to the Annual Report on Form 10-K
for the fiscal year ended December 31, 2003 filed by Eddie R. Humphrey,
Chief Financial Officer.

32.1* Certification Pursuant to Section 1350 of Chapter 63 of Title 18 United
States Code as to the Annual Report on Form 10-K for the fiscal year
ended December 31, 2003 filed by Luis E. Marin, President and Chief
Executive Officer.

32.2* Certification Pursuant to Section 1350 of Chapter 63 of Title 18 United
States Code as to the Annual Report on Form 10-K for the fiscal year
ended December 31, 2003 filed by Eddie R. Humphrey, Chief Financial
Officer.

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* Filed Herewith