FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

(Mark One)

(X)      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
                           For the fiscal year ended December 31, 1997

                                       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 001-12138

                                PDV America, Inc.
             (Exact name of registrant as specified in its charter)

         Delaware                                         51-0297556
State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization                         Identification No.)

                              750 Lexington Avenue
                            New York, New York 10022
               (Address of principal executive offices, Zip Code)

        Registrant's telephone number, including area code (212) 753-5340

              Securities  registered pursuant to Section 12(b) of the Securities
Exchange Act of 1934:

                                                    Name of Each Exchange
         Title of Each Class                         on Which Registered
--------------------------------------------------------------------------------
7-1/4% Senior Notes, Due 1998                   New York Stock Exchange, Inc.
7-3/4% Senior Notes, Due 2000                   New York Stock Exchange, Inc.
7-7/8% Senior Notes, Due 2003                   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 __

     Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K:
                                Not Applicable.

    Aggregate market value of the voting stock held by non-affiliates of the
                           registrant: Not Applicable

    Number of shares of Common Stock outstanding as of March 1, 1998: 1,000

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


<PAGE>



                                Table of Contents

                                                                            Page

FACTORS AFFECTING FORWARD LOOKING STATEMENTS..................................ii

                                     PART I

ITEMS 1. AND 2.  BUSINESS AND PROPERTIES.......................................1
ITEM 3.  LEGAL PROCEEDINGS....................................................21
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................23

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY
               AND RELATED STOCKHOLDER MATTERS................................24
ITEM 6.  SELECTED FINANCIAL DATA..............................................24
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............26
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................38
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE............................38

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................39
ITEM 11.  EXECUTIVE COMPENSATION..............................................40
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT.....................................................40
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................40

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K..............43

                                        i

<PAGE>



                  FACTORS AFFECTING FORWARD LOOKING STATEMENTS

                  This  Annual  Report on Form 10-K  contains  certain  "forward
looking  statements"  within the meaning of Section 27A of the Securities Act of
1933, as amended,  and Section 21E of the Securities  Exchange  Act of 1934,  as
amended.   Specifically,   all  statements  under  the  captions  "Items  1  and
2--Business and Properties" and "Item 7--Management's Discussion and Analysis of
Financial  Condition  and  Results  of  Operations"  relating  to  increases  in
production   capacity  and  related  capital   expenditures   and   investments,
environmental  compliance and remediation and related capital expenditures,  and
future capital  expenditures  in general are forward  looking  statements.  Such
statements  are subject to certain  risks and  uncertainties,  such as increased
inflation,  continued access to capital markets and commercial bank financing on
favorable terms,  increases in regulatory  burdens,  changes in prices or demand
for the  Company's  products  as a result of  competitive  actions  or  economic
factors and changes in the cost of crude oil, feedstocks, blending components or
refined products. Such statements are also subject to increased costs in related
technologies and such technologies  producing  anticipated  results,  as well as
performance  by  third  parties  in  accordance  with   contractual   terms  and
specifications,   in  particular,  but  without  limitation,   with  respect  to
construction  contracts and  indemnification  agreements.  Should one or more of
these risks or uncertainties,  among others,  some of which may be unforeseen at
this time, materialize, actual results may vary materially from those estimated,
anticipated or projected.  Specifically,  capital costs could increase, projects
could be delayed or anticipated related  improvements in capacity or performance
may not be fully realized.  Although the Company  believes that the expectations
reflected by such forward looking statements are reasonable based on information
currently  available  to the  Company,  no  assurances  can be given  that  such
expectations will prove to have been correct.


<PAGE>



                                     PART I

                     ITEMS 1. AND 2. BUSINESS AND PROPERTIES

Overview

                  PDV  America,  Inc.  ("PDV  America"  or  the  "Company"  and,
together with its subsidiaries, the "Companies") was incorporated in 1986 in the
State of Delaware  and is an indirect  wholly owned  subsidiary  of Petroleos de
Venezuela,  S.A.  (together  with one or more of its  subsidiaries,  referred to
herein as  "PDVSA"),  the  national  oil company of the  Republic of  Venezuela.
Through its wholly owned operating  subsidiaries,  CITGO  Petroleum  Corporation
("CITGO") and PDV Midwest  Refining  L.L.C.  ("PDVMR") (see below),  PDV America
refines, markets and transports 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.

                  Prior to May 1, 1997,  the Company  had a 50%  interest in The
UNO-VEN Company ("UNO-VEN"), an Illinois general partnership. As of May 1, 1997,
pursuant to a Partnership  Interest  Retirement  Agreement (as defined  herein),
certain  UNO-VEN assets were  transferred to PDMVR.  Accordingly,  the Company's
consolidated  financial  statements  reflect  the equity in  earnings of UNO-VEN
through  April  30,  1997  (see  Note  9  of  Notes  to  Consolidated  Financial
Statements),  the results of operations of PDVMR on a  consolidated  basis since
May 1, 1997 and the financial position of PDVMR at December 31, 1997. See "--PDV
Midwest Refining, L.L.C."


<PAGE>



                  PDV  America's  aggregate  net  interest  in rated  crude  oil
refining capacity is 853 thousand barrels per day ("MBPD").  The following table
shows the capacity of each U.S.  refinery in which PDV America holds an interest
and PDV America's share of such capacity as of December 31, 1997.

                          PDV America Refining Capacity
<TABLE>
<CAPTION>

                                                                                               Net PDV
                                                                                               America
                                                                               Total          Interest
                                                                               Rated             In
                                                                               Crude            Rated
                                                           PDV America        Refining         Refining
                                              Owner         Interest         Capacity         Capacity
                                        ---------------- --------------------------------------------------
                                                              (%)             (MBPD)           (MBPD)
<S>                                      <C>                  <C>              <C>              <C>
Refinery Interests Held By PDV America
  as of December 31, 1997
  Lake Charles, LA                            CITGO           100               320              320
  Corpus Christi, TX                          CITGO           100               150              150
  Paulsboro, NJ                               CITGO           100                84               84
  Savannah, GA                                CITGO           100                28               28
  Houston, TX (1)                        LYONDELL-CITGO        42               265              111
  Lemont, IL (2)                              PDVMR           100               160              160
                                                              ===               ===              ===
Total Rated Refining Capacity
as of December 31, 1997                                                        1,007             853
                                                                               =====             ===
</TABLE>


-------------------------
(1)  The  initial  interest  in  LYONDELL-CITGO  was  acquired  on July 1, 1993.
     CITGO's interest in  LYONDELL-CITGO  at December 31, 1997 approximates 42%.
     CITGO  has an  option  exercisable  for 18  months  from  April 1,  1997 to
     increase, for an additional investment,  its participation interest up to a
     maximum of 50%. See "--CITGO--Refining--LYONDELL-CITGO".

(2)  Formerly, this refinery was owned by UNO-VEN in which the Company had a 50%
     interest.  On May 1, 1997,  the refinery and certain assets and liabilities
     were transferred to PDVMR.  See "--PDV Midwest Refining, L.L.C."

                                        2

<PAGE>



                  The  following  table shows  aggregate  refined  product sales
revenues  and volumes  (excluding  lubricants  and waxes) of PDV America for the
three years in the period ended December 31, 1997.
<TABLE>
<CAPTION>
             PDV America Refined Product Sales Revenues and Volumes

                                 Year Ended December 31,           Year Ended December 31,

                          -------------------------------------------------------------------
                            1997(2)   1996(1)     1995(1)    1997(2)    1996(1)    1995(1)
                          -------------------------------------------------------------------
                                     ($ in millions)                 (MM gallons)
<S>                      <C>         <C>        <C>        <C>         <C>       <C>
Light Fuels
     Gasoline             $7,918      $7,927     $6,761     12,117      11,995    11,747
     Jet Fuel              1,188       1,506      1,181      2,005       2,372     2,282
     Diesel/#2 fuel        2,509       2,522      1,508      4,358       4,052     3,023
Asphalt                      398         257        238        749         569       503
Industrial Products and
  Petrochemicals           1,201         936        904      2,021       1,660     1,810
                          -------------------------------------------------------------------
    Total                $13,214     $13,148    $10,592    21,250      20,648    19,365
                          ===================================================================

</TABLE>


-------------------------
(1)  Includes all of  CITGO (excluding lubricants and  waxes) and 50% of UNO-VEN
     refined product sales.
(2)  Includes all of CITGO (excluding  lubricants and waxes) and 50%  of UNO-VEN
     refined  product sales  for  the  period from  January 1, 1997 to April 30,
     1997.  See "--PDV Midwest Refining, L.L.C."


                                        3

<PAGE>



         The following table shows PDV America's  aggregate interest in refining
capacity,  refinery  input and  product  yield for the three years in the period
ended December 31, 1997.
<TABLE>
<CAPTION>
                         PDV America Refinery Production

                                                              Year Ended December 31,

                                           -----------------------------------------------------------
                                              1997(2)(3)           1996(1)(4)            1995(1)(5)(7)
                                           -----------------------------------------------------------
                                                       (MBPD, except as otherwise indicated)
<S>                                        <C>    <C>             <C>   <C>             <C>  <C>
Rated Refining Capacity(6)                  853                   683                   681

Refinery Input

  Crude oil                                 675    80.9%          561    81.2%          543   80.8%
  Other feedstocks                          159    19.1           130    18.8           129   19.2
                                            ---   ------          ---   ------          ---  ------
   Total                                    834   100.0%          691   100.0%          672  100.0%
                                            ===   =====           ===   =====           ===  =====


Product Yield

  Light fuels

       Gasoline                             387    45.7%          313    44.9%          310   45.7%
       Jet Fuel                              72     8.5            70    10.0            66    9.7
       Diesel/#2 fuel                       146    17.2           122    17.5           118   17.4
  Asphalt                                    42     5.0            34     4.9            32    4.7
  Petrochemical and Industrial Products     200    23.6           158    22.7           152   22.5
                                            ---   ------          ---   ------          ---  ------
       Total                                847   100.0%          697   100.0%          678  100.0%
                                            ===   =====           ===   =====           ===  =====
</TABLE>



-------------------------
(1)  For  1996  and  1995, includes all of CITGO and 50%  of  UNO-VEN  refinery
     production, except as otherwise noted.
(2)  For  1997,  includes  all  of  CITGO  refinery  production, 50% of UNO-VEN
     refinery production through April 30, 1997 and all  of PDVMR
     refinery production beginning May 1, 1997 through December 31, 1997.
(3)  Includes a weighted average of 34.44% of the Houston refinery for 1997.
(4)  Includes a weighted average of 12.89% of the Houston refinery for 1996.
(5)  Includes a weighted average of 11.45% of the Houston refinery for 1995.
(6)  At year end.
(7)  Does  not  include  Paulsboro  Unit 1  for 1995.  See "--CITGO--Refining--
     Paulsboro Refinery".


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,  which individual  petroleum refining and marketing companies cannot
entirely  control.  Governmental  regulations and policies,  particularly in the
areas of taxation,  energy and the  environment,  have a  significant  impact on
petroleum industry activities, regulating how companies conduct their operations
and  formulate  their  products,  and, in some cases,  directly  limiting  their
profits.   The  U.S.  petroleum  refining  industry  has  entered  a  period  of
consolidation,  in which a number  of former  competitors  have  combined  their
operations.  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 can also be  significant  factors.
Generally, U.S. refiners compete for sales on the basis of price and brand image
and, in some product areas, product quality.

                                        4

<PAGE>



CITGO

                  CITGO refines,  markets and transports gasoline,  diesel fuel,
jet fuel, petrochemicals,  lubricants,  refined waxes, asphalt and other refined
products,  and markets gasoline through over 14,000 CITGO branded  independently
owned  and  operated  retail  outlets  located  throughout  the  United  States,
primarily east of the Rocky Mountains.  CITGO also markets jet fuel primarily to
airline  customers.  A variety of lubricants  and waxes are sold to  independent
marketers,   mass  marketers  and  industrial   customers.   Petrochemicals  and
industrial  products are sold directly to various  manufacturers  and industrial
companies  throughout  the United  States.  Asphalt  is  marketed  primarily  to
independent paving contractors.

Refining

                  CITGO  produces its light fuels and  petrochemicals  primarily
through  its Lake  Charles  and  Corpus  Christi  refineries.  Asphalt  refining
operations are carried out through CITGO's Paulsboro and Savannah refineries.

                  Lake Charles Refinery.  The Lake Charles refinery,  located in
Lake Charles,  Louisiana, was originally built in 1944 and, since then, has been
continuously upgraded.  Today it is a modern,  complex, high conversion refinery
and is one of the largest in the United States. It 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, due to recent  modifications,  reformulated
gasoline.  The Lake Charles refinery has a Solomon Process  Complexity Factor of
17.0 (as compared to an average of 13.8 for U.S. refineries in the most recently
available  Solomon  Associates,  Inc.  survey).  The Solomon Process  Complexity
Rating  is an  industry  measure  of a  refinery's  ability  to  produce  higher
value-added  products. A higher rating indicates a greater capability to produce
such products.

                                        5

<PAGE>



                  The  following  table shows the  refining  capacity,  refinery
input and product yield at the Lake Charles  refinery for the three years in the
period ended December 31, 1997.
<TABLE>
<CAPTION>
                        Lake Charles Refinery Production

                                                             Year Ended December 31,

                                           -----------------------------------------------------------
                                                    1997               1996               1995
                                           -----------------------------------------------------------
                                                     (MBPD, except as otherwise indicated)
<S>                                             <C>   <C>            <C>  <C>           <C>   <C>
Rated Refining Capacity (1)                     320                  320                320

Refinery Input

  Crude oil                                     291    87.9%         274   85.1%        275    85.4%
  Other feedstocks                               40    12.1           48   14.9          47    14.6
                                                ---   ------         ---  ------        ---   ------
      Total                                     331   100.0%         322  100.0%        322   100.0%
                                                ---   ------         ---  ------        ---   ------


Product Yield

  Light fuels

       Gasoline                                 177    52.4%         164   50.3%        164    50.0%
       Jet Fuel                                  60    17.7           62   19.0          58    17.7
       Diesel/#2 fuel                            45    13.3           38   11.7          42    12.8
Petrochemicals and Industrial Products           56    16.6           62   19.0          64    19.5
                                                ---   ------         ---  ------        ---   ------
       Total                                    338   100.0%         326  100.0%        328   100.0%
                                                ---   ------         ---  ------        ---   ------

Utilization of Rated Refining Capacity                  91%                86%                  86%

</TABLE>

-------------------------
(1)  At year end.

                  Approximately  63%, 67% and 64% of the total crude runs at the
Lake Charles refinery, in the years 1997, 1996 and 1995, respectively, consisted
of crude oil with an average  API  gravity  of 24  degrees  or less.  Due to the
complex  processing  required  to  refine  such  crude  oil,  the  Lake  Charles
refinery's  economic crude oil throughput  capacity is  approximately  290 MBPD,
which is approximately 90% of its rated capacity of 320 MBPD.

                  The Lake Charles  refinery's  Gulf Coast location  provides it
with access to crude oil deliveries  from multiple  sources.  Imported crude oil
and  feedstocks  supplies  are  delivered  by ship  directly to the Lake Charles
refinery,  and domestic  crude oil supplies are delivered by pipeline and barge.
In addition,  the refinery is connected by pipelines to the  Louisiana  Offshore
Oil Port  ("LOOP") and to terminal  facilities in the Houston area through which
it can receive crude oil  deliveries  if the Lake Charles docks are  temporarily
inaccessible.  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.

                  The Lake Charles  refinery's main  petrochemical  products are
propylene  and benzene.  Propylene  production  was 6.0,  5.0 and 5.7 MBPD,  and
benzene production was 3.8, 3.2 and 4.1 MBPD,

                                        6

<PAGE>



in each  case for the  years  1997,  1996  and  1995,  respectively.  Industrial
products include sulphur, residual fuels and petroleum coke.

                  Located  adjacent to the Lake Charles refinery is a lubricants
refinery  operated  by CITGO and owned by Cit-Con Oil  Corporation  ("Cit-Con"),
which is owned  65% by  CITGO  and 35% by  Conoco,  Inc.  ("Conoco").  Primarily
because of its specific  design,  the Cit-Con refinery  produces  extremely high
quality  oils and  waxes  and is one of the few in the  industry  designed  as a
stand-alone  lubricants  refinery.  Subsequent to enhancements made in 1995, the
refinery currently has a rated capacity of 9.6 MBPD of base oils and 1.4 MBPD of
wax, and is one of the largest rated capacity paraffinic  lubricants  refineries
in the United  States.  For the years 1997,  1996 and 1995,  utilization  at the
Cit-Con refinery was 101%, 100% and 101%,  respectively,  of its rated capacity.
Feedstocks  are supplied  65% from  CITGO's  Lake Charles  refinery and 35% from
Conoco's nearby  refinery.  Finished refined products are shared on the same pro
rata basis by CITGO and Conoco.  During 1997, new high efficiency lubricant base
oil production capacity,  including a joint venture  Conoco-Pennzoil plant, came
on-stream,  creating a surplus in lubricant base oil supply and diminishing base
oil production profitability. CITGO has evaluated Cit-Con's competitive position
in light of this new  competition  and  believes  that  Cit-Con can  continue to
produce attractive  returns on capital employed if certain operating  strategies
are followed.  These strategies  include maximizing the production of high value
wax and heavier  base oils,  strict  control of  operating  expenses,  and close
operational  integration with CITGO's downstream finished  lubricants  marketing
program.

                  Corpus Christi  Refinery.  The Corpus Christi refinery complex
consists of the East and West Plants, located within five miles of each other in
Corpus Christi, Texas.  Construction began on the East Plant in 1937, and it was
extensively  reconstructed and modernized during the 1970's and 1980's. The West
Plant was  completed in 1983.  The Corpus  Christi  refinery is an efficient and
highly complex  facility,  capable of processing high volumes of heavy crude oil
into a flexible slate of refined  products,  with a Solomon  Process  Complexity
Factor of 20.5 (as  compared  to an average of 13.8 for U.S.  refineries  in the
most recently available Solomon Associates, Inc. survey).

                                        7

<PAGE>




                  The following  table shows rated refining  capacity,  refinery
input and product  yield at the Corpus  Christi  refinery for the three years in
the period ended December 31, 1997.

<TABLE>
<CAPTION>
                       Corpus Christi Refinery Production

                                                      Year Ended December 31,

                                        ------------------------------------------------------
                                             1997               1996                 1995
                                        ------------------------------------------------------
                                                (MBPD, except as otherwise indicated)
<S>                                      <C>   <C>           <C>   <C>            <C>   <C>
Rated Refining Capacity (1)              150                 140                  140

Refinery Input

  Crude oil                              115    59.3%        133    66.8%         121    64.7%
  Other feedstocks                        79    40.7          66    33.2           66    35.3
                                         ---   ------        ---   ------         ---   ------
      Total                              194   100.0%        199   100.0%         187   100.0%
                                         ---   ------        ---   ------         ---   ------

Product Yield

  Light fuels

      Gasoline                            93     47.9%        93     47.0%         90    48.4%
      Diesel/#2 fuel                      45     23.2         59     29.8          53    28.5
 Petrochemicals and Industrial Products   56     28.9         46     23.2          43    23.1
                                         ---   ------        ---   ------         ---   ------
       Total                             194    100.0%       198    100.0%        186   100.0%
                                         ---   ------        ---   ------         ---   ------

Utilization of Rated Refining Capacity             77%                 95%                 86%
</TABLE>


-------------------------
(1)  At year end.

                  Corpus  Christi crude runs during 1997 consisted of 100% heavy
sour Venezuelan crude.  Crude oil supplies are delivered  directly to the Corpus
Christi refinery through the Port of Corpus Christi.  The decline in utilization
of rated  refining  capacity  in 1997 as compared to 1996 is a result of a major
turnaround in 1997 and an increase in the rated refining capacity.

                  CITGO operates the West Plant under a sublease  agreement (the
"Sublease") from Union Pacific Corporation ("Union Pacific").  The basic term of
the  Sublease  ends on  January 1, 2004,  but CITGO may renew the  Sublease  for
successive  renewal  terms  through  January  31,  2011.  CITGO has the right to
purchase the West Plant from Union Pacific at the end of the basic term, the end
of any renewal term, or on January 31, 2011, at a nominal price.

                  During  the  last  several  years,  CITGO  has  increased  the
capacity of the Corpus Christi refinery to produce petrochemical  products.  The
Corpus  Christi   refinery's  main   petrochemical   products   include  cumene,
cyclohexane,  methyl  tertiary  butyl ether  ("MTBE") and  aromatics  (including
benzene,  toluene and xylene).  The Company  produces a significant  quantity of
cumene,  an  important  petrochemical  product used in the  engineered  plastics
market. The production of xylene, a basic building block used in the manufacture
of consumer  plastics,  allows the refinery to take  advantage of its  reforming
capacity while staying within the gasoline  specifications  of the Clean Air Act
Amendments of 1990.

                                        8

<PAGE>



                  Paulsboro  Refinery.   The  Paulsboro  refinery,   located  in
Paulsboro,  New Jersey, is an asphalt refinery.  The Paulsboro refinery consists
of Unit I, with a rated  capacity of 44 MBPD, and Unit II, with a rated capacity
of 40 MBPD.

                  Unit II,  originally  constructed  in 1980 to produce  asphalt
from high  sulphur,  heavy crude oil high in  naphthenic  acid, is a combination
atmospheric and vacuum distillation  facility.  The crude oil purchased by CITGO
from  PDVSA to supply  Unit II's crude oil  requirements  is  particularly  well
suited for the production of asphalt.  Unit II produced an average of 21.0, 20.5
and 19.1 MBPD of asphalt in the years 1997, 1996 and 1995,  respectively,  which
accounted for 58% of Unit II's total production in each year. The remaining Unit
II production in 1997,  1996 and 1995  consisted of distillate  products such as
naphthas,  marine  diesel  oil and  vacuum gas oils,  which,  in the  aggregate,
averaged  approximately 14.4, 14.5 and 13.7 MBPD,  respectively,  in such years.
Unit II crude oil runs were 36, 35 and 33 MBPD,  or a  utilization  rate of 90%,
88% and 83%, in 1997, 1996 and 1995, respectively.

                  Unit I was  constructed  in  1979  primarily  to  process  low
sulphur,  light crude oil but has been  modified  to run heavier  crudes such as
Boscan. The unit produces naphthas,  diesel/#2 and #6 fuels and asphalt.  Unit I
is run  primarily  when there is demand for toll  processing  of sweet crudes at
attractive  economics  and to produce  asphalt.  Crude oil runs for third  party
processing in 1997, 1996 and 1995 averaged 0.0, 0.0 and 2.1 MBPD,  respectively,
representing  processing  utilization rates of 0%, 0% and 5%,  respectively.  In
1997, 1996 and 1995,  13.6, 3.4 and 2.6 MBPD of crude oil were run on Unit I for
CITGO's own account, producing 8.9, 2.4 and 1.9 MBPD of asphalt and 4.7, 0.9 and
0.8 MBPD of other products, respectively.

                  Savannah  Refinery.   The  Savannah  Refinery,   located  near
Savannah,  Georgia, is an asphalt refinery. CITGO acquired the Savannah Refinery
on April 30, 1993. The facility  includes two crude  distillation  units, with a
combined rated capacity of 28 MBPD. The primary crude oil run by the refinery is
Boscan.

                  The units  produced an average of 12.3,  11.4 and 10.5 MBPD of
asphalt in the years ended December 31, 1997, 1996 and 1995, respectively, which
accounted for 75%, 76% and 77% of total production, in such years. An additional
4.1, 3.7 and 3.4 MBPD of  production  included  naphthas  and light,  medium and
heavy gas oils in 1997,  1996 and 1995,  respectively.  Total  crude runs in the
years ended December 31, 1997, 1996 and 1995, respectively,  were 16.4, 15.1 and
13.7 MBPD, respectively, for utilization rates of 59%, 54% and 49%.

                  LYONDELL-CITGO.  On July 1,  1993,  subsidiaries  of CITGO and
Lyondell  Petrochemical Company ("Lyondell") executed definitive agreements with
respect  to  CITGO's  investment  in  LYONDELL-CITGO   Refining  Company,   Ltd.
("LYONDELL-CITGO"),  which owns and operates a  sophisticated  265 MBPD refinery
previously owned by Lyondell and located on the ship channel in Houston,  Texas.
Through  December  31,  1997,  CITGO had  invested  approximately  $625  million
(excluding  reinvested  earnings)  in  LYONDELL-CITGO.  See  Note 2 of  Notes to
Consolidated  Financial  Statements.  A refinery enhancement project to increase
the refinery's heavy crude oil high conversion  capacity from  approximately 135
MBPD to 200  MBPD  had an  in-service  date of  March 1,  1997.  The  crude  oil
processed  by this  refinery is  supplied  by PDVSA under a long-term  crude oil
supply contract through the year 2017. CITGO purchases  substantially all of the
refined products produced at this refinery under a long-term contract.  See Note
4 of Notes to Consolidated Financial Statements.  CITGO's participation interest
in LYONDELL-CITGO increased from approximately 13% at December

                                        9

<PAGE>



31, 1996 to  approximately  42% on April 1, 1997, in accordance  with agreements
between the owners concerning such interest.  CITGO has a one-time option for 18
months  from April 1, 1997,  to  increase,  for an  additional  investment,  its
participation interest to 50%.

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.  In addition,  because  CITGO's  refinery  operations do not produce
sufficient refined products to meet the demands of its branded marketers,  CITGO
purchases refined products,  primarily gasoline, from other refiners,  including
LYONDELL-CITGO,  PDVMR and Chalmette Refining, L.L.C.  ("Chalmette").  See "Item
13. Certain Relationships and Related Transactions".

                   Crude  Oil  Purchases.  The  following  chart  shows  CITGO's
purchases  of crude oil for the three  years in the period  ended  December  31,
1997:

<TABLE>
<CAPTION>
                            CITGO Crude Oil Purchases

                             Lake Charles, LA            Corpus Christi, TX         Paulsboro, NJ              Savannah, GA

                    ---------------------------------------------------------------------------------------------------------------
                        1997       1996      1995     1997     1996       1995    1997   1996   1995      1997      1996     1995
                    ---------------------------------------------------------------------------------------------------------------
Suppliers                         (MBPD)                       (MBPD)              (MBPD)                    (MBPD)
---------
<S>                    <C>        <C>         <C>      <C>      <C>        <C>      <C>    <C>    <C>        <C>     <C>       <C>
PDVSA                  130        142        150      117      130        122      49     39     35         14      17        14
PEMEX                   61         44         33        0        0          0       0      0      0          0       0         0
Occidental              40         43         43        0        0          0       0      0      0          0       0         0
Other Sources           57         45         52        0        3          0       0      0      0          0       0         0
                    ---------------------------------------------------------------------------------------------------------------
       Total           288        274        278      117      133        122      49     39     35         14      17        14
                       ===        ===        ===      ===      ===        ===      ==     ==     ==         ==      ==        ==
</TABLE>


                  CITGO's largest  supplier of crude oil is PDVSA, and CITGO has
entered into long-term  crude oil supply  agreements  with PDVSA with respect to
the crude oil requirements for each of CITGO's refineries. See "Item 13--Certain
Relationships and Related Transactions".  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, 1997.

                                       10

<PAGE>



                   CITGO Crude Oil Supply Contracts with PDVSA

                                                Volumes of Crude
                                                 Oil Purchased
                        Contract Crude         For the Year Ended     Contract
                          Oil Volume              December 31,       Expiration
                   ---------------------- -------------------------- ----------
                     Base  Incremental(1)  1997     1996      1995      Date
                   ---------------------- -------------------------- ----------
                             (MBPD)                (MBPD)              (year)

Location

Lake Charles, LA    120        50         115(2)    121(2)    125(2)    2006
Corpus Christi, TX  130        --         125(2)    130       122       2012
Paulsboro, NJ        30        --          35(2)     34(2)     35       2010
Savannah, GA         12        --          12(2)     11(2)     14       2013
Houston, TX (3)     200        --         216       134       136       2017


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

(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 under the supply contracts do not equal total purchases
     from PDVSA as a result of spot purchases or transfers between refineries.
(3)  CITGO acquired a participation interest in LYONDELL-CITGO, the owner of the
     Houston  refinery,  on July 1, 1993. In connection  with such  transaction,
     LYONDELL-CITGO  entered into a long-term  crude oil supply  agreement  with
     PDVSA that provided for delivery  volumes of 135 MBPD until the  completion
     of a  refinery  enhancement  project  at which  time the  delivery  volumes
     increased to a range from 200 MBPD to 230 MBPD.

                  Most of the crude oil and  feedstocks  purchased by CITGO from
PDVSA are  delivered on tankers  owned by PDV Marina,  S.A.  ("PDV  Marina"),  a
wholly owned subsidiary of PDVSA, or by other PDVSA  subsidiaries.  In 1997, 81%
of the PDVSA contract crude oil delivered to the Lake Charles and Corpus Christi
refineries was delivered on tankers operated by PDVSA subsidiaries.

                  CITGO purchases  additional crude oil under a 90-day evergreen
agreement with an affiliate of Petroleos Mexicanos ("PEMEX"). CITGO's refineries
are particularly well-suited to refine PEMEX's Maya heavy, sour crude oil, which
is similar in many respects to several types of Venezuelan crude oil.  Effective
January  1995,  the PEMEX crude  contract  was for 23 MBPD of Maya crude for the
first six months of 1995 and 17 MBPD for the last six months of 1995.  Effective
January 1996, PEMEX increased the crude contract to 27 MBPD of Maya crude, which
increased  to 35 MBPD  effective  July 1996.  Effective  January 1, 1997,  PEMEX
increased  the crude  contract  to 52 MBPD of Maya  crude.  This  contract  also
includes  8 MBPD of  Olmeca,  light sour crude for 1995 and 10 MBPD for 1996 and
1997.

                  CITGO is a party to a contract with an affiliate of Occidental
Petroleum Corporation  ("Occidental") for the purchase of light, sweet crude oil
to produce  lubricants.  Purchases under this contract,  which expires on August
31, 1998,  averaged 47 MBPD in 1997.  CITGO also purchases sweet crude oil under
long-standing relationships with numerous other producers.

                   Refined  Product  Purchases.  CITGO is  required  to purchase
refined  products to  supplement  the  production of the Lake Charles and Corpus
Christi  refineries  in order to meet the demand of CITGO's  marketing  network.
During 1997, CITGO's shortage in gasoline production approximated

                                       11

<PAGE>



356 MBPD. However, due to logistical needs, timing differences and product grade
imbalances, CITGO purchased approximately 518 MBPD of gasoline and sold into the
spot market or to refined  product traders or other refiners  approximately  154
MBPD of  gasoline.  The  following  table  shows  CITGO's  purchases  of refined
products for the three years in the period ended December 31, 1997.

                         CITGO Refined Product Purchases

                                       Year Ended December 31,

                     ---------------------------------------------------------
                              1997               1996              1995
                     ---------------------------------------------------------
                                                (MBPD)

Light Fuels

    Gasoline                   518                484                471
    Jet Fuel                    74                 92                 87
    Diesel/#2 fuel             190                153                 90
                     ---------------------------------------------------------
          Total                782                729                648
                     =========================================================



                  As of December 31, 1997, CITGO purchased  substantially all of
the refined products produced at the  LYONDELL-CITGO  refinery under a long-term
contract  through  the year 2017.  LYONDELL-CITGO  was a major  supplier in 1997
providing CITGO with 111 MBPD of gasoline,  68 MBPD of distillate and 17 MBPD of
jet fuel. See "--Refining--LYONDELL-CITGO".

                  An affiliate  of PDVSA  entered into an agreement to acquire a
50% equity interest in a refinery in Chalmette,  Louisiana,  in October 1997 and
has  assigned to CITGO its option to purchase up to 50% of the refined  products
produced at the  refinery  through  December  31,  1998.  See Note 4 of Notes to
Consolidated  Financial  Statements.  CITGO exercised this option on November 1,
1997. For the period  November 1 through  December 31, 1997,  CITGO purchased 32
MBPD of gasoline, 24 MBPD of distillate and 10 MBPD of jet fuel.

Marketing

                  CITGO's major  products are light fuels  (including  gasoline,
jet  fuel  and  diesel  fuel),  industrial  products,  petrochemicals,  asphalt,
lubricants and waxes. The following table shows revenue of each of these product
categories for the three years in the period ended December 31, 1997.

<TABLE>
<CAPTION>
                      CITGO Refined Product Sales Revenues

                                                 Year Ended December 31,

                        ------------------------------------------------------------------------
                                 1997                     1996                     1995
                        ------------------------------------------------------------------------
                                     ($ in millions, except as otherwise indicated)

<S>                      <C>          <C>          <C>       <C>          <C>         <C>
Light Fuels              $11,376       84.8%       $11,252    88.1%        $8,886      85.8%
Petrochemicals,
  Industrial Products
  and Other Products       1,172        8.7            846     6.6            831       8.0
Asphalt                      398        3.0            257     2.0            238       2.3
Lubricants and Waxes         467        3.5            426     3.3            404       3.9
                        ------------------------------------------------------------------------
Total                    $13,413      100.0%       $12,781   100.0%       $10,359     100.0%
                        ========================================================================
</TABLE>

                                       12

<PAGE>




                  Light  Fuels.  CITGO  markets  gasoline,  jet fuel  and  other
distillates through an extensive marketing network. The following table provides
a  breakdown  of the sales  made by type of product  for the three  years in the
period ended December 31, 1997.

                             CITGO Light Fuel Sales

                    Year Ended December 31,           Year Ended December 31,
                  -----------------------------    ---------------------------
                     1997       1996     1995         1997     1996     1995
                  -----------------------------    ---------------------------
                       ($ in millions)                     (MM gallons)

Light Fuels

   Gasoline         $7,754     $7,451   $6,367       11,953   11,308   11,075
   Jet Fuel          1,183      1,489    1,163        2,000    2,346    2,249
   Diesel/#2 fuel    2,439      2,312    1,356        4,288    3,728    2,730
                  -----------------------------    ---------------------------
        Total      $11,376    $11,252   $8,886       18,241   17,382   16,054
                  -----------------------------    ---------------------------



                  Gasoline  sales  accounted  for  58%,  58% and 61% of  CITGO's
refined  product  sales in the years 1997,  1996 and 1995,  respectively.  CITGO
markets  CITGO  branded  gasoline  through over 14,000  independently  owned and
operated CITGO branded retail outlets  (including  13,048 branded retail outlets
owned  and  operated  by  approximately  818  independent  marketers  and  1,798
7-Eleven(TM) convenience stores) located throughout the United States, primarily
east of the Rocky  Mountains.  CITGO purchases  gasoline to supply its marketing
network,  as the gasoline  production  from the Lake Charles and Corpus  Christi
refineries was only equivalent to  approximately  47%, 49% and 53% of the volume
of CITGO  branded  gasoline  sold in  1997,  1996 and  1995,  respectively.  See
"--Crude Oil and Refined Product Purchases--Refined Product Purchases".

                  CITGO's strategy is to enhance the value of the CITGO brand in
order to obtain  premium  pricing  for its  products  by  appealing  to consumer
preference for quality  petroleum  products and services.  This is  accomplished
through a  commitment  to quality,  dependability  and  customer  service to its
independent  marketers,  which constitute CITGO's primary distribution  channel.
The number of  independent  marketer-owned  or  operated  CITGO  branded  retail
outlets has grown  significantly  since 1986 when there were approximately 7,000
independently  owned  and  operated  branded  outlets,   including  7-Eleven(TM)
convenience stores, and has increased  approximately 2%, 3% and 7% in 1997, 1996
and 1995, respectively.

                  In 1994,  CITGO began  offering to its  marketers a program to
enhance their retail outlets with new card reader pumps which allow customers to
pay for their  gasoline at the pumps with their  credit  cards  instead of going
inside to pay. As of December 31, 1997,  approximately  4,500 retail outlets had
installed the card reader pumps.

                  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.

                                       13

<PAGE>



                  CITGO  markets jet fuel  directly to airline  customers  at 26
airports,  including  such major hub  cities as  Atlanta,  Chicago,  Dallas/Fort
Worth,  New York and Miami.  Jet fuel sales  volume to  airline  customers  have
decreased approximately 16% in 1997 after increasing 6% and 2% in the years 1996
and 1995, respectively. The volume decrease in 1997 is due primarily to a change
in focus to selling only CITGO's own  production  of jet fuel.  The increases in
1996 and 1995 were due to higher  levels of purchases by existing  customers and
to sales to new  customers.  Sales of bonded  jet fuel,  which are  exempt  from
import duties as well as certain state and local taxes,  have decreased from 579
million  gallons in 1995  (accounting  for 31% of total jet fuel sales volume to
airline  customers) to 408 million  gallons in 1997  (accounting for over 24% of
total jet fuel sales volume to airline customers.

                  Growth  in  wholesale  rack  sales to  marketers  has been the
primary  focus of  diesel/#2  marketing  efforts.  Such  marketing  efforts have
resulted in increases in wholesale  rack sales volume from  approximately  1,283
million  gallons in 1995 to  approximately  1,754 million  gallons in 1997.  The
remaining  diesel/#2  fuel  production  is sold either in bulk through  contract
sales (primarily as heating oil in the Northeast) or on a spot basis.

                  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,  38 are wholly owned by
CITGO and 14 are  jointly  owned.  Sixteen of  CITGO's  product  terminals  have
waterborne docking facilities,  which greatly enhance the flexibility of CITGO's
logistical system. In addition,  CITGO operates nine terminals owned by PDVMR in
the Midwest.  Refined  product  terminals  owned or operated by CITGO  provide a
total  capacity of  approximately  24 million  barrels.  Also,  CITGO has active
exchange relationships with over 270 other refined product terminals,  providing
flexibility and timely response to distribution needs.

                  Petrochemicals   and   Industrial   Products.    CITGO   sells
petrochemicals  in bulk to a variety of U.S.  manufacturers as raw materials for
finished  goods.  Sulphur  is  sold to the  U.S.  and  international  fertilizer
industry; 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 a joint venture for use as kiln
and boiler fuel; and residual fuel blendstocks are sold to a variety of fuel oil
blenders and  customers.  The majority of CITGO's  cumene  production is sold to
Mount Vernon Penol Plant  Partnership (see "Item 13. Certain  Relationships  and
Related  Transactions"),  a joint venture phenol production plant in which CITGO
is a limited  partner.  The phenol  plant  produces  phenol and acetone for sale
primarily to the  principal  partner in the phenol plant for the  production  of
plastics.

                  Asphalt.  CITGO markets asphalt  through 15 terminals  located
along the East Coast,  from Savannah,  Georgia to Albany,  New York.  Asphalt is
sold  primarily  to  independent  contractors  for use in the  construction  and
resurfacing of roadways.  Demand for asphalt in the  Northeastern  United States
declines substantially in the winter months as a result of weather conditions.

                  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.

                  CITGO sells its  finished  lubricant  products  through  three
classes of trade:  (i) independent  marketers that specialize in lubricant sales
(representing 80% of 1997 sales), (ii) mass merchandisers

                                       14

<PAGE>



(representing  6% of 1997 sales) and (iii) direct sales to large  industrial end
users  (representing  14% of 1997 sales).  CITGO emphasizes sales to independent
marketers in its lubricants  marketing  because of the higher  margins  realized
from these sales.  Large  industrial end users include steel  manufacturers  for
industrial  lubricants and  automobile  manufacturers  for "original  equipment"
quantities of automotive oils and fluids.

                  CITGO  markets the largest  portion of its wax  production  as
coating materials for the corrugated container industry. CITGO also provides wax
for the  manufacture of candles,  drinking  cups,  waxed papers and a variety of
building and rubber products.

Pipeline Operations

                  CITGO  owns and  operates  364  miles of  crude  oil  pipeline
systems and approximately  1,100 miles of products  pipeline systems.  The crude
oil pipeline  provides CITGO with access to gathering  systems  throughout major
production  areas in Louisiana and Texas that provide the Lake Charles  refinery
with domestic  crude oil to  supplement  waterborne  activities.  CITGO also has
joint equity  interests in three crude oil  pipeline  companies  with a total of
nearly  5,400 miles of crude oil  pipeline  plus equity  interest in six refined
product  pipeline  companies  with a  total  of  approximately  8,000  miles  of
pipeline.  These  pipeline  interests  provide CITGO 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 gasoline, jet fuel and diesel/#2 fuel
from the Gulf Coast to the mid-Atlantic and eastern seaboard states.

                  In early 1997, CITGO sold approximately 520 miles of crude oil
gathering/trunk lines in Texas and Louisiana.

Employees

                  CITGO and its subsidiaries have a total of approximately 5,300
employees,  approximately  1,900 of whom  are  covered  by 17  union  contracts.
Approximately 1,700 of the union employees are employed in refining  operations.
The remaining union employees are located primarily at a lubricant  blending and
packaging plant and at other refined product terminals.

                  Effective  February  28,  1998,  the  stock of  Petro-Chemical
Transport,  Inc.  ("PCT"),  a wholly owned  subsidiary of CITGO,  was sold. As a
result  of  this  sale,  approximately  420  employees  were  terminated.  PCT's
operations were not material to CITGO.

PDV Midwest Refining, L.L.C.

                  Since 1989, the Company through various subsidiaries has had a
50% interest in UNO-VEN.  On May 1, 1997  pursuant to the  Partnership  Interest
Retirement Agreement, PDV America and Union Oil Company of California ("UNOCAL")
transferred  certain assets and liabilities of UNO-VEN to PDVMR, a subsidiary of
the Company,  as a result of the  liquidation  of the  Company's  50%  ownership
interest in UNO-VEN.  The assets included a 160 thousand barrel per day refinery
in Lemont,  Illinois,  as well as eleven product  distribution  terminals and 89
retail sites located in the Midwest. CITGO

                                       15

<PAGE>



operates  these  facilities  and  purchases  substantially  all of the products
produced at  the  refinery.  See  Note 9  of  Notes  to  Consolidated Financial
Statements.

                  The  foregoing   transaction   increased  the  assets  of  the
consolidated  Companies  by $494 million on May 1, 1997,  net of the  Companies'
carrying amount of its investment in UNO-VEN.  PDVMR's sales of $942 million for
the  period  May 1, 1997 to  December  31,  1997 were  primarily  to CITGO  and,
accordingly, these were eliminated in consolidation.  However, the operations of
PDVMR,  including its  investment  in  Needle-Coker  (as defined  below) for the
period from May 1, 1997 to December  31,  1997,  contributed  approximately  $43
million to PDV America's  consolidated income before interest and taxes in 1997,
as compared to the  Companies'  equity in the earnings of UNO-VEN of $23 million
and $15 million for 1996 and 1995, respectively.

Refining

                  The Lemont refinery,  which in its present configuration began
operations  in  1970,  is one of the  most  recently  designed  and  constructed
refineries  in the  United  States.  Its high  conversion  design  enables it to
convert  its crude oil input  with high  sulphur  and high  metal  content  into
transportation fuels,  primarily gasoline,  diesel fuel and jet fuel. The Lemont
refinery  has a Solomon  Process  Complexity  factor of 11.3 (as  compared to an
average  of 13.8 for U.S.  refineries  in the most  recently  available  Solomon
Associates,  Inc. survey).  The Lemont refinery has a rated capacity of 160 MBPD
of crude oil and is  capable  of  processing  heavy  crude oil with  significant
operating  flexibility,  converting  sour crudes into a flexible slate of higher
value-added  refined  products,  such as high octane unleaded  gasoline.  During
1997,  the Lemont  refinery  increased  utilization  due  primarily  to improved
maintenance of operating equipment and efficient methods of operation.

                                       16

<PAGE>



                  The following  table shows refining  capacity,  refinery input
and product yield at the Lemont refinery for the three years in the period ended
December 31, 1997.

                           Lemont Refinery Production

                                            Year Ended December 31,

                               ------------------------------------------------
                                   1997             1996               1995
\                              ------------------------------------------------
                                        (MBPD, except as otherwise indicated)

Rated Refining Capacity (1)    160               153               153

Refinery Input
       Crude oil               155   89.1%       146   88.4%       139    87.4%
       Other feedstocks         19   10.9         19   11.6         20    12.6
                              -------------------------------------------------
            Total              174  100.0%       165  100.0%       159   100.0%
                              =================================================

Product Yield
       Light fuels
       Gasoline                 93   54.1%        87   53.0%        86    54.5%
       Jet Fuel                  7    4.1%         7    4.3          8     5.1
       Diesel/#2 Fuel           41   23.8%        37   22.6         34    21.4
       Industrial Products &
          Petrochemicals        31   18.0%        33   20.1         30    19.0
                              -------------------------------------------------
            Total              172  100.0%       164  100.0%       158   100.0%
                              =================================================
Utilization of Rated
       Refining Capacity               97%            95%                91%


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

(1) At year end.

                  Sour crude oil runs were 100% of the total  crude runs in each
of the years 1997, 1996 and 1995. PDVMR currently intends to continue to process
sour crude oil exclusively.

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

                  PDVMR owns a 25% interest in a  partnership  which  operates a
needle coke  production  facility  adjacent to the Lemont  refinery (the "Needle
Coker").  The remaining 75% interest is held by various  subsidiaries of UNOCAL.
The Needle Coker,  which began production in 1985 and has a production  capacity
of 117,000 tons per year, converts certain residual crude products into a highly
specialized form of coke known as "calcined  needle coke".  This product is used
exclusively as a raw material in the manufacturing of graphite electrodes, which
are used in electric arc furnaces to melt down and refine scrap steel.  In 1997,
the Needle Coker produced approximately 110,000 tons of calcined needle coke.

                                       17

<PAGE>



Crude Oil and Refined Product Purchases

                  PDVMR owns no crude oil reserves or production facilities and,
therefore,  relies on  purchases  of crude oil for its  refining  operations.  A
significant  portion of the crude oil refined at the Lemont refinery is supplied
by PDVSA to PDVMR under a crude oil supply agreement,  effective as of April 23,
1997,  that expires in the year 2002 and thereafter is renewable  annually.  For
the eight months ended  December  31, 1997,  PDVMR  purchased 78 MBPD under this
agreement.  The contract calls for delivery of a guaranteed  volume of 100 MBPD;
however, PDVMR is not required to purchase a set minimum. Prior to that date and
the  subsequent  transfer of assets from  UNO-VEN to PDVMR as  discussed  above,
UNO-VEN  purchased crude oil from PDVSA under an agreement with a base volume of
135 MBPD.  For the  first  four  months  of 1997 and in 1996 and  1995,  UNO-VEN
purchased 160, 143 and 135 MBPD, respectively, under this contract. Crude oil is
supplied to the Lemont refinery mainly through the  LOCAP/Capline/Chicap  common
carrier pipeline  system,  which connects the Lemont refinery to the LOOP, where
vessels  discharge.  The  refinery  also has  access to two  alternate  pipeline
systems for the delivery of crude oil from the Gulf Coast and Canada. PDVMR does
not have any direct equity interest in any crude oil pipelines.

Marketing

                  Subsequent   to  the  transfer  of  assets  on  May  1,  1997,
substantially  all of PDVMR's  products are sold to and  marketed by CITGO.  The
following table shows UNO-VEN's revenues from each of its product categories for
the two years in the period  ended  December  31, 1996 and the four months ended
April 30, 1997.

                          UNO-VEN Refined Product Sales

                            Four Months
                          Ended April 30,    Year Ended December 31,
                          -----------------------------------------------------
                               1997              1996             1995
                          -----------------------------------------------------
                                 ($ in millions, except as otherwise indicated)

Light Fuels                $476   86.2%    $1,406   85.7%    $1,126    85.5%
Industrial Products
   and Petrochemicals        57   10.3        179   10.9        145    11.0
Lubricants                   19    3.5         56    3.4         46     3.5
                          -----------------------------------------------------
         Total             $552  100.0%    $1,641  100.0%    $1,317   100.0%
                          =====================================================



                                       18

<PAGE>



                  The  following  table  provides a breakdown  of the light fuel
sales made by product  type for the two years in the period  ended  December 31,
1996 and for the four months ended April 30, 1997.

                                   UNO-VEN Light Fuel Sales

                      Four                        Four
                     Months                      Months
                      Ended      Year Ended       Ended       Year Ended
                    April 30,   December 31,    April 30,     December 31
                    -----------------------------------------------------------
                     1997      1996      1995     1997      1996      1995
                    -----------------------------------------------------------
                          ($ in millions)                (MM gallons)

Light Fuels

  Gasoline              $327      $952      $787     $474    $1,374     $1,341
  Jet Fuel                 9        34        35        9        52         66
  Diesel#2 fuel          140       420       304      219       647        585
                 -------------------------------------------------------------
          Total         $476    $1,406    $1,126     $702    $2,073     $1,992
                 =============================================================



Service Agreement with CITGO

                  CITGO  operates  the  Lemont  refinery  in  accordance  with a
Refinery Operating Agreement (the "Refinery Operating  Agreement") between CITGO
and PDVMR. The Refinery Operating Agreement sets out the duties, obligations and
responsibilities  of the operator and the Company with respect to the  operation
of the refinery.  CITGO  provides all  administrative  functions to the Company,
including  cash  management,  legal  and  accounting  services.  The term of the
agreement  is 60  months,  commencing  May 1, 1997,  and shall be  automatically
renewed for periods of 12 months  (subject to early  termination  as provided in
the Refinery Operating Agreement).

Environment and Safety

Environment-General

                  Beginning in 1994, the U.S.  refining industry was required to
comply  with  stringent  product  specifications  under  the 1990  Clean Air Act
("CAA") Amendments for reformulated  gasoline and low sulphur diesel fuel, which
necessitated  additional  capital  and  operating   expenditures,   and  altered
significantly  the U.S.  refining  industry and the return  realized on refinery
investments. In addition, numerous other factors affect the Company's plans with
respect to  environmental  compliance  and related  expenditures.  See  "Factors
Affecting Forward Looking Statements".

                  In addition,  the  Companies  are subject to various  federal,
state  and local  environmental  laws and  regulations  which  may  require  the
Companies to take action to correct or improve the effects on the environment of
prior  disposal or release of  petroleum  substances  by the  Companies or other
parties. Management believes the Companies are in compliance with these laws and
regulations in all material respects.  Maintaining compliance with environmental
laws  and   regulations  in  the  future  could  require   significant   capital
expenditures and additional operating costs.

                                       19

<PAGE>



                  The Companies'  accounting  policy  establishes  environmental
reserves  as  probable  site  restoration  and  remediation  obligations  become
reasonably  capable of estimation.  At December 31, 1997 and 1996, the Companies
had  approximately $58 million and $56 million,  respectively,  of environmental
accruals included in other noncurrent liabilities.  Based on currently available
information,   including  the  continuing  participation  of  former  owners  in
remediation actions, the Companies'  management believes that these accruals are
sufficient to address the Companies' environmental clean-up obligations.

                  Conditions which require additional expenditures may exist for
various Companies' sites including, but not limited to, the Companies' operating
refinery  complexes,  closed  refineries,  service  stations  and  crude oil and
petroleum product storage terminals. The amount of such future expenditures,  if
any, is indeterminable.

Environment-CITGO

                  In 1992, an agreement  was reached  between CITGO and a former
owner concerning a number of environmental  issues.  Pursuant to this agreement,
the  former  owner  will  continue  to  share  the  costs  of  certain  specific
environmental  remediation and certain tort liability actions based on ownership
periods and specific  terms of the  agreement.  Also, in 1992,  CITGO reached an
agreement with a state agency to cease usage of certain surface  impoundments at
CITGO's Lake Charles,  Louisiana refinery by 1994. A mutually acceptable closure
plan  was  filed  with  the  state  in  1993.  CITGO  and  a  former  owner  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,  CITGO  presented a proposal to a state agency  revising
the 1993 closure  plan. A ruling on this proposal is expected in 1998 and actual
closure is expected to be completed during 2000.

                  While  CITGO  is  named  as a  potentially  responsible  party
("PRP") at a number of "Superfund" sites,  pursuant to the  abovementioned  1992
agreement,  OXY USA,  Inc. and  Occidental  have agreed to indemnify  CITGO with
respect to Superfund  damages where offsite  hazardous  waste disposal  occurred
prior to September 1, 1983. Based on publicly available information, PDV America
believes  that  Occidental  has the  financial  capability to fulfill all of its
responsibilities  under this agreement.  Accordingly,  PDV America believes that
CITGO's offsite liability exposure under the federal Superfund and similar state
laws with respect to these sites is not  material.  In addition,  under the 1992
agreement,   CITGO  assumed   responsibility  for  certain  other  environmental
contamination  at certain  terminal  properties  in return for cash payments and
other agreements.

                  During 1994 and 1995, CITGO Asphalt Refining Company ("CARCO")
received  two  Notices of  Violation  and two  Compliance  Orders  from the U.S.
Environmental  Protection  Agency  ("EPA")  relating to the operation of certain
units at the  Paulsboro  Refinery.  A Consent Order  resolving  these issues was
entered by a federal  court in  February  1997.  Under the terms of the  Consent
Order, CARCO paid a $1,230,000 penalty. The Consent Order will terminate January
30, 1998.

                  On September  30, 1996,  CITGO  received a Notice of Violation
from the EPA,  Washington,  D.C.  alleging  violations of the CAA in the Chicago
Gary Lake  County,  Illinois-Indiana-Wisconsin  area,  arising  from the sale of
gasoline that failed to meet the applicable minimum or maximum oxygen content. A
Settlement  Agreement  resolving  this matter was  entered  into with the EPA in
December,  1997.  Under  the terms of the  Settlement  Agreement,  CITGO  paid a
penalty of $15,869.

                                       20

<PAGE>



                  Increasingly  stringent  regulatory  provisions   periodically
require   additional   capital   expenditures.   During  1997,   CITGO  expended
approximately $32 million for environmental and regulatory capital  improvements
in its  operations.  PDV  America  currently  anticipates  that CITGO will spend
approximately  $290 million for  environmental  and regulatory  capital projects
over the five-year period  1998-2002.  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".

Environment - PDVMR

                  In accordance with the Partnership Interest Retirement
Agreement, the Company, VPHI Midwest, Inc., a subsidiary of the Company, and
PDVMR took on joint and several liability for all environmental matters relating
to past operations of UNO-VEN.

                  During  1997,  PDVMR  expended  approximately  $2 million  for
environmental  and  regulatory  capital   improvements  in  its  operations  and
currently  anticipates spending  approximately $34 million for environmental and
regulatory capital projects over the five-year period 1998-2002. 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".

Safety

                  Due to the nature of petroleum refining and distribution, both
CITGO and PDVMR are subject to stringent occupational health and safety laws and
regulations.  CITGO  and  PDVMR  maintain  comprehensive  safety,  training  and
maintenance  programs,  and PDV  America  believes  that both  companies  are in
substantial compliance with occupational health and safety laws.

                            ITEM 3. LEGAL PROCEEDINGS

                  Various  lawsuits and claims arising in the ordinary course of
business are pending  against the Companies.  Included among these is litigation
against  CITGO by a number of current and former  employees  and  applicants  on
behalf of themselves and a class of similarly  situated persons asserting claims
under federal and state laws of racial  discrimination  in  connection  with the
employment  practices at CITGO's Lake Charles,  Louisiana refining complex.  The
plaintiffs  seek  injunctive  relief and monetary  damages and have appealed the
Court's denial of class certification. The initial trials on this litigation are
not currently included in the trial docket.

                  In a case  currently  pending  in the United  States  District
Court for the  Northern  District of Illinois,  Oil  Chemical & Atomic  Workers,
Local 7-517  ("Local  7-517")  amended its complaint  against  UNO-VEN to assert
claims against the Company,  PDVSA, CITGO, PDVMR, and UNOCAL pursuant to Section
301 of the Labor Management Relations Act ("LMRA").  This complaint alleges that
the  Company  and the  other  defendants  constitute  a single  employer,  joint
employers or alter-egos for the purposes of the LMRA, and are therefore bound by
the terms of a collective  bargaining  agreement between UNO-VEN and Local 7-517
covering  certain  production and  maintenance  employees at a Lemont,  Illinois
petroleum  refinery.  On May 1,  1997,  in a  transaction  involving  the former
partners of

                                       21

<PAGE>



UNO-VEN, the Lemont refinery was transferred to PDVMR.  Pursuant to an operating
agreement  with PDVMR,  CITGO  became the operator of the Lemont  refinery,  and
employed the substantial  majority of employees  previously  employed by UNO-VEN
pursuant to its initial terms and conditions of  employment,  but did not assume
the  existing  labor  agreement.  The  union  seeks  compensation  for  monetary
differences in medical, pension and other benefits between the CITGO and UNO-VEN
plans and  reinstatement  of all UNO-VEN benefit plans.  The union also seeks to
require  CITGO to abide by the  terms  of the  collective  bargaining  agreement
between the union and UNO-VEN.  As an  alternative  claim against all defendants
but CITGO,  the union  alleges  that if the labor  agreement  is not  binding on
CITGO,  there was a violation of the Federal Workers  Adjustment  Retraining and
Notification  Act by failure to give 60 days' written  notice of  termination to
approximately 400 UNO-VEN  employees;  this would allegedly entitle such workers
to 60 days'  pay and  benefits,  which  are  estimated  to be  approximately  $6
million. The trial of this case currently is set for July 1998.

                  On May 12,  1997,  an explosion  and fire  occurred at CITGO's
Corpus Christi  refinery.  There were no reports of serious  personal  injuries.
Affected  units were shut down for repair and were  returned to full  service in
early August,  1997. The Company has property  damage and business  interruption
insurance  which  related to this event.  As a result,  the property  damage and
business  interruption  did not have a material  adverse effect on the Company's
financial condition or results of operations.  There are presently five lawsuits
against  CITGO  pending in federal and state  courts in Corpus  Christi,  Texas,
alleging property damage, personal injury and punitive damages allegedly arising
from the incident and other similar lawsuits have been threatened. Approximately
6,000 individual  claims have been received by CITGO allegedly  arising from the
incident.

                  A class  action  lawsuit is pending  against  the  Company and
other operators and owners of nearby heavy industrial facilities which was filed
in state court in Corpus Christi,  Texas in 1993 on behalf of property owners in
the  vicinity of these  facilities.  The  certification  of this case as a class
action  in 1995 was  appealed  to the Texas  Supreme  Court  and a  decision  is
pending.  This lawsuit asserts property damage claims and diminution in property
values allegedly  resulting from  environmental  contamination in the air, soil,
and  groundwater,  occasioned  by ongoing  operations  of the  Company's  Corpus
Christi  refinery  and  the  respective   industrial  facilities  of  the  other
defendants.  Two related  personal injury and wrongful death lawsuits were filed
in 1996 and are in preliminary  stages of discovery at this time. In 1997, CITGO
signed an  agreement to settle the  property  damage  class  action  lawsuit for
approximately  $17.3 million which  included the purchase of  approximately  290
properties in an adjacent  neighborhood.  Of this amount,  $15.7 was expensed in
1997. CITGO submitted a settlement  proposal to the court. The court appointed a
guardian  to review  the  proposed  settlement  terms.  Subsequently,  the Texas
Supreme  Court  decided to hear the CITGO's  appeal of the trial  court's  class
certification  order. This decision raised questions whether the trial court had
authority to proceed with the settlement.  Additionally,  the trial court sought
to impose  additional  conditions upon the settlement which were unacceptable to
CITGO.  For these  reasons,  CITGO opposed the approval and  enforcement  of the
settlement  agreement  as proposed to be revised  and  enforcement  has now been
stayed pending a ruling by the Texas Supreme Court. If the settlement  agreement
is  enforced,  CITGO  could be liable  for the full  settlement  amount of $17.3
million.  CITGO is pursuing an  independent  program to purchase the  properties
which were the subject of the purchase provisions of the settlement agreement.

                   In June 1997,  CITGO  settled  litigation  with a  contractor
which had claimed  additional  compensation  for sludge removal and treatment at
CITGO's Lake Charles, Louisiana refinery. The

                                       22

<PAGE>



settlement  did not have a material  effect on  CITGO's  financial  position  or
results of operations. CITGO believes that it has no further exposures to losses
related to this matter.

                  In  July  1997,  the  Texas  Natural  Resources   Conservation
Commission  ("TNRCC")  issued a  Preliminary  Report and Petition  alleging that
CITGO Refining and Chemicals Co., L.P. ("CITGO  Refining")  violated the TNRCC's
rules relating to operating a hazardous waste management unit without permit and
recommended  a  penalty  of  $699,200.   CITGO  Refining  disagrees  with  these
allegations  and the proposed  penalties  and is  negotiating  with the TNRCC to
settle this matter.

                  In addition,  the  Companies  are subject to various  federal,
state  and local  environmental  laws and  regulations  which  may  require  the
Companies to take action to correct or improve the effects on the environment of
prior  disposal or release of  petroleum  substances  by the  Companies or other
parties. Management believes the Companies are in compliance with these laws and
regulations in all material aspects.  Maintaining  compliance with environmental
laws  and   regulations  in  the  future  could  require   significant   capital
expenditures and additional operating costs.

                  PDV  America,   VPHI  Midwest,  Inc.  and  PDVMR  jointly  and
severally,  have agreed to indemnify  UNO-VEN and certain other related entities
against certain  liabilities and claims. See "Business -- Environment and Safety
-- Environment -- PDVMR".

                  The  Companies  are  vigorously  contesting  or  pursuing,  as
applicable,  such  lawsuits  and  claims  and the  Companies  believe  that  its
positions are sustainable.  The Companies have recorded accruals for losses they
consider  probable  and  reasonably  estimable.  However,  due to  uncertainties
involved in  litigation,  including the  significant  matters  noted above,  the
ultimate  outcomes are not reasonably  predictable,  and the losses, if any, are
not reasonably estimable. If such lawsuits and claims were to be determined in a
manner  adverse to the  Companies,  and in  amounts in excess of the  Companies'
accruals,  it is  reasonably  possible  that such  determinations  could  have a
material  adverse  effect on the  Companies  results  of  operations  in a given
reporting period. The term "reasonably possible" is used herein to mean that the
chance of a future  transaction or event  occurring is more than remote but less
than likely.  However,  based upon  management's  current  assessments  of these
lawsuits and claims and that provided by counsel in such matters and the capital
resources  available to the  Companies,  management  believes  that the ultimate
resolution  of these  lawsuits and claims would not exceed the  aggregate of the
amounts  accrued  in  respect of such  lawsuits  and  claims  and the  insurance
coverages  available to the Companies by a material  amount and are not expected
to have a  material  adverse  effect on the  Companies'  consolidated  financial
position, results of operation, or liquidity.

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

                  Not Applicable.

                                       23

<PAGE>



                                     PART II

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

                  The Company's common stock is not publicly traded.  All of the
Company's common stock is held by PDV Holding, Inc. ("PDV Holding"),  a Delaware
corporation,  whose ultimate parent is PDVSA. PDV America did not declare or pay
any dividends in 1997 and 1996. In January 1998, PDV America declared and paid a
dividend of $110 million to PDV Holding.

                         ITEM 6. SELECTED FINANCIAL DATA

                  The  following  table sets forth certain  selected  historical
consolidated  financial and  operating  data of PDV America as of the end of and
for each of the five years in the period ended  December 31, 1997. The following
table should be read in conjunction with the consolidated  financial  statements
of PDV America as of December 31, 1997 and 1996, and for each of the three years
in the period  ended  December  31,  1997,  included  in Item 8, which have been
audited by Deloitte & Touche LLP, independent auditors. The audited consolidated
financial  statements  of PDV  America  for each of the five years in the period
ended  December  31,  1997 have  been  prepared  on the  basis of United  States
generally accepted accounting principles.  The consolidated financial statements
of PDV  America at  December  31,  1995,  1994 and 1993 and for the years  ended
December 31, 1994 and 1993,  not  separately  presented  herein,  have also been
audited.

                                       24

<PAGE>




<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                             -----------------------------------------------------------------------------
                                                   1997(9)          1996         1995(7)           1994          1993(8)
                                             -----------------------------------------------------------------------------
                                                                            ($ in millions)

Income Statement Data
<S>                                                <C>            <C>            <C>              <C>            <C>
Sales                                              $13,622        $12,952        $10,522          $9,247         $9,112
Equity in earnings (losses) of affiliates (1)           69             45             48              55             52
Net revenues                                        13,754         13,071         10,647           9,374          9,193
Income before extraordinary charges
         and cumulative effect of accounting
         changes                                       228            138            143             205            155
Extraordinary gain (charges) (2)                        --             --              3             (2)             --
Cumulative effect of accounting
         changes (3)                                    --             --             --             (4)          (235)
Net income (loss)                                      228            138            146             199           (80)

Ratio of Earnings to Fixed Charges (4)               2.30x          1.94x          2.04x           2.65x          2.57x

Balance Sheet Data
Total assets                                        $7,244         $6,938         $6,220          $5,770         $5,138
Long-term debt (excluding current
         portion) (5)                                2,164          2,595          2,297           2,155          2,069
Total debt (6)                                       2,526          2,755          2,428           2,279          2,117
Shareholder's equity                                 2,589          2,111          1,973           1,812          1,584
</TABLE>


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

(1)  Includes  the  equity in the  earnings  of  UNO-VEN  of $0.4  million,  $23
     million, $15 million, $27 million and $22 million for the four months ended
     April 30, 1997 and the years ended December 31, 1996,  1995, 1994 and 1993,
     respectively.

(2)  Represents  extraordinary gain or (charges) for the early extinguishment of
     debt (net of related  income  tax  provision  of $2 million  and income tax
     benefits of $1 million in 1995 and 1994, respectively).

(3)  Represents the cumulative  effect of the accounting  change to Statement of
     Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for
     Postemployment  Benefits" in 1994 (net of related income tax benefits of $3
     million),  the cumulative  effect of the accounting change to SFAS No. 109,
     "Accounting  for  Income  Taxes" in 1993 and the  cumulative  effect of the
     accounting   change   to  SFAS  No.   106,   "Employers'   Accounting   for
     Postretirement Benefits Other than Pensions" in 1992 (net of related income
     tax benefits of $51 million).

(4)  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.

(5)  Includes  long-term  debt to third  parties,  note payable to affiliate and
     capital lease obligations.

(6)  Includes   short-term   bank  loans,   current  portion  of  capital  lease
     obligations and long-term debt,  long-term debt,  capital lease obligations
     and note payable to affiliate.

(7)  Includes operations of Cato Oil and Grease Company since May 1, 1995.

(8)  Includes operations of the Savannah Asphalt Refinery since April 30, 1993.

(9)  Includes operations of PDVMR since May 1, 1997.

                                       25

<PAGE>



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

Overview

                  The  following  discussion  of  the  financial  condition  and
results of  operations  of PDV America  should be read in  conjunction  with the
Consolidated Financial Statements of PDV America included elsewhere herein.

                  Petroleum industry operations and profitability are influenced
by a large number of factors,  some of which individual  petroleum  refining and
marketing  companies  cannot  entirely  control.  Governmental  regulations  and
policies,  particularly  in the areas of taxation,  energy and the  environment,
have a  significant  impact on petroleum  activities,  regulating  how companies
conduct their  operations  and  formulate  their  products,  and, in some cases,
directly  limiting their profits.  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. PDV America's consolidated operating results are affected both
by industry-specific factors and by company-specific factors such as the success
of wholesale 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 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 the Companies.

                  In general,  prices for  refined  products  are  significantly
influenced  by the  price of crude  oil,  feedstocks  and  blending  components.
Although an increase  or  decrease  in the price for crude oil,  feedstocks  and
blending  components  generally results in a corresponding  change in prices for
refined products, there is usually 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 PDV  America's  consolidated  operating  results  therefore
depends in part on how quickly refined product prices adjust to changes in crude
oil, feedstock or blending component prices. A substantial or prolonged increase
in crude oil prices without a corresponding  increase in refined product prices,
a  substantial  or  prolonged  decrease  in  refined  product  prices  without a
corresponding  decrease  in crude oil  prices,  or a  substantial  or  prolonged
decrease in demand for refined products could have a significant negative effect
on  the  Company's  earnings  and  cash  flows,  including  inventory  valuation
adjustments.  PDV America is  insulated to a  substantial  degree from the price
volatility  that the industry  experiences  due to the pricing  mechanism in the
long-term crude oil supply  agreements  (expiring in the year 2002 through 2013)
that it has with PDVSA,  which are designed to provide a relatively stable level
of gross margin on crude oil supplied by PDVSA.  CITGO's  supply  agreements are
designed  to reduce the  volatility  of  earnings  and cash  flows from  CITGO's
refining  operations  by providing a relatively  stable level of gross margin on
crude oil supplied by PDVSA.  This supply  represented  approximately 58% of the
crude oil processed in refineries  operated by CITGO,  including  PDVMR,  in the
year ended December 31, 1997. However, CITGO also purchases significant

                                       26

<PAGE>



volumes of refined  products to supplement the production from its refineries to
meet marketing demands and to resolve  logistical issues. PDV America's earnings
and cash flows are also affected by the cyclical nature of petrochemical prices.
Inflation was not a significant  factor in the operations of PDV America for the
three years ended 1997.  As a result of these  factors,  the  earnings  and cash
flows of PDV America may experience substantial fluctuations.

                  CITGO's  revenues  accounted  for  over  99% of PDV  America's
consolidated  revenues in 1997, 1996 and 1995. PDVMR's sales of $942 million for
the  period  May 1, 1997 to  December  31,  1997 were  primarily  to CITGO  and,
accordingly, these were eliminated in consolidation.  However, the operations of
PDVMR, including its investment in Needle-Coker,  contributed  approximately $53
million to the  Companies'  consolidated  gross  margin  and $43  million to PDV
America's consolidated income before interest and taxes in 1997.

                  Effective January 1, 1992, the supply agreements between PDVSA
and CITGO  with  respect  to the Lake  Charles,  Corpus  Christi  and  Paulsboro
refineries  were  modified  to reduce the price  levels to be paid by CITGO by a
fixed amount per barrel of crude oil purchased from PDVSA.  Such reductions were
intended  to  defray   CITGO's   costs  of  certain   environmental   compliance
expenditures.  This modification resulted in a decrease in the cost of crude oil
purchased under these agreements of  approximately  $70 million per year for the
years 1992 through 1994 as compared to the amount that would otherwise have been
payable  thereunder.  This  modification  was to expire at  December  31,  1996;
however, in 1995, PDVSA and CITGO agreed to adjust this modification so that the
1992 fixed  amount per barrel  would be reduced  and the  adjusted  modification
would not expire until December 31, 1999.  The effect of this  adjustment to the
original  modification  was to increase  the cost of crude oil  purchased  under
these agreements by approximately  $22 million and $44 million in 1995 and 1996,
respectively,  as compared to the amount that would  otherwise have been payable
thereunder  based on the original  modification  (resulting in a net decrease of
approximately $48 million and $26 million in 1995 and 1996,  respectively,  from
the amount  otherwise  payable  under the  agreement  prior to the 1992 original
modification).   In  1997,  the  effect  of  the  adjustments  to  the  original
modifications  was to  reduce  the price of crude oil  purchased  from  PDVSA by
approximately $25 million.  CITGO anticipates that the effect of the adjustments
to the original modifications will be to reduce the price of crude oil purchased
from PDVSA under these agreements by approximately  $25 million per year in 1998
through 1999, in each case as compared to the original  modification and without
giving  effect to any other  factors that may affect the price payable for crude
oil  under  these  agreements.  Due to the  pricing  formula  under  the  supply
agreements, the aggregate price actually paid for crude oil purchased from PDVSA
under these  agreements  in each of these years will depend  primarily  upon the
current  prices for refined  products and certain  actual costs of CITGO.  These
estimates  are also based on the  assumption  that CITGO will  purchase the base
volumes of crude oil under the agreements.

                  In July 1997, the Company's  senior  management  implemented a
Transformation  Program  designed  to ensure  that  numerous  expense  controls,
business  information systems and business efficiency  initiatives  underway are
effectively coordinated to achieve desired results. Included in this program are
reviews of the  Company's  business  units,  assets,  strategies,  and  business
processes.  These combined  actions include expected  personnel  reductions (the
"Separation Programs"). The cost of the Separation Programs is approximately $22
million  for the year ended  December  31,  1997.  In  addition,  as part of the
Transformation  Program, the first phase of Systems Applications and Products in
Data Processing ("SAP")  implementation,  which includes the Company's financial
reporting  systems  went into  production  on January 1,  1998.  Additional  SAP
modules are to be implemented throughout 1998 and 1999.

                                       27

<PAGE>




                   The following  table  summarizes the sources of PDV America's
sales revenues and volumes.

<TABLE>
<CAPTION>
                                            PDV America Sales Revenues and Volumes

                                     Year Ended December 31,        Year Ended December 31,
                                 -----------------------------  ----------------------------
                                    1997       1996     1995       1997      1996      1995
                                    ----       ----     ----       ----      ----      ----
                                         ($ in millions)                (MM gallons)

<S>                                <C>       <C>       <C>        <C>       <C>       <C>
Gasoline .......................   $ 7,754   $ 7,451   $ 6,367    11,953    11,308    11,075
Jet fuel .......................     1,183     1,489     1,163     2,000     2,346     2,249
Diesel/#2 fuel .................     2,439     2,312     1,356     4,288     3,728     2,730
Petrochemicals, industrial
 products and other ............     1,172       846       831     1,940     1,408     1,572
Asphalt ........................       398       257       238       749       569       503
Lubricants and waxes ...........       467       426       404       239       220       215
                                   -------   -------   -------   -------   -------   -------
     Total refined product sales   $13,413   $12,781   $10,359    21,169    19,579    18,344
Other sales ....................       209       171       163      --        --        --
                                   -------   -------   -------   -------   -------   -------
         Total sales ...........   $13,622   $12,952   $10,522    21,169    19,579    18,344
                                   =======   =======   =======   =======   =======   =======
</TABLE>



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

<TABLE>
<CAPTION>
                 PDV America Cost of Sales and Operating Expense

                                                              Year Ended December 31,
                                                             ------------------------
                                                             1997       1996     1995
                                                             ----       ----     ----
                                                                 ($ in millions)
<S>                                                        <C>       <C>       <C>
Crude oil ..............................................   $ 3,552   $ 3,053   $ 2,428
Refined products .......................................     6,739     7,139     5,504
Intermediate feedstocks ................................     1,240     1,000       898
Refining and manufacturing costs .......................       940       801       755
Other operating costs and expenses and inventory changes       527       498       481
                                                           -------   -------   -------
Total cost of sales and operating expenses .............   $12,998   $12,491   $10,066
                                                           =======   =======   =======
</TABLE>




Results of Operations -- 1997 Compared to 1996

                  Sales revenues and volumes.  Sales  increased by $670 million,
representing  a 5%  increase  from  1996 to  1997.  The  increase  was due to an
increase in sales volumes of 8% partially offset by an decrease in average sales
prices of 3%. Sales  volumes of light fuels  (gasoline,  diesel/#2  fuel and jet
fuel), excluding bulk sales made for logistical reasons, were up 7% from 1996 to
1997 and their  average  unit price  decreased  $0.02.  Gasoline  sales  volumes
increased  primarily  due to  successful  marketing  efforts,  including the net
addition of  approximately  335 new  independently  owned CITGO branded  outlets
since December 31, 1996, as well as additional  marketers  obtained  through the
transaction  relating to UNO-VEN.  See "Business -- PDV Midwest Refining,  LLC."
Petrochemical  sales volume rose 30% from 1996 to 1997. This increase,  combined
with an average increase in unit prices of $0.02,  resulted in a 33% increase in
petrochemical  sales  revenue  from 1996 to 1997.  Petrochemical  sales  volumes
increased primarily due to the increased  production of xylenes,  refinery grade
propylene and polymer grade  propylene  due to favorable  economics.  Industrial
products sales volumes increased 40% and average unit prices increased $0.03 for
a 48% increase in  industrial  products  sales  revenue  from 1996 to 1997.  The
increase in industrial  products  sales volumes was due to the  availability  of
product for sale from the

                                       28

<PAGE>



PDVMR  refinery.  Asphalt  sales revenue  increased  55% from 1996 to 1997.  The
increase was  primarily due to increases in sales  volumes,  up 32% from 1996 to
1997 and an 18% increase in sales price. The increase in asphalt sales volume is
due  primarily to the  Company's  efforts in  production  and  marketing to take
advantage of Sun Oil Company's  withdrawal  from the East Coast asphalt  market.
Lubricants  and wax  sales  revenue  increased  10%  from  1996  to 1997  due to
increases in both sales price and volume.

                  Equity in earnings (losses) of affiliates.  Equity in earnings
of affiliates increased by approximately $24 million, or 53% from $45 million in
1996 to $69 million in 1997.  This  increase was due  primarily to a $43 million
increase in CITGO's equity earnings of LYONDELL-CITGO which was due primarily to
the  change  in  CITGO's  interest  in   LYONDELL-CITGO   which  increased  from
approximately 13% at December 31, 1996 to approximately 42% on April 1, 1997 and
the improvement in LYONDELL-CITGO's  operations since completion of its refinery
enhancement  project during the first quarter of 1997.  Also,  subsequent to the
transfer of UNO-VEN assets,  the Companies have recorded $4 million of equity in
the  earnings of  Needle-Coker  from the period from May 1, 1997 to December 31,
1997.  These were offset by a $23 million  decrease in the equity in earnings of
UNO-VEN  from $23  million in 1996 to $.5  million  for the first four months of
1997. See "--PDV Midwest Refining, LLC" under "Business and Properties" and Note
9 of Notes to Consolidated Financial Statements.

                  Interest   income.   Interest  income  from  PDVSA  represents
interest income on the $1 billion notes  receivable  (hereafter  "Mirror Notes")
from PDVSA. The Mirror Notes were issued by PDVSA to PDV America in August 1993,
in connection with the Company's issuance of $1 billion of Senior Notes.

                  Other income  (expense).  Other income  (expense)  was $(14.5)
million for the year ended  December 31, 1997 as compared to $(3.4)  million for
the same period in 1996. The 1997 amount  includes $8.7 million in loss reserves
on a  lubricants  plant and  retail  properties,  a $5.8  write-off of a capital
project,  $5.8 million in fees related to the sale of trade accounts,  notes and
credit card  receivables  in June and November 1997 and a $2.6 million write-off
of miscellaneous  assets. These items were offset by a net $8.3 million property
insurance  recovery  relating to the Corpus Christi  alkylation unit fire during
the third quarter and a $1.3 million gain on the sale of pipeline  assets in the
first quarter of 1997.

                  Cost of  sales  and  operating  expenses.  Cost of  sales  and
operating  expenses  increased by $507 million,  or 4% from 1996 to 1997.  Lower
crude oil  purchases in 1997 as compared to 1996  resulted from a 7% decrease in
crude oil prices in 1997 as  compared to 1996,  and a 3%  decrease in  purchased
volumes in 1997 as compared to 1996.  Higher  intermediate  feedstock  purchases
were attributable to an 18% increase in volumes  purchased,  partially offset by
2%  decrease  in  prices.  Refinery  production  was  higher in 1997 than  1996;
however,  due to the increased sales volumes  mentioned  above,  refined product
purchases increased 7%. The increase in refined product purchases includes a 10%
increase in volumes offset by 3% lower refined product prices.  The increases in
refining  and  manufacturing  costs  are due  primarily  to  increased  costs of
purchased fuel and electricity at CITGO's Lake Charles refinery.

                  The Companies  purchase  refined  products to  supplement  the
production  from  their  refineries  to  meet  marketing   demands  and  resolve
logistical issues. The refined product purchases represented 52% and 57% of cost
of sales  for the years  1997 and  1996,  respectively.  These  refined  product
purchases  included purchases from  LYONDELL-CITGO and Chalmette.  The Companies
estimate that margins on purchased products,  on average, are lower than margins
on produced products

                                       29

<PAGE>



due to the fact that the Companies can only receive the marketing portion of the
total  margin  received on the produced  refined  products.  However,  purchased
products are not segregated from the Companies produced products and margins may
vary due to market  conditions and other factors beyond the Companies'  control.
As such, it is difficult to measure the effects on  profitability  of changes in
volumes of purchased products.  The Companies anticipate their purchased product
requirements will continue to increase, in volume and as a percentage of refined
products  sold, in order to meet marketing  demands,  although in the near term,
other  than  normal  refinery  turnaround  maintenance,  the  Companies  do  not
anticipate  operational actions or market conditions that might cause a material
change in anticipated  purchased product requirements;  however,  there could be
events beyond the Companies'  control that impact the volume of refined products
purchased. See also "Factors Affecting Forward Looking Statements".

                  Gross margin.  The gross margin for 1997 was $625 million,  or
4.6%,  compared to $461  million,  or 3.6% for 1996.  Gross margins in 1997 were
positively affected by high crude runs during periods of strong refining margins
as well as asphalt and  petrochemical  activities  (in each case,  as  discussed
above) and the positive contribution from PDVMR's refining operations.

                  Selling, general and administrative expenses. Selling, general
and  administrative  expenses  increased  $42 million,  or 25%, due primarily to
increased  selling  expenses in 1997 including the effect of the change in focus
of the Company's  marketing  programs  initiated in April 1996, and increases in
several other areas including purchasing,  administrative services,  information
systems  corporate  executive,  credit  card and  other  charges,  none of which
increased  more than $6 million  individually,  but in the  aggregate  increased
approximately  $30 million for the year.  Additionally,  the effect of including
PDVMR's  expenses  from May 1, 1997 to  December  31,  1997  contributed  to the
increase.

                  Interest expense.  Interest expense increased $15 million from
1996 to 1997.  The  increase  was  primarily  due to the public debt and certain
industrial  revenue  bonds  which were  outstanding  for the entire year in 1997
compared to only a partial  year during  1996 and  CITGO's  revolving  bank loan
which had a higher outstanding  balance during most of 1997 as compared to 1996.
The increase was also due to debt related to PDVMR.

                  Income taxes. PDV America's provision for income taxes in 1997
was $106  million,  representing  an  effective  tax rate of 32%.  In 1996,  PDV
America's provision for income taxes was $78 million,  representing an effective
tax rate of 36%. The decrease is due primarily to the favorable  resolution with
the  Internal   Revenue  Service  of  a  significant   tax  issue,   related  to
environmental  expenditures,  in the second  quarter of 1997.  The  decrease was
partially offset by the recording of a valuation  allowance related to a capital
loss carryforward that will more likely than not expire in 1998.

                   Net  income.  Net income was $228  million  for 1997 and $138
million for 1996.

Results of Operations--1996 Compared to 1995

                  Sales revenues and volumes. Sales increased by $2,430 million,
representing a 23% increase from 1995 to 1996. The increase was primarily due to
an increase in sales  volumes of 7% and an average  increase in sales  prices of
16%.  Sales  volumes of light  fuels  (gasoline,  diesel/#2  fuel and jet fuel),
excluding bulk sales made for logistical reasons, were up 10% from 1995 to 1996,
and their average unit price increased $0.10.  Gasoline sales volumes  increased
primarily due to successful marketing

                                       30

<PAGE>



efforts, including the net addition of approximately 470 new independently owned
CITGO branded outlets since December 31, 1995.  Petrochemical  sales volume rose
14% from 1995 to 1996.  This increase was offset by an average  decrease in unit
prices of $0.16,  resulting in a 3% decrease in petrochemical sales revenue from
1995 to 1996.  Industrial  products sales volumes decreased 31% and average unit
prices increased $0.02 resulting in a 27% decrease in industrial  products sales
revenue  from 1995 to 1996.  Asphalt  sales  revenues  increased 8% from 1995 to
1996. The increase was primarily due to increases in sales  volumes.  Lubricants
and wax sales  revenues  increased 5% from 1995 to 1996 due to increases in both
sales price and volume.

                  Equity in earnings (losses) of affiliates.  Equity in earnings
(losses) of affiliates decreased by approximately $3 million,  representing a 7%
decrease,  from $48 million in 1995 to $45 million in 1996.  This  decrease  was
primarily due to a $13 million  decrease in equity  earnings of  LYONDELL-CITGO,
partially offset by an increase in the earnings of UNO-VEN of $9 million. Almost
all of the  shortfall  in  LYONDELL-CITGO's  earnings  was  due to  lower  fuels
margins,  lower aromatics prices, higher natural gas prices,  operating problems
in the first half of the year and the impact of the expansion project startup on
existing operations. The increase in the earnings of UNO-VEN is due primarily to
higher refining product margins.

                  Interest   income.   Interest  income  from  PDVSA  represents
interest income on the Mirror Notes from PDVSA.  The Mirror Notes were issued by
PDVSA to PDV America in August 1993, in connection  with the Company's  issuance
of $1 billion of Senior Notes.

                  Cost of  sales  and  operating  expenses.  Cost of  sales  and
operating  expenses  increased by $2,425  million,  representing a 24% increase,
from  1995 to 1996.  Higher  crude oil  purchases  in 1996 as  compared  to 1995
resulted from a 22% increase in crude oil prices in 1996 as compared to 1995, or
approximately  $3.21 per barrel which  includes  approximately  $0.13 per barrel
related  to the  1995  adjustments  of the  PDVSA  crude  and  feedstock  supply
agreements  discussed in the  overview,  and a 3% increase in volumes in 1996 as
compared  to  1995.  Higher  costs  of  intermediate  feedstock  purchases  were
attributable to a 20% increase in prices,  partially  offset by a 7% decrease in
volumes purchased.  Refinery  production was higher in 1996 as compared to 1995;
however, due to the increased sales volumes mentioned above, the cost of refined
product  purchases  increased  30%.  The increase in refined  product  purchases
results  from a 13%  increase in volumes and a 15%  increase in refined  product
prices.  The increases in refining and manufacturing  costs are due primarily to
increased  costs of purchased  fuel and  electricity at CITGO's Lake Charles and
Corpus Christi refineries as well as the additional  manufacturing costs related
to the lubricants plant acquired in May 1995.

                  CITGO purchases  refined products to supplement the production
from its refineries to meet marketing demands and resolve logistical issues. The
refined product purchases represented 55% and 57% of cost of sales for the years
1995 and 1996, respectively. 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.  CITGO
anticipates its purchased  product  requirements  will continue to increase,  in
volume and as a percentage of refined  products sold, in order to meet marketing
demands.  CITGO does not anticipate  operational actions or market conditions in
the near

                                       31

<PAGE>



term (other than normal  refinery  turnaround  maintenance)  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 1996 was $461 million,  or
3.6%,  compared to $456 million,  or 4.3%, for 1995.  Gross margins in 1996 were
adversely  affected by refinery  operations in the first quarter,  the scheduled
modifications  to the  pricing  provisions  in the  crude and  feedstock  supply
agreements,  the decline in petrochemical  profitability,  increased  volumes of
refined  products  purchased as a percentage of sales volume and increased costs
of purchased fuel and electricity at the refineries throughout the year (in each
case, as discussed above).

                  Selling, general and administrative expenses. Selling, general
and administrative expenses increased by $3 million, representing a 2% increase,
due  primarily to increases  in salaries  and benefits and  increased  marketing
expenses  in 1996  including  the  effect  of the  change  in focus  of  CITGO's
marketing  programs  initiated  in April  1996.  The  primary  program in effect
through  March 1996 was designed to increase  the number of branded  outlets and
improve  CITGO's  overall  image.  Accordingly,  costs were and  continue  to be
expensed as incurred.  The program  initiated in April 1996 primarily focuses on
defending  market share and  increasing  volumes  sold to existing  marketers by
providing an incentive  which is earned over time.  The  accounting  for the new
program recognizes the program expenses when the incentives are earned.

                  Interest expense. Interest expense increased $7.8 million from
1995 to 1996. The increase was due primarily to increased borrowings,  offset by
a slightly lower weighted average interest rate on indebtedness.

                  Income taxes. PDV America's provision for income taxes in 1996
was $78  million,  representing  an  effective  tax rate of 36%.  In  1995,  PDV
America's provision for income taxes was $84 million,  representing an effective
tax rate of 37%.

                   Net income.  Net income was $138 million for 1996. Net income
of $146 million for 1995 included an after-tax  extraordinary gain of $3 million
on early extinguishment of debt.

Liquidity and Capital Resources

                  For the year ended  December 31, 1997,  PDV America's net cash
provided by operating activities totaled  approximately $447 million,  primarily
reflecting  $228  million  of net income and $241  million of  depreciation  and
amortization,  offset by net cash used by other items of $22  million.  The more
significant changes in other items included the decrease in accounts receivable,
including receivables from affiliates, of approximately $325 million,  partially
offset by the  increase in accounts  payable  and other  liabilities,  including
payables to affiliates,  of approximately $320 million and the increase of other
assets of approximately $87 million.  The decrease in accounts receivable is due
primarily to the sale of $125 million of CITGO's  trade  accounts  receivable in
June 1997 and the sale of $150  million in credit card  receivables  in November
1997,  proceeds of which were used  primarily to make  payments on the revolving
bank debt. The decrease in accounts payable is related  primarily to a reduction
in the payable related to crude oil and refined products purchased.

                                       32

<PAGE>



                  Net cash used in  investing  activities  in 1997  totaled $298
million,  consisting  primarily  of capital  expenditures  of $264  million  and
investments in  LYONDELL-CITGO  of $46 million and a loan to  LYONDELL-CITGO  of
$16.5 million  offset by $28 million of proceeds  from sales of property,  plant
and equipment.

                  During  the  same  period,   consolidated  net  cash  used  in
financing activities totaled approximately $146 million, consisting primarily of
proceeds of  approximately  $250  million from a capital  contribution  from PDV
America's  parent,  PDV Holding,  which was more than offset by the repayment of
$135 of UNO-VEN  notes,  repayments  of  revolving  bank loans of $106  million,
repayments  of short term bank loans of $50  million,  and  payments  on private
placement notes of $59 million.

                  The Companies currently estimate capital  expenditures for the
years 1998-2002 will total approximately $1.6 billion,  exclusive of investments
in LYONDELL-CITGO, as shown in the following table.

              Estimated Capital Expenditures - 1998 through 2002(1)

Strategic                                      $  736 million
Maintenance                                       381 million
Regulatory/Environmental                          475 million
                                               --------------
Total                                          $1,592 million


(1)  These estimates may change as future regulatory events unfold.

                  PDV  America's  $1  billion  senior  notes  issued in 1993 are
comprised of (i) $250 million 7 1/4% Senior Notes due August 1, 1998,  (ii) $250
million of 7 3/4% Senior Notes due August 1, 2000 and (iii) $500  million 7 7/8%
Senior Notes due August 1, 2003  (collectively the "Senior Notes").  Interest on
these notes is payable in semiannual  installments of $38 million,  representing
approximately  $77  million  for 1997.  PDV  America  intends  to repay the $250
million  Senior  Notes due August 1, 1998 with the  proceeds  received  from the
maturity of $250 million of Mirror Notes due from PDVSA on July 31, 1998.

                  As of December  31,  1997,  CITGO had an  aggregate  of $1,257
million of  indebtedness  outstanding  that matures on various dates through the
year  2026.  As of  December  31,  1997,  the  contractual  commitments  to make
principal  payments on this indebtedness were $98.2 million,  $211.5 million and
$47.1 million for 1998,  1999 and 2000,  respectively.  The bank credit facility
consists of a $58.8  million  term loan,  payable in quarterly  installments  of
principal  and interest  through  December  1999,  and a $675 million  revolving
credit facility maturing in December 1999, of which $135 million was outstanding
at December 31, 1997.  Cit-Con has a separate credit agreement under which $28.6
million was  outstanding  at December 31,  1997.  Other  principal  indebtedness
consists of (i) $199.7 million in senior notes issued in 1996, (ii) $260 million
in senior notes issued  pursuant to a master shelf  agreement  with an insurance
company,  (iii) $235 million in senior notes issued in 1991, (iv) $218.3 million
in obligations related to tax exempt bonds issued by various governmental units,
and (v) $118  million  in  obligations  related  to  taxable  bonds  issued by a
governmental unit. See Note 11 of Notes to Consolidated Financial Statements.

                  The debt  instruments  of PDV America,  PDVMR and CITGO impose
significant restrictions on PDV America's,  PDVMR's and CITGO's ability to incur
additional debt, grant liens,  make  investments,  sell or acquire fixed assets,
make restricted payments and engage in other transactions.

                                       33

<PAGE>



In  addition,  restrictions  exist  over the  payment  of  dividends  and  other
distributions to PDV America.  PDV America and CITGO were in compliance with all
their respective covenants under such debt instruments at December 31, 1997.

                  As of December 31, 1997,  capital  resources  available to the
Companies  included cash on hand,  available  borrowing  capacity  under CITGO's
revolving  credit  facility  of $540  million and $3 million for PDVMR in unused
availability  under  uncommitted  short-term  borrowing  facilities with various
banks. Additionally,  the remaining $400 million from CITGO's shelf registration
with the Securities and Exchange  Commission for $600 million of debt securities
may be offered and sold from time to time.  The Companies'  management  believes
that  they have  sufficient  capital  resources  to carry  out  planned  capital
spending programs,  including regulatory and environmental  projects in the near
terms,   anticipated  operating  needs,  debt  service  and  to  meet  currently
anticipated future  obligations as they arise. In addition,  PDV America intends
that  payments  received from PDVSA under the Mirror Notes will provide funds to
service PDV America's  Senior Notes. The Companies  periodically  evaluate other
sources of capital in the  marketplace  and anticipate  that  long-term  capital
requirements  will be  satisfied  with  current  capital  resources  and  future
financing  arrangements.  The  Companies'  ability to obtain such financing will
depend on  numerous  factors,  including  market  conditions  and the  perceived
creditworthiness  of the Companies at that time. See "Factors  Affecting Forward
Looking Statements".

                  PDV  America and its direct  subsidiaries  are also party to a
tax  allocation  agreement,  which is  designed  to  provide  PDV  America  with
sufficient cash to pay its consolidated income tax liabilities.

Derivative Commodity and Financial Instruments

                  In  1995,  1996 and  1997,  the  Company  used  commodity  and
financial instrument  derivatives to manage defined commodity price and interest
rate risks,  which arose out of the Company's core  activities.  The Company had
only limited involvement with other derivative financial instruments and did not
use  them  for  trading  purposes.  Beginning  in  1998,  the  Company  has been
reevaluating  its  use  of  derivative  commodity  and  financial   instruments;
therefore, non-hedging activity may increase.

                  The Company enters into petroleum futures  contracts,  options
and other over the counter commodity  derivatives,  primarily to hedge a portion
of the price risk associated with crude oil and refined products. In order for a
transaction to qualify for hedge accounting,  the Company requires that the item
to be hedged  exposes the Company to price risk and that the commodity  contract
reduces that risk and is designated  as a hedge.  The high  correlation  between
price movements of a product and the commodity  contract in that product is well
demonstrated  in the petroleum  industry and,  generally,  the Company relies on
those  historical  relationships  and on periodic  comparisons  of market  price
changes to price  changes of futures  and  options  contracts  accounted  for as
hedges. Gains or losses on contracts which qualify as hedges are recognized when
the related inventory is sold or the hedged transaction is consummated.  Changes
in the market value of commodity  derivatives  which are not hedges are recorded
as gains or losses in the period in which they occur.

                  The Company  also enters into various  interest  rate swap and
cap  agreements to manage its risk related to interest rate changes on its debt.
Premiums paid for purchased  interest rate swap and cap agreements are amortized
to interest expense over the terms of the agreements.  Unamortized  premiums are
included in other assets.  The interest rate  differentials  received or paid by
the Company

                                       34

<PAGE>



related to these  agreements are  recognized as adjustments to interest  expense
over the term of the  agreements.  Gains or losses on terminated swap agreements
are either  amortized over the original term of the swap agreement if the hedged
borrowings  remain  in  place,  or are  recognized  immediately  if  the  hedged
borrowings are no longer held.

                  The Company's commodity derivatives are generally entered into
through  major  brokerage  houses and traded on  national  exchanges  and can be
settled in cash or through delivery of the commodity.  Such contracts  generally
qualify for hedge  accounting  and correlate to market price  movements of crude
oil and refined products.  Resulting gains and losses, therefore, will generally
be offset  by gains  and  losses on the  Company's  hedged  inventory  or future
purchases and sales.  The  company's  derivative  commodity  activity is closely
monitored by management  and contract  periods are generally  less than 30 days.
Unrealized and deferred gains and losses on these contracts at December 31, 1997
and 1996 and the effects on cost of sales and pretax earnings for 1997, 1996 and
1995 were not material.  At times during 1996 and 1995, the Company entered into
commodity  derivatives  activities  that were not related to the hedging program
discussed  above.  This  activity  and its results  were not material in 1996 or
1995. There was no such activity in 1997.

                  CITGO  has  entered  into the  following  interest  rate  swap
agreements  to reduce  the  impact of  interest  rate  changes  on its  variable
interest rate debt:

                       CITGO Interest Rate Swap Agreements

                           Expiration  Fixed Rate     Notional Principal Amount
Variable Rate Index           Date         Paid        1997               1996
-------------------    --------------- ---------   ----------------------------
                                                          (in thousands)
One-month LIBOR        September 1998      4.85%   $  25,000        $  25,000
One-month LIBOR        November  1998      5.09       25,000           25,000
One-month LIBOR        May       2000      6.28       25,000           25,000
J. J. Kenny            May       2000      4.72       25,000           25,000
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
                                                   ------------     ----------
                                                   $ 142,000        $ 142,000
                                                   ============     ========--



                  PDVMR has non-taxable  variable rate pollution  control bonds,
with interest, currently paid monthly. The bonds have one payment at maturity in
the year 2008 to retire the principal,  and principal and interest  payments are
guaranteed by a $20.3 million letter of credit. An interest rate swap agreement,
based upon a notional  amount of $19.9  million fixes the variable rate at 5.36%
until October 26, 1998.

                  The fair value of the interest  rate swap  agreements in place
at December 31, 1997,  based on the estimated amount that CITGO would receive or
pay to  terminate  the  agreement as of that date,  taking into account  current
interest  rates  was an  unrealized  loss  of  approximately  $2.9  million.  In
connection  with the  determination  of such fair market  value,  the  Companies
consider  the  creditworthiness  of the  counterparties  but no  adjustment  was
determined to be necessary as a result.

                  Interest expense includes $0.8 million,  $1.1 million and $0.1
million in 1997, 1996 and 1995, respectively,  related to interest paid on these
agreements.  During 1995,  CITGO  converted $25 million of variable rate debt to
fixed rate borrowings and terminated the interest rate swap agreement

                                       35

<PAGE>



matched to the variable rate debt.  Other income in 1995 included a $2.4 million
gain related to the termination of this interest rate swap agreement. There were
no transactions of this type in 1996 or 1997.

                  During  1995,  CITGO  entered  into  a 9%  interest  rate  cap
agreement with a notional  principal amount of $25 million,  a reference rate of
three-month  LIBOR,  and an expiration date of February 1997. The effect of this
agreement was not material to the Company's  consolidated  results of operations
in 1997, 1996 or 1995.

                  Neither   CITGO  nor  the   counterparties   are  required  to
collateralize  their obligations under these derivative  commodity and financial
instruments.  CITGO is exposed to credit loss in the event of  nonperformance by
the counterparties to these agreements, but has no off-balance-sheet credit risk
of  accounting  loss  for  the  notional  amounts.  CITGO  does  not  anticipate
nonperformance by the counterparties, which consist primarily of major financial
institutions, at December 31, 1997.

New Accounting Standards

                  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 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. Subsequent adjustments,  to estimates to the extent required, may
be made as more refined  information  becomes  available.  Effective  January 1,
1997,  the  Company  adopted   Statement  of  Position  96-1  -   "Environmental
Remediation  Liabilities"  ("SOP  96-1").  The  statement  provides  guidance on
environmental liabilities and disclosures. The adoption of SOP 96-1 did not have
a  material  effect  on  the  consolidated  financial  position  or  results  of
operations of the Company.

                  Effective for the Company's  year ended December 31, 1997, the
Company adopted Statement of Financial Accounting Standards No. 129, "Disclosure
of  Information  About  Capital  Structure"  ("SFAS  No.  129").  SFAS  No.  129
establishes  standards for disclosing  information  about the Company's  capital
structure.  The  adoption  of this  standard  related to  disclosure  within the
financial  statements  and did  not  have a  material  effect  on the  Company's
financial statements.

                  In  June  1997,  the  Financial   Accounting  Standards  Board
("FASB") issued Statement of Financial  Accounting Standards No. 130, "Reporting
Comprehensive  Income"  ("SFAS No.  130") which is effective  for the  Company's
fiscal year ending December 31, 1998. The statement  addresses the reporting and
display  of  comprehensive  income  and its  components.  The  Company  does not
currently  believe  the  adoption  of SFAS  No.  130  will  result  in  material
differences between comprehensive income and net income.

                  In  June  1997,   the  FASB  issued   Statement  of  Financial
Accounting  Standards No. 131,  "Disclosures About Segments of an Enterprise and
Related  Information"  ("SFAS No.  31") which is  effective  for the fiscal year
ending  December  31,  1998.  SFAS No. 131 modifies  current  segment  reporting
requirements  and  establishes,  for public  companies,  criteria for  reporting
disclosures about a company's products and services,  geographic areas and major
customers in annual and interim financial  statements.  The Company is unable to
determine the full extent of disclosure changes that may result from adoption of
SFAS No.

                                       36

<PAGE>



131  because  of  the  potential  for  change  as  a  result  of  the  Company's
Transformation Program (see discussion on page 26), which began in July 1997.

                   In February  1998,  the FASB issued  Statement  of  Financial
Accounting Standards No. 132.  "Employers'  Disclosures about Pensions and Other
Postretirement  Benefits"  ("SFAS No. 132") which is effective for the Company's
fiscal year ending December 31, 1998. The statement  revises current  employers'
disclosure requirements for pensions and other postretirement  benefits. It does
not change the measurement or recognition of those plans.

Year 2000 Compliance

                  The  inability  of  computers,  software  and other  equipment
utilizing   microprocessors  to  recognize  and  properly  process  data  fields
containing a two-digit year is commonly  referred to as the Year 2000 Compliance
issue.  As the year 2000  approaches,  such systems may be unable to  accurately
process certain data-based information.

                  The   Companies  are   replacing   major   elements  of  their
information systems by implementing  Systems,  Applications and Products in Data
Processing ("SAP").  The first phase of SAP  implementation,  which included the
financial  reporting  systems,  was brought into  production on January 1, 1998.
Additional SAP modules will be implemented  throughout  1998 and 1999. The total
estimated cost of the SAP  implementation  is  approximately  $111 million which
includes software, hardware reengineering and change management.  Costs incurred
relating  to this  project  are either  capitalized  or  expensed as incurred in
accordance  with  generally  accepted  accounting  principles.   Management  has
determined that SAP is an appropriate solution to the Year 2000 Compliance issue
related to the systems on which SAP is implemented.

                  The  Companies  estimate that $1 million will be spent in 1998
and 1999 to address  the Year 2000  Compliance  issue by testing,  upgrading  or
replacing  its  information  systems  which  will  not be  replaced  by SAP.  In
addition,  approximately  $3 million will be spent in 1998 and 1999 to determine
the nature and cost of upgrades or  replacements  necessary  to address the Year
2000 Compliance issue in equipment other than information  systems and to assess
the  extent to which the  Company  is  vulnerable  to any third  party Year 2000
Compliance  issues.  These  efforts  are led by a  CITGO  team  supplemented  by
external  resources.  The cost to upgrade and/or replace such  equipment  and to
address any third party Year 2000  Compliance  issues is not known at this time.
Although  management  believes  solutions  and  alternatives  to the  Year  2000
Compliance  issue in these  systems  will be  identified,  there is no guarantee
thereof  or that  the  systems  which  will  not be  replaced  by SAP and  other
equipment  will all be Year 2000  compliant  before the end of 1999.  This could
result  in a system  failure  or  disruptions  of  operations  which  may have a
material adverse effect on the Company.  Further, there can be no guarantee that
the  systems of other  companies  on which the  Company's  systems  rely will be
upgraded or replaced on a timely basis,  or that a failure to convert by another
company or a conversion  that is incompatible  with the Company's  systems would
not have a material adverse effect on the Company.

                                       37

<PAGE>



                        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 14a of this report.  The Quarterly  Results of  Operations  are
reported in Note 17 of Notes to Consolidated  Financial  Statements  included in
Item 14a.

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

                  None.

                                       38

<PAGE>



                                    PART III

                    ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
                                OF THE REGISTRANT

                  The  directors  and  executive  officers of PDV America are as
follows:

Name                       Age          Position
----                       ---          --------

Claus Graf                 59           Chairman of the Board and Director
Alonso Velasco             56           President, Chief Executive and Financial
                                          Officer and Director
Angel E. Olmeta            60           Vice President and Director
Jose M. Portas             61           Secretary and Director
Francisco Bustillos        45           Treasurer and Chief Accounting Officer

                  Directors are elected to serve until their successors are duly
elected and  qualified.  Executive  officers  are  appointed by and serve at the
discretion of the Board of Directors.

                  Claus Graf has been a director of PDV America and  Chairman of
the Board  since  October  1994.  In March 1994,  Mr. Graf was  appointed a Vice
President  of  PDVSA.  From  1991 to 1994,  he  served  as a Vice  President  of
Corpoven,  S.A.,  and,  prior to that time, he was  Production  and  Exploration
Coordinator of PDVSA.

                  Alonso  Velasco has been a director of PDV America  since 1991
and President, Chief Executive and Financial Officer since 1993. Mr. Velasco was
Control and Finance  Coordinator  of PDVSA from 1991 until March 1994,  at which
time he was  appointed  a director  of PDVSA.  Between  1987 and 1991,  he was a
director of Interven, S.A., an affiliate of PDVSA.

                  Angel E.  Olmeta has been a director  of PDV  America and Vice
President since October 1994. Mr. Olmeta has been a director of CITGO since 1986
and was its Executive Vice President and Chief Operating Officer from 1991 until
1994. He was Managing Director of Petroleos de Venezuela (USA) Corp. in New York
from 1987 to 1991.

                  Jose M. Portas has been a director  of PDV America  since 1986
and Secretary  since 1987. Mr. Portas worked with various  subsidiaries of PDVSA
in Venezuela from 1976 until 1986.

                  Francisco  Bustillos has been  Treasurer and Chief  Accounting
Officer of PDV  America  since March  1996.  Mr.  Bustillos  was  appointed  the
Corporate  Finance  Functional  Manager of PDVSA in November 1995. Prior to that
time, he was a Finance Manager with Maraven,  S.A., an affiliate of PDVSA,  and,
throughout his career, he has held numerous  positions in accounting and finance
at Maraven, S.A. and other PDVSA affiliates.

                  PDV America's Board of Directors currently has no committees.

                                       39

<PAGE>



                         ITEM 11. EXECUTIVE COMPENSATION

                  For the year  ended  December  31,  1997,  the  directors  and
executive  officers of PDV America  received  compensation  in the  aggregate of
approximately $1,000,000.

                         ITEM 12. SECURITY OWNERSHIP OF
                    CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                  Not applicable.

                       ITEM 13. CERTAIN RELATIONSHIPS AND
                              RELATED TRANSACTIONS

                  PDV America is a wholly owned indirect subsidiary of PDVSA. As
a result,  PDVSA,  either  directly  or  indirectly,  nominates  and selects the
members of the Board of Directors of PDV America and its  subsidiaries.  Certain
members of the Board of Directors of PDV America are also directors or executive
officers of PDVSA.

                  CITGO and PDVMR have entered into  several  transactions  with
PDVSA or other  affiliates of PDVSA,  including  crude oil and feedstock  supply
agreements,  agreements for the purchase of refined products and  transportation
agreements.  These crude oil supply  agreements  require PDVSA to supply minimum
quantities  of crude  oil and  other  feedstocks  to CITGO and PDVMR for a fixed
period, ranging from five to 25 years. The supply agreements differ somewhat for
each entity and 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) certain  deemed  refining
costs;  (ii) certain  actual costs,  including  transportation  charges,  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 a  purchaser  under the  various  supply
agreements will vary depending on, among other things, the efficiency with which
such  purchaser  conducts  its  operations  during  such  period.  These  supply
agreements  are  designed  to reduce the  inherent  earnings  volatility  of the
refining and  marketing  operations of CITGO and PDVMR.  Prior to 1995,  certain
costs  were  used  in  the  CITGO   supply   agreement   formulas,   aggregating
approximately  $70 million per year,  which were to cease being deductible after
1996. Commencing in the third quarter of 1995, a portion of such deductions were
deferred  from 1995 and 1996 to the years 1997 through  1999. As a result of the
deferral, crude oil costs for 1995 increased by approximately $22 million, which
is  included  in cost  of  sales  and  operating  expenses,  and  will  increase
approximately $44 million for the year 1996 under these agreements. In 1997, the
effect of the adjustments to the original  modifications was to reduce the price
of crude oil  purchased  from PDVSA by  approximately  $25 million.  The Company
anticipates  that the effect of the  adjustments  to the original  modifications
will be to reduce  the price of crude  oil  purchased  from  PDVSA  under  these
agreements by approximately  $25 million per year in 1998 and 1999, in each case
as compared to the original  modification and without giving effect to any other
factors that may affect the price payable for crude oil under these  agreements.
Due to the pricing  formula under the supply  agreements,  the  aggregate  price
actually paid for crude oil purchased from PDVSA under these  agreements in each
of these  years will  depend  primarily  upon the  current  prices  for  refined
products and certain actual


                                       40

<PAGE>



costs of CITGO. These estimates are also based on the assumption that CITGO will
purchase the base volumes of crude oil under the agreements.

                  LYONDELL-CITGO is a Texas limited liability company which owns
and operates a 265 MBPD refinery in Houston, Texas. LYONDELL-CITGO was formed in
1993 by  subsidiaries  of CITGO and Lyondell,  referred to as the owners.  CITGO
contributed cash during the years 1993 through 1997 for a participation interest
and other commitments related to LYONDELL-CITGO's  refinery  enhancement project
and  Lyondell  contributed  the  Houston  refinery  and  related  assets for the
remaining  participation  interest. The refinery enhancement project to increase
the  refinery's  heavy  crude oil high  conversion  capacity  was  substantially
completed at the end of 1996 with an in-service date of March 1, 1997. The heavy
crude oil  processed  by the  Houston  refinery  is  supplied  by PDVSA  under a
long-term crude oil supply  contract  through the year 2017, and CITGO purchases
substantially all of the refined products produced at the Houston refinery under
a long-term contract. See Note 2 of Notes to Consolidated Financial Statements.

                  CITGO's  participation  interest in  LYONDELL-CITGO  increased
from  approximately  13% at December 31, 1996 to  approximately  42% on April 1,
1997, in accordance with agreements between the owners concerning such interest.
CITGO has a one-time option for 18 months from April 1, 1997 to increase, for an
additional investment, its participation interest to 50%.

                  CITGO loaned $16.5 million to LYONDELL-CITGO  during 1997. The
notes bear  interest at market  rates and are due July 1, 2003.  These notes are
included in other assets at December 31, 1997.

                  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.

                  On May 1, 1997,  PDV America and UNOCAL  closed a  transaction
relating to UNO-VEN. The transaction  transferred certain assets and liabilities
to  PDV  Midwest  Refining  LLC  ("PDVMR"),  a  subsidiary  of  PDV  America  in
liquidation  of PDV  America's  50%  ownership  interest in UNO-VEN.  The assets
include  a  refinery  in  Lemont,  Illinois,  as  well as  product  distribution
terminals  and  retail  sites  located  in the  Midwest.  CITGO  operates  these
facilities  and purchases the products  produced at the refinery.  See Note 4 of
Notes to Consolidated Financial Statements. A portion of the crude oil processed
by PDVMR is supplied by PDVSA under a long-term crude supply contract.

                  An affiliate  of PDVSA  entered into an agreement to acquire a
50% equity  interest in a refinery in  Chalmette,  Louisiana  ("Chalmette"),  in
October  1997 and has  assigned to CITGO its option to purchase up to 50% of the
refined products  produced at the refinery through December 31, 1998. See Note 4
of Notes to Consolidated  Financial  Statements.  CITGO exercised this option on
November 1, 1997 and is acquiring approximately 66 MBPD of refined products from
the refinery, approximately one-half of which is gasoline.

                  Under such long-term  supply  agreements  and refined  product
purchase agreements,  CITGO, PDVMR and LYONDELL-CITGO purchased approximately $2
billion,  $0.3 billion and $0.9 billion  respectively,  of crude oil, feedstocks
and refined products at market related prices from


                                       41

<PAGE>



PDVSA in 1997. At December 31, 1997,  $172 million was included in PDV America's
current payable to affiliates as a result of these transactions.

                  The  Companies  also  purchase  refined  products from various
other affiliates,  including LYONDELL-CITGO and Chalmette,  under various supply
agreements.  These  agreements  incorporate  various  formula  prices  based  on
published market prices and other factors.  Such purchases  totaled $1.9 billion
for 1997.  At  December  31,  1997,  $40  million  was  included  in payables to
affiliates as a result of these transactions.

                  The notes  receivable  from PDVSA are unsecured and consist of
$250 million  7.35% Notes Due August 1, 1998,  (ii) $250 million 7.75% Notes due
August 1, 2000 and (iii) $500 million 7.995% Notes Due August 1, 2003.  Interest
on these notes is payable semiannually by PDVSA to PDV America on February 1 and
August 1 of each year,  less one business  day. For the year ended  December 31,
1997, approximately $78 million of interest income is attributable to such notes
with $32 million  included in due from  affiliates at December 31, 1997.  Due to
the related notes of these notes  receivable,  it is not practicable to estimate
their fair value.

                  CITGO had refined  product,  feedstock and crude oil and other
product sales of $221 million to  affiliates,  including the Mount Vernon Phenol
Plant Partnership and LYONDELL-CITGO, in 1997. At December 31, 1997, $23 million
was included in "Due from affiliates" as a result of these transactions.

                  The Company has entered into a service agreement with PDVSA to
provide  financial and foreign agency  services.  Income from these services was
$0.9 million in 1997.

                  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 Note
15 of Notes to Consolidated Financial Statements.

                  PDV America and its direct  subsidiaries  are parties to a tax
allocation  agreement,  which is designed to provide PDV America with sufficient
cash to pay its consolidated income tax liabilities.


                                       42

<PAGE>



                                     PART IV

                   ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND
                               REPORTS ON FORM 8-K

a.  Certain Documents Filed as Part of this Report

         (1)  Financial Statements:

                                                                            Page
                                                                            ----

              Independent Auditors' Report..................................
              Consolidated Balance Sheets at December 31, 1997
                   and 1996.................................................
              Consolidated Statements of Income for the years ended
                   December 31, 1997, 1996 and 1995.........................
              Consolidated Statements of Shareholder's Equity
                   for the years ended December 31, 1997, 1996
                   and 1995.................................................
              Consolidated Statements of Cash Flows
                   for the years ended December 31, 1997, 1996
                   and 1995.................................................

              Notes to Consolidated Financial Statements....................

         (2)  Financial Statement Schedules:

              Schedule I - Condensed Financial Information of the Registrant

         (3)  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

         None.

c.  Exhibits

       *3.1   Certificate of Incorporation, Certificate of Amendment of
              Certificate of Incorporation and By-laws of PDV America

       *4.1   Indenture, dated as of August 1, 1993, among PDV America,
              Propernyn, PDVSA and Citibank, N.A., as trustee, relating to

--------
*   Previously filed in connection with the Registrant's Registration Statement
    on Form F-1, Registration No. 33-63742, originally filed with the
    Commission on June 2, 1993.


                                       43

<PAGE>



              PDV America's 7-1/4% Senior Notes Due 1998, 7-3/4%
              Senior Notes Due 2000 and 7-7/8% Senior Notes Due 2003

       *4.2   Form of Senior Note (included in Exhibit 4.1)

      *10.1   Crude Supply Agreement, dated as of September 30, 1986,
              between CITGO Petroleum Corporation and Petroleos de
              Venezuela, S.A.

      *10.2   Supplemental Crude Supply Agreement, dated as of
              September 30, 1986, between CITGO Petroleum Corporation
              and Petroleos de Venezuela, S.A.

      *10.3   Crude Oil and Feedstock Supply Agreement, dated as of
              March 31, 1987, between Champlin Refining Company and
              Petroleos de Venezuela, S.A.

      *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.

      *10.5   Contract for the Purchase/Sale of Boscan Crude Oil,
              dated as of June 2, 1994 between Tradecal, S.A., and
              CITGO Asphalt Refining Company

      *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

      *10.7   Sublease Agreement, dated as of March 31, 1987, between
              Champlin Petroleum Company, as Sublessor, and Champlin
              Refining Company, as Sublessee

      *10.8   Operating Agreement, dated as of May 1, 1984, among
              Cit-Con Oil Corporation, CITGO Petroleum Corporation and
              Conoco, Inc.

      *10.9   Amended and Restated Limited Liability Company
              Regulations of LYONDELL-CITGO Refining Company, Ltd.
              dated July 1, 1993

     *10.10   Contribution Agreement among Lyondell Petrochemical
              Company, LYONDELL-CITGO Refining Company, Ltd. and
              Petroleos de Venezuela, S.A.

___________
*    Previously filed in connection with the Registrant's Registration Statement
     on  Form  F-1,  Registration  No.  33-63742,   originally  filed  with  the
     Commission on June 2, 1993.



                                       44

<PAGE>

     *10.11   Crude  Oil  Supply  Agreement,  dated as of May 5,  1993,
              between LYONDELL-CITGO Refining Company, Ltd. and Lagoven,
              S.A.

     *10.12   Supplemental Supply Agreement,  dated as of May 5, 1993,
              between   LYONDELL-CITGO   Refining  Company,  Ltd.  and
              Petroleos de Venezuela, S.A.

     *10.13   The UNO-VEN Company Partnership  Agreement,  dated as of
              December 4, 1989,  between  Midwest  76,  Inc.  and VPHI
              Midwest, Inc.

     *10.14   Supply Agreement,  dated as of December 1, 1989, between
              The UNO-VEN Company and Petroleos de Venezuela, S.A.

     *10.15   Supplemental  Supply Agreement,  dated as of December 1,
              1989,  between The  UNO-VEN  Company  and  Petroleos  de
              Venezuela, S.A.

     *10.16   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.

    **10.17   Amendment and Supplement to Supply  Agreement,  dated as
              of  May  11,  1994,  between  The  UNO-VEN  Company  and
              Tradecal,  S.A.,  as assignee of Petroleos de Venezuela,
              S.A.

       12.1   Computation of Ratio of Earnings to Fixed Charges

       21.1   List of Subsidiaries of the Registrant.

       27.1   Financial Data Schedule

d.  Financial Statement Schedules

    The  schedules  filed by the  Company  are  listed in Item 14a above as
    required.

___________

*    Previously filed in connection with the Registrant's Registration Statement
     on  Form  F-1,  Registration  No.  33-63742,   originally  filed  with  the
     Commission on June 2, 1993.

**   Previously filed in connection with the Registrant's  Annual Report on Form
     10-K for the fiscal year ended December 31, 1994.


                                       45

<PAGE>



                                   SIGNATURES

                  Pursuant  to the  requirements  of  Section 13 or 15(d) of the
Securities Exchange Act 1934, the Registrant has caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 30, 1998.

                                                  PDV AMERICA, INC.

                                                  By    /s/Alonso Velasco
                                                     --------------------------
                                                           Alonso Velasco
                                                  President, Chief Executive and
                                                      Financial Officer

                  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/ Claus Graf                Chairman of the Board,          March 30, 1998
  --------------------------        Director
    Claus Graf

By  /s/ Alonso Velasco            President, Chief Executive      March 30, 1998
  ------------------------          and Financial Officer,
    Alonso Velasco                  Director

By  /s/ Jose M. Portas            Secretary, Director             March 30, 1998
  ------------------------
    Jose M. Portas

By  /s/ Francisco Bustillos       Treasurer, Chief                March 30, 1998
  ----------------------------      Accounting Officer
    Francisco Bustillos


                                       46

<PAGE>





INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholder of
PDV America, Inc.

                  We have audited the accompanying consolidated balance sheets
of PDV America, Inc. and subsidiaries (the "Company") as of December 31, 1997
and 1996, and the related consolidated statements of income, shareholder's
equity and cash flows for each of the three years in the period ended December
31, 1997. Our audits also included the financial statement schedule listed in
the Index as Item 14(a)(2). These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

                  We conducted our audits in accordance with generally accepted
auditing standards. 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 PDV America, Inc.
and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements, taken as a whole,
present fairly in all material respects the information set forth therein.

Deloitte & Touche LLP


February 13, 1998



<PAGE>



PDV AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------


ASSETS                                                                       1997        1996

<S>                                                                      <C>          <C>
CURRENT ASSETS:
   Cash and cash equivalents                                             $   35,268   $   32,845
   Accounts receivable, net                                                 666,264    1,004,098
   Due from affiliates                                                       55,883       60,123
   Inventories                                                            1,000,498      833,191
   Current portion of notes receivables from PDVSA                          250,000         --
   Prepaid expenses and other                                                20,872       25,093
                                                                         ----------   ----------

       Total current assets                                               2,028,785    1,955,350

NOTES RECEIVABLE FROM PDVSA                                                 750,000    1,000,000

PROPERTY, PLANT AND EQUIPMENT - Net                                       3,427,983    2,786,941

RESTRICTED CASH                                                               6,920        9,369

INVESTMENTS IN AFFILIATES                                                   841,323    1,040,525

OTHER ASSETS                                                                188,511      146,142
                                                                         ----------   ----------

TOTAL                                                                    $7,243,522   $6,938,327
                                                                         ==========   ==========

LIABILITIES AND SHAREHOLDER'S EQUITY

CURRENT LIABILITIES:
   Short-term bank loans                                                 $    3,000   $   53,000
   Accounts payable                                                         491,977      530,758
   Due to affiliates                                                        231,152      275,551
   Taxes other than income                                                  180,143      200,863
   Other current liabilities                                                275,086      237,115
   Income taxes payable                                                        --         21,137
   Current portion of long-term debt                                        345,099       95,240
   Current portion of capital lease obligation                               13,140       11,778
                                                                         ----------   ----------

       Total current liabilities                                          1,539,597    1,425,442

LONG-TERM DEBT                                                            2,047,708    2,465,336

CAPITAL LEASE OBLIGATION                                                    116,586      129,726

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS                                 199,765      183,370

OTHER NONCURRENT LIABILITIES                                                234,710      196,979

DEFERRED INCOME TAXES                                                       487,727      399,768

MINORITY INTEREST                                                            28,337       26,631

COMMITMENTS AND CONTINGENCIES

SHAREHOLDER'S EQUITY:
   Common stock, $1.00 par value - authorized, issued and outstanding,
       1000 shares                                                                1            1
   Additional capital                                                     1,482,435    1,232,435
   Retained earnings                                                      1,106,656      878,639
                                                                         ----------   ----------

       Total shareholder's equity                                         2,589,092    2,111,075
                                                                         ----------   ----------

TOTAL                                                                    $7,243,522   $6,938,327
                                                                         ==========   ==========
</TABLE>

See notes to consolidated financial statements.



                                      - 2 -

<PAGE>



PDV AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
THREE YEARS ENDED DECEMBER 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------


                                                                   1997              1996           1995

<S>                                                            <C>             <C>             <C>
REVENUES:                                                      $ 13,394,608    $ 12,698,366    $ 10,279,579
   Net sales                                                        227,595         253,694         242,581
                                                               ------------    ------------    ------------
   Sales to affiliates
                                                                 13,622,203      12,952,060      10,522,160

   Equity in earnings (losses) of affiliates - net                   68,930          44,906          48,130
   Interest income from PDVSA                                        77,725          77,725          77,725
   Other income (expense) - net                                     (14,487)         (3,373)         (1,289)
                                                               ------------    ------------    ------------

                                                                 13,754,371      13,071,318      10,646,726
                                                               ------------    ------------    ------------
COST OF SALES AND EXPENSES:
   Cost of sales and operating expenses (including purchases
       of $4,275,607; $4,001,471 and $3,321,128 from
       affiliates)                                               12,997,592      12,491,003      10,066,012
   Selling, general and administrative expenses                     211,423         169,159         165,693
   Interest expense:
       Capital leases                                                15,597          16,818          17,913
       Other                                                        193,868         177,544         168,633
   Minority interest                                                  1,706           1,013           1,993
                                                               ------------    ------------    ------------

                                                                 13,420,186      12,855,537      10,420,244
                                                               ------------    ------------    ------------
INCOME BEFORE INCOME TAXES AND
  EXTRAORDINARY ITEM                                                334,185         215,781         226,482

INCOME TAXES                                                        106,168          77,758          83,996
                                                               ------------    ------------    ------------

INCOME BEFORE EXTRAORDINARY ITEM                                    228,017         138,023         142,486

EXTRAORDINARY ITEM:
   Gain related to the early extinguishment of debt, net of
       related income taxes of $2,160                                  --              --             3,380
                                                               ------------    ------------    ------------

NET INCOME                                                     $    228,017    $    138,023    $    145,866
                                                               ============    ============    ============
</TABLE>


See notes to consolidated financial statements.




                                      - 3 -

<PAGE>



PDV AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------


                                                                                                                           Total
                                                          Common Stock              Additional         Retained        Shareholder's
                                                     Shares          Amount          Capital           Earnings           Equity

<S>                                                        <C>     <C>              <C>               <C>               <C>
BALANCE, JANUARY 1, 1995                                   1       $       1        $ 1,217,435       $   594,750       $ 1,812,186

   Capital contributions received from
     Parent                                                -               -             15,000         -                    15,000

   Net income                                              -               -                  -           145,866           145,866
                                                  ----------      ----------       ------------      ------------      ------------

BALANCE, DECEMBER 31, 1995                                 1               1          1,232,435           740,616         1,973,052

   Net income                                              -               -                  -           138,023           138,023
                                                  ----------      ----------       ------------      ------------      ------------

BALANCE, DECEMBER 31, 1996                                 1               1          1,232,435           878,639         2,111,075

   Capital contributions received from
     Parent                                                -               -            250,000         -                   250,000

   Net income                                              -               -                  -           228,017           228,017
                                                  ----------      ----------       ------------      ------------      ------------

BALANCE, DECEMBER 31, 1997                                 1       $       1        $ 1,482,435       $ 1,106,656       $ 2,589,092
                                                  ==========      ==========       ============      ============      ============
</TABLE>


See notes to consolidated financial statements.




                                      - 4 -

<PAGE>



PDV AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------


                                                                           1997                   1996                  1995
<S>                                                                 <C>                      <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                        $        228,017         $      138,023         $    145,866
Adjustments to reconcile net income to net cash provided
     by operating activities:
     Gain from early extinguishment of debt                                        -                      -               (3,380)
     Depreciation and amortization                                           240,523                192,585              167,885
     Provision for losses on accounts receivable                              17,827                 13,275                9,070
     Deferred income taxes                                                    82,145                  5,159               18,777
     Distributions in excess of (less than) equity in earnings
     (losses) of affiliates                                                   33,506                 (8,672)             (19,090)
     Postretirement benefits                                                 (10,605)                15,465               (7,404)
     Other adjustments                                                         7,397                  2,549                3,661
     Change in operating assets and liabilities, exclusive of
     acquisitions of businesses:
       Accounts receivable                                                   328,000               (199,333)             (68,072)
       Due from affiliates                                                    (2,642)                 1,253               (9,340)
       Inventories                                                           (95,107)               (47,916)               2,212
       Prepaid expenses and other current assets                               6,380                  6,525              (38,764)
       Accounts payable and other current liabilities                       (246,846)                92,265               36,995
       Income taxes payable                                                  (15,934)                 3,725                3,076
       Due to affiliates                                                     (73,417)                98,580               27,185
       Other assets                                                          (86,934)               (83,874)             (24,565)
       Other liabilities                                                      34,417                 35,833               85,809
                                                                   -----------------        ---------------       --------------

             Net cash provided by operating activities                       446,727                265,442              329,921
                                                                   -----------------        ---------------       --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                      (264,377)              (437,763)            (314,230)
  Proceeds from sales of property, plant and equipment                        28,194                  3,929                  843
  Decrease (increase) in restricted cash                                       2,449                (8,111)               41,629
Investments in LYONDELL-CITGO Refining Company,
      Ltd.                                                                   (45,635)              (142,638)            (178,875)
Loans to LYONDELL-CITGO Refining Company, Ltd.                               (16,509)                     -                    -
Investments in subsidiary and advances to other affiliates                    (2,442)                   (10)             (46,805)
                                                                   -----------------        ---------------       --------------

      Net cash used in investing activities                                 (298,320)              (584,593)            (497,438)
                                                                   -----------------        ---------------       --------------

                                                                                                                     (Continued)
</TABLE>




                                      - 5 -

<PAGE>



PDV AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------


                                                                                      1997                 1996                1995
<S>                                                                                   <C>               <C>               <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
       Net (repayments of) borrowings from revolving bank loan                        $(106,000)        $  60,000         $  95,000
       Net (repayments of) proceeds from short-term bank loans                          (50,000)           28,000           (28,500)
       Payments on term bank loan                                                       (29,412)          (29,412)           (7,353)
       Payments on private placement senior notes                                       (58,685)          (58,685)          (47,321)
       Proceeds from issuance of senior notes                                              --             199,694              --
       Proceeds from master shelf agreement                                                --                --             100,000
       Proceeds from issuance of taxable bonds                                             --             120,000              --
       Proceeds from issuance of tax-exempt bonds                                          --              25,000            90,700
       Payments on tax-exempt bonds                                                        --                --             (40,237)
       Payments of capital lease obligations                                            (11,778)          (11,252)           (9,017)
       (Repayments) borrowings of other debt                                             (5,109)           (7,143)            2,397
       Capital contributions received from parent                                       250,000              --              15,000
       Payment of UNO-VEN notes                                                        (135,000)             --                --
                                                                                      ---------         ---------         ---------

         Net cash (used in) provided by financing activities                           (145,984)          326,202           170,669
                                                                                      ---------         ---------         ---------

INCREASE IN CASH AND
       CASH EQUIVALENTS                                                                   2,423             7,051             3,152

CASH AND CASH EQUIVALENTS,
       BEGINNING OF YEAR                                                                 32,845            25,794            22,642
                                                                                      ---------         ---------         ---------

CASH AND CASH EQUIVALENTS,
       END OF YEAR                                                                    $  35,268         $  32,845         $  25,794
                                                                                      =========         =========         =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
       INFORMATION:
       Cash paid during the year for:
         Interest (net of amount capitalized)                                         $ 212,355         $ 197,798         $ 175,515
                                                                                      =========         =========         =========

         Income taxes, net of refunds of $1,449; $546 and $3,682
            in 1997, 1996 and 1995, respectively                                      $  48,639         $  58,492         $  64,204
                                                                                      =========         =========         =========


</TABLE>
See notes to consolidated financial statements.                      (Concluded)


                                      - 6 -

<PAGE>



PDV AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------


1.     SIGNIFICANT ACCOUNTING POLICIES

       Basis of Presentation - PDV America, Inc. (the "Company") was
       incorporated on November 14, 1986 and is a wholly-owned subsidiary,
       effective April 21, 1997, of PDV Holding, Inc. ("PDV Holding"), a
       Delaware corporation (see below). The Company's ultimate parent is
       Petroleos de Venezuela, S.A.
       ("PDVSA"), the national oil company of the Republic of Venezuela.

       On April 21, 1997, Propernyn B.V. ("Propernyn"), a Dutch limited
       liability company whose ultimate parent is PDVSA and which held all of
       the Company's common stock, contributed its shares of the Company to PDV
       Holding.

       Description of Business - The Companies (as defined below) manufacture or
       refine and market quality transportation fuels as well as lubricants,
       refined waxes, petrochemicals, asphalt and other industrial products.
       CITGO (as defined below) owns and operates two modern, highly complex
       crude oil refineries (Lake Charles, Louisiana, and Corpus Christi, Texas)
       and two asphalt refineries (Paulsboro, New Jersey, and Savannah, Georgia)
       with a combined aggregate rated crude oil refining capacity of 527
       thousand barrels per day ("MBPD"), CITGO also owns a minority interest in
       LYONDELL-CITGO Refining Company Ltd., a limited liability company that
       owns and operates a refinery in Houston, Texas, with a rated crude oil
       refining capacity of 265 MBPD. CITGO also operates a 153 MBPD refinery in
       Lemont, Illinois, owned by PDVMR (as defined below). CITGO's assets also
       include a 65 percent owned lubricant and wax plant, pipelines and equity
       interests in pipelines and equity interests in pipeline companies and
       petroleum storage terminals. Transportation fuel customers include
       primarily CITGO branded wholesale marketers, convenience stores and
       airlines located primarily east of the Rocky Mountains. Lubricants are
       sold to independent marketers, mass marketers and industrial customers
       and petrochemical feedstocks and industrial products are sold to various
       manufacturers and industrial companies throughout the United States.

       Principles of Consolidation - The consolidated financial statements
       include the accounts of the Company, its wholly-owned subsidiaries
       (including CITGO Petroleum Corporation ("CITGO") and its wholly-owned
       subsidiaries, Cit-Con Oil Corporation, which is 65 percent owned and VPHI
       Midwest, Inc. ("Midwest") and its wholly-owned subsidiary, PDV Midwest
       Refining, L.L.C. ("PDVMR") (collectively, the "Companies"). All material
       intercompany transactions and accounts have been eliminated.

       Prior to May 1, 1997, Midwest had a 50 percent interest in the UNO-VEN
       Company ("UNO-VEN"), an Illinois general partnership. Beginning May 1,
       1997, pursuant to the Partnership Interest Retirement Agreement (Note 9),
       PDVMR now owns certain UNO-VEN assets, as defined. Accordingly, the
       consolidated financial statements reflect the equity in earnings of
       UNO-VEN through April 30, 1997 (see Note 9) and the results of operations
       of PDVMR on a consolidated basis since May 1, 1997.


                                      - 7 -

<PAGE>



       The Companies' investments in affiliates are accounted for by the equity
       method. The excess 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 generally accepted accounting principles
       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.

       The Companies are sensitive to domestic and international political,
       legislative, regulatory and legal environments. Significant changes in
       the prices or availability of crude oil and refined products could have a
       significant impact on the results of operations for any particular year.

       Revenue Recognition - Revenue is recognized upon transfer of title to
       products sold, based upon the terms of delivery.

       Supply and Marketing Activities - The Companies engage in the buying and
       selling of crude oil to supply their refineries. The net results of this
       activity are recorded in cost of sales. The Companies also engage in the
       buying and selling of refined products to facilitate the marketing of
       their 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 Companies' last-in, first-out ("LIFO") method.
       Exchanges that are settled through payment or receipt of cash are
       accounted for as purchases or sales.

       Excise Taxes - The Companies collect excise taxes on sales of gasoline
       and other motor fuels. Excise taxes of approximately $3.2 billion, $2.7
       billion and $2.2 billion were collected from customers and paid to
       various governmental entities in 1997, 1996 and 1995, respectively.
       Excise taxes are not included in sales.

       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.

       Restricted Cash - Restricted cash represents highly liquid short-term
       investments held in trust accounts in accordance with a tax-exempt bond
       agreement. Funds are released solely for financing environmental
       facilities as defined in the bond agreements.

       Inventories - Crude oil and refined product inventories are stated at the
       lower of cost or market and cost is primarily determined using the LIFO
       inventory method. Materials and supplies are valued primarily 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 25 years; machinery and equipment - 3 to 25 years; and
       vehicles - 3 to 10 years.


                                      - 8 -

<PAGE>



       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 in income.

       The Companies capitalize interest on projects when construction takes
       considerable time and entails major expenditures. Such interest is
       allocated to property, plant and equipment and amortized over the
       estimated useful lives of the related assets. Capitalized interest
       totaled $7.8 million, $12 million and $5 million in 1997, 1996 and 1995,
       respectively.

       The Company periodically evaluates the carrying values of its property,
       plant and equipment and other long-lived assets for circumstances which
       may indicate impairment.

       Commodity and Interest Rate Derivatives - The Companies use commodity and
       financial instrument derivatives to manage defined interest rate and
       commodity price risks arising out of the Companies' core activities. The
       Companies have only limited involvement with other derivative financial
       instruments, and do not use them for trading purposes.

       The Companies enter into petroleum futures contracts, options and other
       over the counter commodity derivatives, primarily to hedge a portion of
       the price risk associated with crude oil and refined products. In order
       for a transaction to qualify for hedge accounting, the Companies require
       that the item to be hedged exposes the Companies to price risk and that
       the commodity contract reduces that risk and is designated as a hedge.
       The high correlation between price movements of a product and the
       commodity contract in that product is well demonstrated in the petroleum
       industry and, generally, the Companies rely on those historical
       relationships and on periodic comparisons of market price changes to
       price changes of futures and options contracts accounted for as hedges.
       Gains or losses on contracts which qualify as hedges are recognized when
       the related inventory is sold or the hedged transaction is consummated.
       Changes in the market value of commodity derivatives which are not hedges
       are recorded as gains or losses in the period in which they occur.

       The Companies also enter into various interest rate swap and cap
       agreements to manage their risk related to interest rate changes on their
       debt. Premiums paid for purchased interest rate swap and cap agreements
       are amortized to interest expense over the terms of the agreements.
       Unamortized premiums are included in other assets. The interest rate
       differentials received or paid by the Companies related to these
       agreements are recognized as adjustments to interest expense over the
       term of the agreements. Gains or losses on terminated swap agreements are
       either amortized over the original term of the swap agreement if the
       hedged borrowings remain in place or are recognized immediately if the
       hedged borrowings are no longer held.

       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 eight years.
       Unamortized costs are included in other assets. Amortization of refinery
       turnaround costs is included in depreciation and amortization expense.
       Amortization was $57 million, $53 million, and $43 million for 1997, 1996
       and 1995, respectively. Ordinary maintenance is expensed as incurred.

       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 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.
       Subsequent adjustments to

                                      - 9 -

<PAGE>



       estimates, to the extent required, may be made as more refined
       information becomes available. Effective January 1, 1997, the Company
       adopted Statement of Position 96-1 - "Environmental Remediation
       Liabilities" ("SOP 96-1"). The statement provides guidance on
       environmental liabilities and disclosures. The adoption of SOP 96-1 did
       not have a material effect on the consolidated financial position or
       results of operations of the Company.

       Income Taxes - The Companies account for income taxes using an asset and
       liability approach, in accordance with Statement of Financial Accounting
       Standards ("SFAS") No. 109, "Accounting for Income Taxes."

       Capital Structure - Effective for the year ended December 31, 1997, the
       Company adopted Statement of Financial Accounting Standards No. 129,
       "Disclosure of Information about Capital Structure" ("SFAS No. 129").
       SFAS No. 129 establishes standards for disclosing information about the
       Company's capital structure. The adoption of this standard related to
       disclosure within the financial statements and did not have a material
       effect on the Company's financial statements.


       Comprehensive Income - In June 1997, the Financial Accounting Standards
       Board ("FASB") issued Statement of Financial Accounting Standards No.
       130, "Reporting Comprehensive Income" ("SFAS No. 130"), which is
       effective for the Company's fiscal year ending December 31, 1998. The
       statement addresses the reporting and display of comprehensive income and
       its components. The Company does not currently believe the adoption of
       SFAS No. 130 will result in material differences between comprehensive
       income and net income.

       Segments - In June 1997, FASB issued Statement of Financial Accounting
       Standards No. 131, "Disclosures About Segments of an Enterprise and
       Related Information," which is effective for the Company's fiscal year
       ending December 31, 1998. SFAS No. 131 modifies current segment reporting
       requirements and establishes, for public companies, criteria for
       reporting disclosures about a company's products and services, geographic
       areas and major customers in annual and interim financial statements. The
       Company has not yet determined the full extent of disclosure changes that
       may result from adoption of SFAS No. 131.

2.     INVESTMENT IN LYONDELL-CITGO REFINING COMPANY LTD.

       LYONDELL-CITGO Refining Company Ltd. ("LYONDELL-CITGO") is a Texas
       limited liability company which owns and operates a 265 thousand barrel
       per day refinery in Houston, Texas. LYONDELL-CITGO was formed in 1993 by
       subsidiaries of CITGO and Lyondell Petrochemical Company ("Lyondell"),
       referred to as the owners. CITGO has contributed cash during the years
       1993 through 1997 for a participation interest and other commitments
       related to LYONDELL-CITGO's refinery enhancement project, and Lyondell
       contributed the Houston refinery and related assets for the remaining
       participation interest. The refinery enhancement project to increase the
       refinery's heavy crude oil high conversion capacity was substantially
       completed at the end of 1996 with an in-service date of March 1, 1997.
       The heavy crude oil processed by the Houston refinery is supplied by a
       subsidiary of PDVSA under a long-term crude oil supply contract through
       2017, and CITGO purchases substantially all of the refined products
       produced at the Houston refinery under a long-term contract (Note 4).

       CITGO's participation interest in LYONDELL-CITGO increased from 13% at
       December 31, 1996, to approximately 42% on April 1, 1997, in accordance
       with agreements between the owners concerning

                                     - 10 -

<PAGE>



       such interest. CITGO has a one-time option for 18 months from April 1,
       1997, to increase, for an additional investment, its participation to
       50%.

       CITGO loaned $16.5 million to LYONDELL-CITGO during 1997. The notes bear
       interest at market rates and are due July 1, 2003. These notes are
       included in other assets as December 31, 1997. 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. Information on CITGO's
       investment in LYONDELL-CITGO follows:

                                                  1997        1996        1995
                                                        (000's Omitted)

Investment at December 31                      $630,060    $604,729    $460,360
Participation interest at December 31                42%         13%         12%
Equity in net income                             44,429       1,254      14,142
Distributions received                           64,734        --          --
Notes receivable                                 16,509        --          --



3.     ACQUISITION OF BUSINESS

       On May 1, 1995, CITGO purchased Cato Oil & Grease Company ("Cato"). Cato
       is primarily engaged in the manufacture and distribution of lubricants.
       The results of operations of Cato are included in the accompanying
       financial statements since the date of acquisition. Pro forma results of
       operations for this business are not material to the Companies'
       consolidated statement of income. The total cost of this acquisition was
       $46.8 million, which was allocated as follows:

       Property, plant and equipment                          $27,000,000
       Inventory                                                8,643,000
       Accounts receivable                                      6,144,000
       Other assets (net)                                       5,018,500
                                                              -----------

                                                              $46,805,500



4.     RELATED PARTY TRANSACTIONS

       CITGO purchases approximately two-thirds of the crude oil processed in
       CITGO 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. CITGO
       purchased $2.9 billion, $2.4 billion, and $1.9 billion of crude oil,
       feedstocks and other products from wholly-owned subsidiaries of PDVSA in
       1997, 1996 and 1995, respectively under these and other purchase
       agreements.

       The crude oil supply contracts incorporate formula prices based on the
       market value of a number of refined products deemed to be produced from
       each particular crude oil, less (i) certain deemed refining costs
       adjustable for inflation, (ii) certain actual costs, including
       transportation charges, import duties and taxes and (iii) a deemed
       margin, which varies according to the grade of crude oil. Effective
       January 1,

                                     - 11 -

<PAGE>



       1992, the supply agreements with respect to CITGO's Lake Charles, Corpus
       Christi and Paulsboro refineries were modified to reduce the price levels
       to be paid by CITGO by a fixed amount per barrel of crude oil purchased
       from PDVSA. Such reductions were intended to defray CITGO's costs of
       certain environmental compliance expenditures. This modification resulted
       in a decrease in the cost of crude oil purchased under these agreements
       of approximately $70 million per year for the years 1992 through 1994 as
       compared to the amount that would otherwise have been payable thereunder.
       This modification was to expire at December 31, 1996; however, in the
       third quarter of 1995, PDVSA and CITGO agreed to adjust this modification
       so that the 1992 fixed amount per barrel would be reduced and the
       adjusted modification would not expire until December 31, 1999. The
       impact of this adjustment was an increase in crude cost of $44 million
       for 1996 and $22 million for 1995, over what would otherwise have been
       payable under the original 1992 modification. The effect of the
       adjustments to the original modifications reduced the price of crude oil
       purchased from PDVSA under these agreements by $25 million in 1997 and it
       is anticipated by management that the effect of the adjustments to the
       original modifications will be to reduce the price of crude oil purchased
       from PDVSA under these agreements by $25 million per year in 1998 and
       1999, in each case without giving effect to any other factors that may
       affect the price payable for crude oil under these agreements. Due to the
       pricing formula under the supply agreements, the aggregate price actually
       paid for crude oil purchased from PDVSA under these agreements in each of
       these years will depend primarily upon the then current prices for
       refined products and certain actual costs of CITGO. These estimates are
       also based on the assumption that CITGO will purchase the base volumes of
       crude oil under the agreements. At December 31, 1997 and 1996, $138
       million and $237 million, respectively, were included in payables to
       affiliates as a result of these transactions.

       CITGO also purchases refined products from various other affiliates
       including LYONDELL-CITGO, PDVMR and Chalmette under long-term contracts.
       These agreements incorporate various formula prices based on published
       market prices and other factors. Such purchases totaled $1.9 billion,
       $1.6 billion, and $1.4 billion for 1997, 1996 and 1995, respectively. At
       December 31, 1997 and 1996, $59 million and $38 million, respectively,
       were included in payables to affiliates as a result of these
       transactions.

       CITGO had refined product, feedstock, and other product sales of $221
       million, $190 million and $210 million to affiliates in 1997, 1996 and
       1995, respectively. The Company also sold crude oil to affiliates of $3
       million, $64 million and $32 million in 1997, 1996 and 1995,
       respectively. At December 31, 1997 and 1996, $23 million and $28 million,
       respectively, were included in due from affiliates as a result of these
       and related transactions.

       Pursuant to the Refinery Agreement with PDVMR (Note 9), on May 1, 1997,
       CITGO has been appointed operator of the Lemont refinery. The term of the
       agreement is 60 months and shall be automatically renewed for periods of
       12 months (subject to early termination as provided in the agreement).
       CITGO employed the substantial majority of employees previously employed
       by UNO-VEN and, as a result, CITGO assumed a liability for post
       retirement benefits other than pensions of $27 million related to those
       employees.

       PDVMR is party to a Contract For Purchase and Sale Of Crude Oil dated
       April 23, 1997, with Maraven S.A. ("Maraven"), a corporation organized
       and existing, at the date of the contract, under the laws of the Republic
       of Venezuela, and CITGO. In accordance with the contract, Maraven (or its
       successor) is obligated to provide a base volume of up to 100,000 barrels
       per day of Venezuelan crude, and CITGO as operator is responsible for
       administering the purchase of additional volumes of crude for the
       refinery. The Venezuelan crude is priced in accordance with a formula
       based upon posted crude prices less a

                                     - 12 -

<PAGE>



       quality differential. Maraven (or its successor), CITGO and PDVMR can
       change the amount and type of crude supplied in order to capture
       additional economic opportunities. The term of the agreement is sixty
       months with renewal periods of twelve months.

       During 1995, the Company entered into a service agreement with PDVSA to
       provide financial and foreign agency services. Income from these services
       was $0.9 million, $0.3 million and $1.3 million in 1997, 1996 and 1995,
       respectively.

       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 15.

       The notes receivable from PDVSA are unsecured and are comprised of $250
       million of 7.35% notes maturing on August 1, 1998, $250 million of 7.75%
       notes maturing on August 1, 2000, and $500 million of 7.995% notes
       maturing on August 1, 2003. Interest on these notes is payable
       semiannually by PDVSA to the Company on February 1 and August 1 of each
       year, less one business day. For each of the years ended December 31,
       1997, 1996 and 1995, approximately $78 million of interest income is
       attributable to such notes with $32 million included in due from
       affiliates at December 31, 1997 and 1996. Due to the related party nature
       of these notes receivable, it is not practicable to estimate their fair
       value.

       An affiliate of PDVSA entered into an agreement to acquire a 50 percent
       equity interest in a refinery in Chalmette, Louisiana ("Chalmette") in
       October 1997 and has assigned to CITGO its option to purchase up to 50
       percent of the refined products produced at the refinery through December
       31, 1998. CITGO exercised this option on November 1, 1997, and is
       acquiring approximately 80 thousand barrels per day of refined products
       from the refinery, approximately one-half of which is gasoline.

5.     ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>

                                                                      1997                       1996
                                                                                (000's Omitted)

<S>                                                             <C>                         <C>
       Trade                                                    $     580,247               $     770,069
       Credit card                                                     45,896                     203,329
       Other                                                           65,374                      48,406
                                                                -------------               -------------

                                                                      691,517                   1,021,804

       Less allowance for uncollectible accounts                      (25,253)                    (17,706)
                                                                -------------               -------------

                                                                $     666,264               $   1,004,098
                                                                =============               =============
</TABLE>



       Sales are made primarily on account, based on pre-approved unsecured
       credit terms established by management, except sales to airlines, which
       are made primarily on a prepaid basis. CITGO also has a proprietary
       credit card program and a Companion VISA bank card program, which allow
       retail

                                     - 13 -

<PAGE>



       consumers to purchase fuel and convenience items at CITGO branded
       outlets. Allowances for uncollectible accounts are established based on
       several factors, which include, but are not limited to, analysis of
       specific customers, historical trends, current economic conditions and
       other information.

       Effective June 27, 1997 and November 19, 1997, the Company established
       two new limited purpose subsidiaries, CITGO Funding Corporation and CITGO
       Funding Corporation II, which entered into agreements to sell, on an
       ongoing basis and without recourse, up to a maximum of $125 million of
       trade accounts receivable and $150 million of credit card receivables at
       any one point in time. These agreements have a minimum term of one year
       expiring in June 1998 and November 1998, respectively, and are renewable
       for successive one year terms by mutual agreement. Fees and expenses
       related to the agreements were recorded as Other Expense and were $5.8
       million for the year ended December 31, 1997. Proceeds of approximately
       $275 million from the initial sales were used primarily to make payments
       on the Company's revolving bank loan.

6.     INVENTORIES

                                                 1997             1996
                                                     (000's Omitted)

        Refined product                       $  734,261      $  616,527
        Crude oil                                196,349         165,564
        Materials and supplies                    69,888          51,100
                                              ----------      ----------

                                              $1,000,498      $  833,191
                                              ==========      ==========


       At December 31, 1997, replacement costs approximated LIFO carrying
       values. As of December 31, 1996, replacement costs exceeded LIFO carrying
       values by approximately $294 million.

7.     PROPERTY, PLANT AND EQUIPMENT

                                                             1997        1996
                                                             (000's Omitted)

        Land                                             $  153,448   $  113,158
        Building                                            512,012      440,175
        Machinery and equipment                           3,350,957    2,420,803
        Vehicles                                             47,952       42,977
        Construction in process                             135,406      373,006
                                                         ----------   ----------

                                                          4,199,775    3,391,119
                                                         ----------   ----------

        Less accumulated depreciation and amortization      771,792      604,178
                                                         ----------   ----------
                                                         $3,427,983   $2,786,941
                                                         ==========   ==========




                                     - 14 -

<PAGE>



       Depreciation expense for 1997, 1996 and 1995 was $178 million, $136
       million and $122 million, respectively.

       In 1997, CITGO incurred property damages from a fire at the Company's
       Corpus Christi, Texas refinery (Note 14). As a result, CITGO capitalized
       $14.5 million of replacement machinery and equipment. Other income
       (expense) included $9.4 million of insurance recoveries related to this
       event.

       Other income (expense) includes gains and losses on disposals and
       retirements of property, plant and equipment. Such net losses were
       approximately $14 million, $2 million and $4 million in 1997, 1996, and
       1995, respectively.

8.     CITGO'S INVESTMENTS IN AFFILIATES

       In addition to LYONDELL-CITGO (Note 2), CITGO's investments in affiliates
       consist of equity interests of 6.8 to 50 percent in joint interest
       pipelines and terminals, including a 13.98 percent interest in Colonial
       Pipeline Company; a 49.5 percent partnership interest in Nelson
       Industrial Steam Company ("NISCO"), which is a qualified cogeneration
       facility; and a 49 percent partnership interest in Mount Vernon Phenol
       Plant. The carrying value of these investments exceeded CITGO's equity in
       the underlying net assets by approximately $155 million and $160 million
       at December 31, 1997 and 1996, respectively.

       Due to various financing and capital transactions and net losses, at
       December 31, 1997 and 1996, NISCO has a partnership deficit. At December
       31, 1997 and 1996, CITGO's share of this deficit, as a general partner,
       was $49.6 million and $47 million, respectively, which is included in
       other noncurrent liabilities in the accompanying consolidated balance
       sheets.

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

<TABLE>
<CAPTION>
                                                                  1997      1996       1995
                                                                       (000's Omitted)

<S>                                                            <C>        <C>        <C>
        Investments in affiliates (excluding NISCO)            $813,923   $790,576   $650,360
        Equity in net income of affiliates                       64,460     21,481     33,530
        Dividends and distributions received from affiliates     91,742     31,157     29,040
</TABLE>


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


<TABLE>
<CAPTION>
                                                                  1997      1996       1995
                                                                       (000's Omitted)

<S>                                                            <C>        <C>        <C>
        Summary of financial position:
          Current assets                                     $  511,848   $  543,692   $  547,479
          Noncurrent assets                                   2,830,568    2,859,091    2,345,695
          Current liabilities                                   627,296      697,046      596,723
          Noncurrent liabilities                              2,025,709    1,999,276    1,659,729
        Summary of operating results:
          Revenues                                           $4,076,429   $4,158,684   $3,900,653
          Gross profit                                          628,559      475,227      574,103
          Net income                                            371,006      242,434      344,817
</TABLE>



                                     - 15 -

<PAGE>




9.     DISTRIBUTION OF UNO-VEN ASSETS

       Since 1989, the Company through various subsidiary's had a 50% interest
       in UNO-VEN. On May 1, 1997 pursuant to a Partnership Interest Retirement
       Agreement, PDV America and Union Oil Company of California ("UNOCAL")
       transferred certain assets and liabilities of UNO-VEN to PDVMR, a
       subsidiary of the Company, as a result of the liquidation of the
       Company's 50% ownership interest in UNO-VEN .The assets included a 153
       thousand barrel per day refinery in Lemont, Illinois, as well as eleven
       product distribution terminals and 89 retail sites located in the
       Midwest. CITGO operates these facilities and purchases the products
       produced at the refinery (Note 4).

       In connection with the transaction, the Company received a capital
       contribution of $250,000,000 from PDV Holding, the Company's parent. This
       contribution was used, in part, to pay off UNO-VEN's senior notes and to
       provide working capital.

       The transaction, for accounting purposes, has been treated as a purchase
       and, accordingly, the allocation of fair values to the underlying assets
       and liabilities acquired is based upon management's estimates and
       appraisals. Pro forma results of operations for this acquisition were not
       material.

       The allocation of the Company's basis in the partnership and the
       acquisition cost was as follows:

                                                           (000's Omitted)

        Accounts receivable                                   $  26,300
        Inventory                                                72,200
        Property, plant and equipment                           576,800
        Investment in The Needle Coker Company                   28,800
        Other assets                                             35,300
        Working capital facility with bank                      (13,000)
        Other current liabilities                              (257,600)
        Long-term debt                                         (154,900)
        Other noncurrent liabilities                            (68,700)
                                                              ---------

        PDVMR's equity                                        $ 245,200
                                                              =========



       Information with respect to UNO-VEN for the four months ended April 30,
       1997 and as of and for the years ended December 31, 1996 and 1995 is as
       follows:

                                                 1997      1996       1995
                                                      (000's Omitted)

        Investment in UNO-VEN                      N/A   $249,949   $231,600
        Equity in net income                  $    450     23,425     14,600
        Distributions received from UNO-VEN      5,194      5,076       --




                                     - 16 -

<PAGE>



       Financial information of UNO-VEN is as follows:

                                            1997        1996         1995
                                                   (000's Omitted)

       Summary of financial position:
         Current assets                     N/A     $  360,900   $  319,800
         Noncurrent assets                  N/A        562,700      570,100
         Current liabilities                N/A        265,800      259,600
         Noncurrent liabilities             N/A        158,000      167,100

       Summary of operating results:
         Revenues                       $ 567,500   $1,663,277   $1,352,100
         Gross profit                      37,400      150,000      139,000
         Net income                           900       46,890       29,200


       Under a long-term crude oil supply agreement, terminated by UNO-VEN's
       liquidation, and vessel transportation contracts, UNO-VEN purchased $964
       million and $684 million of crude oil from a wholly-owned subsidiary of
       PDVSA in 1996 and 1995, respectively. The terms and pricing formulas were
       similar to the Company's subsidiaries' crude oil supply agreements (see
       Note 4).

       UNO-VEN bought and sold refined products from/to Unocal. Agreements
       underlying these transactions defined the obligations and
       responsibilities of the parties. Pricing was in accordance with formulas
       based, in part, upon market-related prices of finished products. UNO-VEN
       also had a number of agreements with Unocal covering certain marketing,
       administrative, and technical functions.

10.    SHORT-TERM BANK LOANS

       As of December 31, 1997, CITGO has established $215 million of
       uncommitted, unsecured, short-term borrowing facilities with various
       banks. Interest rates on these facilities are determined daily based upon
       the Federal funds' interest rates, and maturity options vary up to 30
       days. The weighted average interest rates actually incurred in 1997, 1996
       and 1995 were 5.9 percent, 5.7 percent and 6.2 percent, respectively.
       CITGO had $3 million and $53 million of borrowings outstanding under
       these facilities at December 31, 1997 and 1996, respectively.


                                     - 17 -

<PAGE>



11.    LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                                          1997             1996
                                                                                             (000's Omitted)
<S>                                                                                  <C>             <C>
Senior notes:
    7.25% Senior Notes $250 million face amount due 1998                             $   249,859     $   249,631
    7.75% Senior Notes $250 million face amount due 2000                                 250,000         250,000
    7.875% Senior Notes $500 million face amount due 2003                                497,330         496,967

Shelf registration:
    7.875% Senior Notes $200 million face amount due 2006                                199,745         199,715

Revolving bank loans:
    Bank of America                                                                      135,000         350,000
    Various Banks                                                                        122,000            --

Term bank loan                                                                            58,823          88,235

Private Placement:
    8.75% Series A Senior Notes due 1998                                                  18,750          37,500
    9.03% Series B Senior Notes due 2001                                                 114,286         142,857
    9.30% Series C Senior Notes due 2006                                                 102,273         113,637

Master Shelf Agreement:
    8.55% Senior Notes due 2002                                                           25,000          25,000
    8.68% Senior Notes due 2003                                                           50,000          50,000
    7.29% Senior Notes due 2004                                                           20,000          20,000
    8.59% Senior Notes due 2006                                                           40,000          40,000
    8.94% Senior Notes due 2007                                                           50,000          50,000
    7.17% Senior Notes due 2008                                                           25,000          25,000
    7.22% Senior Notes due 2009                                                           50,000          50,000

Tax Exempt Bonds:
    Pollution control revenue bonds due 2004                                              15,800          15,800
    Port facilities revenue bonds due 2007                                                11,800          11,800
    Louisiana wastewater facility revenue bonds due 2023                                   3,020           3,020
    Louisiana wastewater facility revenue bonds due 2024                                  20,000          20,000
    Louisiana wastewater facility revenue bonds due 2025                                  40,700          40,700
    Gulf Coast solid waste facility revenue bonds due 2025                                50,000          50,000
    Gulf Coast solid waste facility revenue bonds due 2026                                50,000          50,000
    Port of Corpus Christi sewage and solid waste disposal revenue bonds due 2026         25,000          25,000
    Louisiana wastewater facility revenue bonds due 2026                                   2,000            --
    Pollution control bonds due 2008                                                      19,850            --

Taxable Louisiana wastewater facility revenue bonds due 2026                             118,000         120,000

Citi-Con bank credit agreement                                                            28,571          35,714
                                                                                     -----------     -----------

                                                                                       2,392,807       2,560,576
       Less current portion of long-term debt                                           (345,099)        (95,240)
                                                                                     -----------     -----------

                                                                                     $ 2,047,708     $ 2,465,336
                                                                                     ===========     ===========

</TABLE>


                                     - 18 -

<PAGE>



       In August 1993, the Company issued $1 billion principal amount of Senior
       Notes (the "Senior Notes") with interest rates ranging from 7.25 to 7.875
       percent with due dates ranging from 1998 to 2003. Interest on the Senior
       Notes is payable semiannually, commencing February 1, 1994. The Senior
       Notes represent senior unsecured indebtedness of the Company, and are
       structurally subordinated to the liabilities of the Company's
       subsidiaries. The Senior Notes are guaranteed by Propernyn and PDVSA. The
       Senior Notes contain certain covenants that restrict, among other things,
       the ability of the Company and its subsidiaries to incur additional debt,
       to pay dividends, place liens on property, and sell certain assets. The
       Company was in compliance with the debt covenants at December 31, 1997.

       In April 1996, CITGO filed a registration statement with the Securities
       and Exchange Commission relating to the shelf registration of $600
       million of debt securities that may be offered and sold from time to
       time. In May 1996, the registration became effective and CITGO sold a
       tranche of debt securities with an aggregate offering price of $200
       million. On October 28, 1997, CITGO entered into a Selling Agency
       Agreement with Salomon Brothers Inc. and Chase Securities Inc. providing
       for the sale of up to an additional $235 million in aggregate principal
       amount of notes in tranches from time to time by CITGO under the shelf
       registration.

       CITGO's credit agreement with various banks consists of a $125 million
       term loan and a $675 million revolving loan. The term loan is unsecured,
       has various interest rate options (year-end rate of 6.6 percent and 6.8
       percent at December 31, 1997 and 1996, respectively) and principal
       amounts are payable in quarterly installments. The revolving loan is
       unsecured, has various borrowing maturities and interest rate options
       (year-end rate of 6.9 percent and 6.7 percent at December 31, 1997 and
       1996, respectively), and is committed through December 31, 1999.

       PDVMR has a revolving credit facility with a consortium of banks which is
       committed through April 28, 2002 and allows for borrowings up to $125
       million at various interest rates. Inventories and accounts receivable of
       PDVMR are pledged as collateral. The facility contains certain covenants
       that impose limitations on the PDVMR for paying distributions, incurring
       additional debt, placing liens on property, making loans, and modifying
       or terminating certain supplies and operating agreements (Note 4). PDVMR
       was in compliance with these covenants at December 31, 1997. The interest
       rate at December 31, 1997 was 6.72%.

       At December 31, 1997, CITGO has outstanding approximately $235 million of
       privately placed, unsecured Senior Notes (the "Notes"). Principal amounts
       are payable in annual installments commencing in November 1995 for the
       Series A and Series B Notes and November 1996 for the Series C Notes.
       Interest is payable semiannually in May and November.

       At December 31, 1997, CITGO has outstanding $260 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.

       The various agreements above contain certain covenants that, depending
       upon the level of the Companies' capitalization and earnings, could
       impose limitations on the Companies for paying dividends, incurring
       additional debt, placing liens on property, and selling fixed assets. The
       Companies were in compliance with the debt covenants at December 31,
       1997.

       Through state entities, CITGO has issued $27.6 million of industrial
       development bonds for certain Lake Charles, Louisiana port facilities and
       pollution control equipment and $190.7 million of environmental revenue
       bonds to finance a portion of the Company's environmental facilities at
       its Lake Charles, Louisiana

                                     - 19 -

<PAGE>



       and Corpus Christi, Texas refineries and at the LYONDELL-CITGO refinery.
       These bonds are secured by letters of credit. The bonds bear interest at
       various floating rates which ranged from 3.7 percent to 3.9 percent at
       December 31, 1997, and 4.1 percent to 5.1 percent at December 31, 1996.

       During 1995, CITGO repurchased approximately $47 million of the Louisiana
       Revenue Bonds due in 2023 at a discount, resulting in an extraordinary
       gain of approximately $3.4 million, net of related income taxes of
       approximately $2.2 million.

       Through a state entity, CITGO has issued and currently outstanding $118
       million of taxable environmental revenue bonds to finance a portion of
       CITGO's environmental facilities at its Lake Charles, Louisiana refinery.
       Such bonds are secured by a letter of credit and have a floating interest
       rate which was 5.8 percent and 5.5 percent at December 31, 1997 and 1996,
       respectively. At the option of CITGO and upon the occurrence of certain
       specified conditions, all or any portion of such taxable bonds may be
       converted to tax-exempt bonds. At December 31, 1997, $2 million of the
       original $ 120 million had been converted to tax-exempt bonds.

       PDVMR has non-taxable variable rate pollution control bonds, with
       interest, currently paid monthly. The bonds have one payment at maturity
       in the year 2008 to retire the principal, and principal and interest
       payments are guaranteed by a $20.3 million letter of credit. An interest
       rate swap agreement, based upon a notional amount of $19.9 million fixes
       the variable rate at 5.36 percent until October 26, 1998.

       The Cit-Con bank credit agreement consists of a term loan collateralized
       by throughput agreements of the owner companies. The loan contains
       various interest rate options (weighted average effective rates of 6.5
       percent and 6.3 percent at December 31, 1997 and 1996, respectively), and
       requires quarterly principal payments through December 2001.

       Future maturities of long-term debt as of December 31, 1997 are:
       1998-$345.1 million; 1999-$211.5 million; 2000-$297.1 million; 2001-$47.1
       million; 2002-$158.4 million; and $1,333.6 million thereafter.

       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:

       CITGO's interest rate swap agreements:
<TABLE>
<CAPTION>

                                                                           Notional Principal Amount
                                 Expiration              Fixed Rate         1997               1996
       Variable Rate Index          Date                    Paid                (000's Omitted)


<S>                              <C>                      <C>             <C>                <C>
       One-month LIBOR           September 1998           4.85%           $ 25,000           $ 25,000
       One-month LIBOR           November 1998            5.09              25,000             25,000
       One-month LIBOR           May 2000                 6.28              25,000             25,000
       J.J. Kenny                May 2000                 4.72              25,000             25,000
       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
                                                                          --------           --------
                                                                          $142,000           $142,000
                                                                          ========           ========
</TABLE>



                                     - 20 -

<PAGE>




PDVMR's interest rate swap agreements:
<TABLE>
<CAPTION>
                                                                                          Notional Principal Amount
                                         Expiration              Fixed Rate                         1997
                                            Date                    Paid
Variable Rate Index                                                                            (000's Omitted)

<S>                                <C>                             <C>                           <C>
J.J. Kenny                         October 26, 1998                5.36%                         $ 19,850
                                                                                                 ========
</TABLE>


       Interest expense includes $0.8 million, $1.1 million, and $0.1 million in
       1997, 1996 and 1995, respectively, related to interest paid on these
       agreements. During 1995, CITGO converted $25 million of variable rate
       debt to fixed rate borrowings and terminated the interest rate swap
       agreement matched to the variable rate debt. Other income in 1995
       includes a $2.4 million gain related to the termination of this interest
       rate swap agreement.

12.    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 charged $19 million, $16
       million and $16 million to operations related to its contributions to
       these plans in 1997, 1996 and 1995, respectively.

       Pension Benefits - CITGO sponsors three qualified noncontributory defined
       benefit pension plans, two of which cover eligible hourly employees and
       one of which covers eligible salaried employees. CITGO also sponsors
       three nonqualified defined benefit plans for certain eligible employees.
       The qualified plans' assets include corporate securities, a fixed income
       mutual fund, two collective funds and a short-term investment fund. The
       nonqualified plans are not funded.

       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. 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.

       The Company's net periodic pension costs for these plans included the
       following components:

<TABLE>
<CAPTION>
                                                        1997          1996          1995
                                                                 (000's Omitted)

<S>                                                     <C>          <C>          <C>
       Service cost-benefits earned during the year     $ 15,759     $ 13,356     $ 11,498
       Interest cost on projected benefit obligation      14,246       12,787       11,496
       Actual return on plan assets                      (42,727)     (24,645)     (34,784)
       Net amortization and deferral                      25,818       10,068       23,777
                                                        --------     --------     --------

       Net periodic pension cost                        $ 13,096     $ 11,566     $ 11,987
                                                        ========     ========     ========
</TABLE>



                                     - 21 -

<PAGE>



       The following table summarizes the funded status of these plans and the
       related amounts recognized in the Company's consolidated financial
       statements:


<TABLE>
<CAPTION>
                                                                1997                        1996

                                                        Overfunded   Underfunded    Overfunded    Underfunded
                                                        Qualified    Nonqualified   Qualified     Nonqualified
                                                          Plans         Plans         Plans           Plans
                                                              (000's Omitted)             (000's Omitted)

       <S>                                               <C>           <C>           <C>           <C>
       Plan assets at fair value                         $ 221,261     $    --       $ 184,236     $    --
                                                         ---------     ---------     ---------     ---------
       Actuarial present value of benefit obligation:
        Vested benefits                                   (137,532)      (15,910)     (114,259)      (13,643)
        Nonvested benefits                                 (21,647)          (68)      (18,569)          (85)
                                                         ---------     ---------     ---------     ---------

       Accumulated benefit obligation                     (159,179)      (15,978)     (132,828)      (13,728)
       Effect of projected long-term compensation
        increases                                          (58,121)         (208)      (46,140)         (380)
                                                          ---------     ---------     ---------     ---------

       Total projected benefit obligation ("PBO")
                                                          (217,300)      (16,186)     (178,968)      (14,108)
                                                         ---------     ---------     ---------     ---------
       Plan assets in excess of (less than) PBO          $   3,961     $ (16,186)    $   5,268     $ (14,108)
                                                         =========     =========     =========     =========

       Pension liability recognized in the
       consolidated balance sheets                       $ (37,976)    $ (15,978)    $ (27,974)    $ (13,728)

       Amounts not recognized:
        Prior service costs                                  1,533        (1,719)        1,731        (1,956)
        Net gain at date of adoption                         1,548          --           1,816          --
        Net amount resulting from plan experience
          and net changes in actuarial assumptions          38,856        (2,607)       29,695        (1,582)
       Additional minimum liability
                                                              --           4,118          --           3,158
                                                         ---------     ---------     ---------     ---------
       Funded (underfunded) status as of year end        $   3,961     $ (16,186)    $   5,268     $ (14,108)
                                                         =========     =========     =========     =========
</TABLE>


       The underfunded plans relate to the plans in which assets at fair value
       are exceeded by the accumulated benefit obligation.

                                     - 22 -

<PAGE>



       Following are the significant assumptions used in determining the costs
       and funded status of these plans:

<TABLE>
<CAPTION>
                                                                                          1997            1996            1995
       <S>                                                                                 <C>             <C>             <C>
       Discount rate:
          Pension costs                                                                    7.5%            7.5%            8.0%
          Benefit obligations                                                              7.0             7.5             7.5
       Rate of long-term compensation increase:
          Pension costs                                                                    5.0             5.0             5.0
          Benefit obligations                                                              5.0             5.0             5.0
       Expected long-term rate of return on assets                                         9.0             8.5             8.5
</TABLE>


       Postretirement Benefits Other Than Pensions - In addition to pension
       benefits, the Companies also provide certain health care and life
       insurance benefits for eligible salaried and hourly employees at
       retirement. These benefits, which accrue during the period an employee
       provides services, are subject to deductibles, copayment provisions and
       other limitations and are primarily funded on a pay-as-you-go basis. The
       Company reserves the right to change or to terminate the benefits at any
       time.

       The following sets forth the funded status of the accumulated
       postretirement benefit obligation reconciled with amounts reported in the
       Company's consolidated balance sheet:

<TABLE>
<CAPTION>
                                                                                                  1997               1996
                                                                                                     (000's Omitted)
       <S>                                                                                  <C>                <C>
       Accumulated postretirement benefit obligation ("APBO"):
           Retirees                                                                         $   60,958         $   45,793
           Fully eligible active employees                                                      45,533             38,955
           Other active employees
                                                                                                73,915             64,402
                                                                                            ----------         ----------
           Total APBO                                                                          180,406            149,150
       Trust assets at fair value
                                                                                                   889                843
                                                                                               -------            -------
       APBO in excess of trust assets                                                          179,517            148,307
       Plus unrecognized net gain
                                                                                                23,948             38,763
                                                                                            ----------         ----------
       Postretirement benefit liability recognized in the consolidated balance sheets
           includes $3.7 million in other current
           liabilities at December 31, 1997 and 1996, respectively                         $   203,465        $   187,070
                                                                                           ===========        ===========
</TABLE>




                                     - 23 -

<PAGE>



       The Company's net periodic postretirement benefit cost (credit) included
       the following components:

<TABLE>
<CAPTION>
                                                                                 1997               1996               1995
                                                                                            (000's Omitted)
       <S>                                                                  <C>                <C>                <C>
       Service cost - benefits earned during the year                       $   6,786           $  7,047           $  5,819
       Interest cost on APBO                                                   12,359             11,982             12,089
       Actual return on trust assets                                              (47)               (50)               (43)
       Other - amortization of unrecognized net gain
                                                                              (27,581)              -               (21,603)
                                                                            ---------          ---------          ---------
       Net periodic postretirement benefit cost (credit)                    $  (8,483)         $  18,979          $  (3,738)
                                                                            =========          =========          =========
</TABLE>


       The amortization of unrecognized net gain (or loss) is due to changes in
       the APBO resulting from experience different from that assumed and from
       changes in assumptions. Gains (or losses) 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 APBO.
       Increases in the per capita costs of covered health care benefits of 8.0
       percent, 10.0 percent and 11.0 percent were assumed for 1997, 1996 and
       1995, respectively, gradually decreasing to a 5.5 percent ultimate rate
       by the year 2002. Increasing the assumed health care cost trend rates by
       one percentage point in each future year would increase the accumulated
       postretirement benefit obligation as of December 31, 1997 by $32.4
       million and increase the aggregate of the service cost and interest cost
       components of net periodic postretirement benefit cost for 1997 by $4.0
       million. Discount rates of 7.5 percent, 7.5 percent and 8.0 percent for
       1997, 1996 and 1995, respectively, were used to determine the net
       periodic postretirement cost. Discount rates of 7.0 percent and 7.5
       percent for 1997 and 1996, respectively were used to determine the
       accumulated postretirement benefit obligation.

       Employee Separation Programs - During 1997, CITGO's senior management
       implemented a Transformation Program designed to ensure that numerous
       expense control, business information systems and business efficiency
       initiatives underway are effectively coordinated to achieve desired
       results. Included in this program are reviews of CITGO's business units,
       assets, strategies, and business processes. These combined actions
       include expected personnel reductions (the "Separation Programs"). The
       cost of the Separation Programs is approximately $22 million for the year
       ended December 31, 1997.

       In accordance with the transfer of UNO-VEN's assets to PDVMR (Note 9),
       PDVMR assumed the responsibility for UNO-VEN's pension plans, which
       include both a qualified and a nonqualified plan which were frozen at
       their current levels on April 30, 1997. The plans cover former UNO-VEN
       employees who were eligible for participation in the plans as of April
       30, 1997. At December 31, 1997, plan assets consisted of equity
       securities, bonds and cash.

       Pension costs for the period May 1, 1997 to December 31, 1997 for the
       plans include the following components:

<TABLE>
<CAPTION>
                                                                                          Qualified        Nonqualified
                                                                                            Plans             Plans
                                                                                                (000's Omitted)

       <S>                                                                               <C>               <C>
       Interest cost on projected benefit obligation                                     $     2,800       $      100
       Actual return on plan assets                                                           (8,400)             -
       Net amortization and deferral                                                           4,700              -
                                                                                         -----------           ------

       Net periodic pension (benefit) cost                                               $      (900)      $      100
                                                                                         ===========       ==========
</TABLE>



                                     - 24 -

<PAGE>



       The following table shows the plans' funded position at December 31,
       1997:

<TABLE>
<CAPTION>
                                                                                   Qualified         Nonqualified
                                                                                     Plans               Plans
                                                                                          (000's Omitted)

<S>                                                                               <C>             <C>
       Plan assets at fair value                                                  $      65,800   $        -
       Projected benefit obligations                                                    (60,200)          (800)
       Unrecognized net losses                                                          -                  100
                                                                                  -------------   ------------

       Pension asset (accrued pension costs) recognized in the balance sheet      $       5,600   $       (700)
                                                                                  =============   ============
</TABLE>


       The assumed rates used to measure the plans' projected benefit
       obligations and the expected earnings of the plans' assets were as
       follow:

       Discount rate                                                        7.0%
       Expected long-term rate of return on assets                          9.5%

13.    INCOME TAXES

       The provisions for income taxes are comprised of the following:

<TABLE>
<CAPTION>
                                                                           1997               1996               1995
                                                                           ----               ----               ----
                                                                                         (000's Omitted)
        <S>                                                              <C>                 <C>                <C>
        Current:
          Federal                                                        $   24,369          $  69,698          $  60,152
          State                                                                (346)              2,901              5,067
                                                                         ----------          ----------         ----------

                                                                             24,023             72,599             65,219

        Deferred                                                             82,145              5,159             18,777
                                                                         ----------         ----------          ---------

                                                                         $  106,168          $  77,758          $  83,996
                                                                         ==========          =========          =========
</TABLE>



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

<TABLE>
<CAPTION>
                                                                                 1997           1996          1995

       <S>                                                                  <C>             <C>             <C>
       Federal statutory tax rate                                               35.0%          35.0%         35.0%
       State taxes, net of Federal benefit                                        2.7            3.2           3.4
       Dividend exclusions                                                      (2.3)          (3.5)         (3.2)
       Tax settlement                                                           (4.9)            -              -
       Other                                                                      1.2            1.3           1.9
                                                                            ---------       --------        ------

       Effective tax rate                                                        31.7%          36.0%         37.1%
                                                                            =========          =====         =====
</TABLE>



       The effective tax rate during 1997 decreased due primarily to the
       favorable resolution of a significant tax issue, related to environmental
       expenditures, with the IRS in 1997. The decrease was partially offset by

                                     - 25 -

<PAGE>



       the recording of a valuation allowance related to a capital loss
       carryforward that will more likely then not expire in 1998.

       Deferred income taxes reflect the net tax effects of (a) temporary
       differences between the carrying amounts of assets and liabilities for
       financial reporting purposes and the amounts used for income tax
       purposes, and (b) loss and tax credit carryforwards. The tax effects of
       significant items comprising the Company's net deferred tax liability as
       of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>

                                                                                              December 31,
                                                                                     1997                      1996
                                                                                            (000's Omitted)

       <S>                                                                       <C>                        <C>
       Deferred tax liabilities:
              Property, plant and equipment                                      $  546,726                 $466,889
              Inventories                                                            88,079                   70,420
              Investments in affiliates                                              93,201                   70,368
              Other                                                                  47,082                   30,513
                                                                                   --------                 --------

                                                                                    775,088                  638,190
                                                                                    -------                  -------
       Deferred tax assets:
              Postretirement benefit obligations                                     72,412                   77,905
              Marketing and promotional accruals                                     19,139                   23,236
              Employee benefit accruals                                              34,229                   30,027
              Alternative minimum tax credit carryforward                            74,117                   59,543
              Other                                                                  91,940                   60,762
                                                                                    -------                  -------

                                                                                    291,837                  251,473
                                                                                    -------                  -------

              Net deferred tax liability (of which $4,476 and
              $13,051 is included in prepaid expenses and other
              at December 31, 1997 and 1996, respectively)                        $ 483,251                $ 386,717
                                                                                  =========                =========
</TABLE>


       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.

       At December 31, 1997, the Company has capital loss carryforwards of $
       13.8 million, $ 9.6 million of which expire in 1998, $0.4 million of
       which expire in 2000, $2.3 million of which expire in 2001 and $1.5
       million which expire in 2002. At December 31, 1997, a valuation allowance
       of $1.4 million has been established related to this carryforward.

14.    COMMITMENTS AND CONTINGENCIES

       Litigation and Injury Claims - Various lawsuits and claims arising in the
       ordinary course of business are pending against the Companies. The
       Companies are vigorously contesting or pursuing, as applicable, such
       lawsuits and claims and believes that its positions are sustainable. The
       Companies have recorded accruals for losses it considers to be probable
       and reasonably estimable. However, due to the uncertainties involved in
       litigation, there are cases, including the significant matters noted
       below, in which the outcome is not reasonably predictable, and the
       losses, if any, are not reasonably estimable. If

                                     - 26 -

<PAGE>



       such lawsuits and claims were to be determined in a manner adverse to the
       Companies, and in amounts in excess of the Companies' accruals, it is
       reasonably possible that such determinations could have a material
       adverse effect on the Companies results of operations in a given
       reporting period. The term "reasonably possible" is used herein to mean
       that the chance of a future transaction or event occurring is more than
       remote but less than likely. However, based upon management's current
       assessments of these lawsuits and claims and that provided by counsel in
       such matters, and the capital resources available to the Companies,
       management of the Companies believes that the ultimate resolution of
       these lawsuits and claims would not exceed, by a material amount, the
       aggregate of the amounts accrued in respect of such lawsuits and claims
       and the insurance coverages available to the Companies and, therefore,
       should not have a material adverse effect on the Companies' financial
       condition, results of operations or liquidity.

       Included among these lawsuits and claims is litigation against CITGO by a
       number of current and former employees and applicants on behalf of
       themselves and a class of similarly situated persons asserting claims
       under federal and state laws of racial discrimination in connection with
       the employment practices at CITGO's Lake Charles refining complex; the
       plaintiffs seek injunctive relief and monetary damages and have appealed
       the Court's denial of class certification; the initial trials relating to
       this litigation are not currently included in the trial docket.

       In a case currently pending in the United States District Court for the
       Northern District of Illinois, Oil Chemical and Atomic Workers, Local
       7-517 ("Local 7-517") amended its complaint against UNO-VEN to assert
       claims against CITGO, PDVSA, the Company, PDVMR and UNOCAL pursuant to
       Section 301 of the Labor Management Relations Act ("LMRA"). This
       complaint alleges that CITGO and the other defendants constitute a single
       employer, joint employers or alter-egos for purposes of the LMRA, and are
       therefore bound by the terms of a collective bargaining agreement between
       UNO-VEN and Local 7-517 covering certain production and maintenance
       employees at a Lemont, Illinois, petroleum refinery. On May 1, 1997, in a
       transaction involving the former partners of UNO-VEN, the Lemont refinery
       was transferred to PDVMR. Pursuant to an operating agreement with PDVMR,
       CITGO became the operator of the Lemont refinery, and employed the
       substantial majority of employees previously employed by UNO-VEN pursuant
       to its initial employment terms, but did not assume the existing labor
       agreement. The union seeks compensation for monetary differences in
       medical, pension and other benefits between the CITGO and UNO-VEN plans
       and reinstatement of all of the UNO-VEN benefit plans. The union also
       seeks to require CITGO to abide by the terms of the collective bargaining
       agreement between the union and UNO-VEN. As an alternative claim against
       all defendants but CITGO, the union alleges that if the labor agreement
       is not binding on CITGO, there was a violation of the Federal Workers
       Adjustment Retraining and Notification Act by failure to give 60 days
       written notice of termination to approximately 400 UNO-VEN employees;
       this would allegedly entitle such workers to 60 days pay and benefits,
       which is estimated to be approximately $6 million.

       PDVMR and PDV America, jointly and severally, have agreed to indemnify
       UNO-VEN and certain other related entities against certain liabilities
       and claims, including the preceding two matters.

       On May 12, 1997, an explosion and fire occurred at CITGO's Corpus Christi
       refinery. There were no reports of serious personal injuries. Affected
       units were shut down for repair and were returned to full service in
       early August 1997. CITGO has property damage and business interruption
       insurance which related to this event. As a result, the property damage
       and business interruption did not have a material adverse effect on the
       Companies' financial condition or results of operations. There are
       presently five lawsuits against CITGO pending in federal and state courts
       in Corpus Christi, Texas, alleging property damage, personal injury and
       punitive damages allegedly arising from the incident and other similar

                                     - 27 -

<PAGE>



       lawsuits have been threatened. Approximately 6,000 individual claims have
       been received by the Company allegedly arising from the incident.

       Additionally, there is a class action lawsuit pending against CITGO and
       other operators and owners of nearby industrial facilities which was
       filed in state court in Corpus Christi, Texas, in 1993 on behalf of
       property owners in the vicinity of these facilities. The certification of
       this case as a class action in 1995 was appealed by CITGO and other
       parties. This lawsuit asserts property damage claims and diminution in
       property values allegedly resulting from environmental contamination in
       the air, soil, and groundwater, occasioned by ongoing operations of
       CITGO's Corpus Christi refinery and the respective industrial facilities
       of the other defendants. Two related personal injury and wrongful death
       lawsuits were filed in 1996 and are in preliminary stages of discovery at
       this time. In 1997 CITGO signed an agreement to settle the property
       damage class action lawsuit for approximately $17.3 million, which
       included the purchase of approximately 290 properties in an adjacent
       neighborhood. Of this amount, $15.7 million was expensed in 1997.

       CITGO submitted a settlement proposal to the court. The court appointed a
       guardian to review the proposed settlement terms. Subsequently, the Texas
       Supreme Court decided to hear CITGO's appeal of the trial court's class
       certification order. This decision raised questions as to whether the
       trial court had authority to proceed with the settlement. Additionally,
       the trial court sought to impose additional conditions upon the
       settlement, which were unacceptable to CITGO. For these reasons, CITGO
       opposed the approval and enforcement of the settlement agreement as
       proposed to be revised, and enforcement has now been stayed pending a
       ruling by the Texas Supreme Court. If the settlement agreement is
       enforced, CITGO could be liable for the full settlement amount of $17.3
       million. CITGO is pursuing an independent program to purchase the
       properties which were the subject of the purchase provision of the
       settlement agreement.

       In June 1997, CITGO settled litigation with a contractor who had claimed
       additional compensation for sludge removal and treatment at CITGO's Lake
       Charles, Louisiana, refinery. The settlement did not have a material
       effect on CITGO's financial position or results of operations. CITGO
       believes that it has no further exposures to losses related to this
       matter.

       Environmental Compliance and Remediation - The Companies are subject to
       various federal, state and local environmental laws and regulations which
       may require the Companies to take action to correct or improve the
       effects on the environment of prior disposal or release of petroleum
       substances by the Companies or other parties. Management believes the
       Companies are in compliance with these laws and regulations in all
       material respects. Maintaining compliance with environmental laws and
       regulations in the future could require significant capital expenditures
       and additional operating costs.

       In 1992, CITGO reached an agreement with a state agency to cease usage of
       certain surface impoundments at CITGO's Lake Charles refinery by 1994. A
       mutually acceptable closure plan was filed with the state in 1993. CITGO
       and a former owner 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, CITGO
       presented a proposal to a state agency revising the 1993 closure plan. A
       ruling on this proposal is expected in 1998 and actual closure is
       expected to be completed during 2000.

       In 1992, an agreement was reached between CITGO and a former owner
       concerning a number of environmental issues. The agreement consisted, in
       part, of payments to CITGO totaling $46 million.

                                     - 28 -

<PAGE>



       The former owner will continue to share the costs of certain specific
       environmental remediation and certain tort liability actions based on
       ownership periods and specific terms of the agreement.

       At December 31, 1997 and 1996 the Companies had $58 million and $56
       million, respectively, of environmental accruals included in other
       noncurrent liabilities. Based on currently available information,
       including the continuing participation of former owners in remediation
       actions and other environmental-related matters, management believes
       these accruals are adequate. Conditions which require additional
       expenditures may exist for various Companies' sites including, but not
       limited to, the Companies' operating refinery complexes, closed
       refineries, service stations and crude oil and petroleum product storage
       terminals. The amount of such future expenditures, if any, is
       indeterminable.

       Capital Expenditures - The Company's anticipated capital expenditures,
       excluding CITGO's investments in LYONDELL-CITGO, for the five-year period
       1998 to the year 2002 total approximately $1.6 billion (unaudited). The
       expenditures include environmental and regulatory capital projects as
       well as strategic capital expenditures. At December 31, 1997, authorized
       expenditures on incomplete capital projects totaled approximately $173.3
       million.

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

       Throughput Agreements - CITGO 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,
       CITGO may be required to provide its pipeline affiliates with additional
       funds through advances against future charges for the shipping of
       petroleum products. CITGO currently ships on these pipelines and has not
       been required to advance funds in the past. At December 31, 1997, CITGO
       has no fixed and determinable, unconditional purchase obligations under
       these agreements.

       Marine Spill Response Arrangements - During the third quarter of 1995
       CITGO entered into a contract with National Response Corporation for
       marine oil removal services capability and terminated its relationship
       with the previous provider of that service. CITGO paid a cancellation fee
       of approximately $16 million, which is included in cost of sales and
       operating expenses in 1995.

       Commodity Derivative Activity - The Companies' commodity derivatives are
       generally entered into through major brokerage houses and traded on
       national exchanges and although usually settled in cash, can be settled
       through delivery of the commodity. Such contracts generally qualify for
       hedge accounting and correlate to price movements of crude oil and
       refined products. Resulting gains or losses, therefore, will generally be
       offset by gains and losses on the Companies' hedged inventory or future
       purchases and sales. The Companies' derivative commodity activity is
       closely monitored by management and contract periods are generally less
       than 30 days. Unrealized and deferred gains and losses on these contracts
       at December 31, 1997 and 1996 and the effects on cost of sales and pretax
       earnings for 1997, 1996 and 1995 were not material. At times during 1996
       and 1995, the Companies entered into commodity derivatives activities
       that were not related to the hedging program discussed above. This
       activity and its results were not material in 1996 or 1995. There was no
       such activity in 1997.


                                     - 29 -

<PAGE>



       Other Credit and Off-Balance-Sheet Risk Information as of December 31,
       1997 - CITGO has guaranteed approximately $12 million of debt of certain
       of its marketers and an affiliate. Such debt is substantially
       collateralized by assets of these entities. CITGO and PDVMR have
       outstanding letters of credit totaling approximately $388 million which
       includes $366 million related to their tax-exempt bonds, taxable revenue
       bonds and pollution control bonds (Note 11). CITGO has also acquired
       surety bonds totaling $42 million primarily due to requirements of
       various government entities. CITGO does not expect liabilities to be
       incurred related to such guarantees, letters of credit or surety bonds.

       Neither CITGO nor the counterparties are required to collateralize their
       obligations under interest rate swaps or caps or over-the-counter
       derivative commodity agreements. CITGO is exposed to credit loss in the
       event of nonperformance by the counterparties to these agreements, but
       has no off-balance-sheet risk of accounting loss for the notional
       amounts. CITGO does not anticipate nonperformance by the counterparties,
       which consist primarily of major financial institutions at December 31,
       1997.

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

15.    LEASES

       CITGO leases certain of its Corpus Christi refinery facilities under a
       long-term lease. The basic term of the lease expires on January 1, 2004;
       however, CITGO may renew the lease until January 31, 2011, the date of
       its purchase option. Capitalized costs included in property, plant and
       equipment related to the leased assets were approximately $209 million at
       December 31, 1997 and 1996. Accumulated amortization related to the
       leased assets was approximately $94 million and $86 million at December
       31, 1997 and 1996, respectively. Amortization is included in depreciation
       expense.

       The Companies also have various noncancellable operating leases,
       primarily for product storage facilities, office space, computer
       equipment and vehicles. Rent expense on all operating leases totaled $39
       million, $33 million and $33 million in 1997, 1996 and 1995,
       respectively. Future minimum lease payments for the capital lease and
       noncancellable operating leases are as follows:




                                     - 30 -

<PAGE>


<TABLE>
<CAPTION>

                                                         Capital                Operating
       Year                                               Lease                  Leases                   Total
                                                                           (000's Omitted)

       <S>                                               <C>              <C>                <C>
       1998                                              $  27,375        $   27,900         $   55,275
       1999                                                 27,375            21,229             48,604
       2000                                                 27,375            18,336             45,711
       2001                                                 27,375            16,491             43,866
       2002                                                 27,375            15,794             43,169
       Thereafter                                           63,375            17,286             80,661
                                                        ----------        ----------         ----------

       Total minimum lease payments                      $ 200,250        $  117,036          $ 317,286
                                                         =========        ==========          =========

       Amount representing interest                        (70,524)

       Present value of minimum lease payments             129,726

       Current portion                                      13,140
                                                         =========

                                                         $ 116,586
                                                         =========
</TABLE>


16.    FAIR VALUE INFORMATION

       The following disclosure of the estimated fair value of financial
       instruments is made in accordance with the requirements of SFAS No. 107,
       "Disclosures about Fair Value of Financial Instruments." The estimated
       fair value amounts have been determined by the Companies, 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
       Companies 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 and cash equivalents, and restricted cash
       approximate fair values because of the short maturity of these
       instruments. The carrying amounts and estimated fair values of the
       Companies' other financial instruments are as follows:
<TABLE>
<CAPTION>

                                                                   1997                                       1996
                                                                   ----                                       ----
                                                      Carrying               Fair                Carrying                Fair
                                                       Amount                Value                Amount                Value
                                                             (000's Omitted)                            (000's Omitted)
       <S>                                        <C>                  <C>                    <C>                  <C>
       Liabilities:
        Short-term bank loans                     $      3,000         $      3,000           $    53,000          $    53,000
        Long-term debt                               2,392,807            2,454,728             2,560,576            2,597,556

       Derivative and Off-Balance
         Sheet Financial Instruments-
         Unrealized Gains (Losses):
            Interest rate swap agreements               -                    (3,225)               -                    (1,093)
            Guarantees of debt                          -                       (59)               -                       (60)
            Letters of credit                           -                    (1,848)               -                    (1,741)
            Surety bonds                                -                      (119)               -                      (100)
</TABLE>



                                     - 31 -

<PAGE>





       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 Companies for issuance of debt with similar
       terms and remaining maturities, except for the Company's $1 billion
       principle amount senior notes which were based upon quoted market prices.

       Interest Rate Swap and Cap Agreements - The fair value of these
       agreements is based on the estimated amount that CITGO and PDVMR would
       receive or pay to terminate the agreements at the reporting date, 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.

17.    QUARTERLY RESULTS OF OPERATIONS - UNAUDITED

       The following is a summary of the quarterly results of operations for the
       years ended December 31, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>

       1997                                             1st Qtr.              2nd Qtr.             3rd Qtr.              4th Qtr.

<S>                                                    <C>                   <C>                  <C>                   <C>
         Sales                                         $3,262,726            $3,440,392           $3,564,105            $3,354,980
                                                       ==========            ==========           ==========            ==========

         Cost of sales and operating
            expenses                                   $3,177,759            $3,255,776           $3,313,878            $3,250,179
                                                       ==========            ==========           ==========            ==========

            Net income                                $    15,048           $    77,993           $  104,331           $    30,645
                                                      ===========           ===========           ==========           ===========



      1996                                              1st Qtr.              2nd Qtr.             3rd Qtr.              4th Qtr.

         Sales                                         $2,607,195            $3,333,996           $3,310,456            $3,700,413
                                                       ==========            ==========           ==========            ==========

         Cost of sales and operating
            expenses                                   $2,521,101            $3,229,290           $3,186,413            $3,554,199
                                                       ==========            ==========           ==========            ==========

            Net income                                $    14,755           $    36,002          $    36,212           $    51,054
                                                      ===========           ===========          ===========           ===========
</TABLE>


18.    SUBSEQUENT EVENT

       On January 27, 1998, a cash dividend of $110 million was paid to PDV
       Holding, Inc.


                                     - 32 -

<PAGE>


                                   * * * * * *








                                     - 33 -


<PAGE>

                                                                      SCHEDULE I


                       PDV AMERICA, INC. AND SUBSIDIARIES

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                             (Dollars in thousands)

                        Financial Position of Registrant

                                                              December 31,
                                                              ------------
                                                          1997           1996
                                                       ----------     ----------
Assets
  Investment in and advances to affiliates             $2,572,090     $2,090,010
  Notes receivable from PDVSA                           1,000,000      1,000,000
  Other assets                                             47,112         50,653
                                                       ----------     ----------
                                                       $3,619,202     $3,140,663
                                                       ==========     ==========

Liabilities and shareholder's equity
  Long-term debt                                       $  997,189     $  996,598
                                                                      ==========
  Other liabilities                                        32,921         32,990
  Shareholder's equity                                  2,589,092      2,111,075
                                                       ----------     ----------
                                                       $3,619,202     $3,140,663
                                                       ==========     ==========



                          Operations of the Registrant
<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                                  -----------------------
                                                                1997       1996       1995
                                                              --------   --------   --------
Revenues
<S>                                                           <C>        <C>        <C>
  Interest income from PDVSA                                  $ 77,725   $ 77,725   $ 77,725
  Other income                                                   8,954      8,231      9,168
                                                              --------   --------   --------
                                                                86,679     85,956     86,893
                                                              --------   --------   --------
Expenses
  Interest expense                                              80,338     80,075     79,830
  Other                                                          2,771      2,676      3,020
                                                              --------   --------   --------
                                                                83,109     82,751     82,850
                                                              --------   --------   --------
Equity in net income of subsidiaries                           225,703    136,008    139,959
                                                              --------   --------   --------

Income before income taxes, extraordinary charge and
  cumulative effect of accounting changes                      229,273    139,213    144,002
Provision for income taxes                                       1,256      1,190      1,516
                                                              --------   --------   --------

Income before extraordinary charge and cumulative effect of
  accounting change                                            228,017    138,023    142,486
Extraordinary gain - early extinguishment of debt                                      3,380
                                                              --------   --------   --------
     Net income                                               $228,017   $138,023   $145,866
                                                              ========   ========   ========

</TABLE>


<PAGE>



                                                                      SCHEDULE I

                       PDV AMERICA, INC. AND SUBSIDIARIES

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                             (Dollars in thousands)

                          Cash Flows of the Registrant
<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                               -----------------------
                                                          1997         1996         1995
                                                       ---------    ---------    ---------
<S>                                                    <C>          <C>          <C>
Cash provided by operating activities                  $   3,361    $   5,517    $   6,021
                                                       ---------    ---------    ---------

Cash used in investing activities
  Investments in and advances to subsidiaries           (254,239)      (5,343)     (21,317)
                                                       ---------    ---------    ---------
                                                        (254,239)      (5,343)     (21,317)
                                                       ---------    ---------    ---------

Cash provided by financing activities
  Capital contribution from parent                       250,000         --         15,000
                                                       ---------    ---------    ---------
                                                         250,000            0       15,000
                                                       ---------    ---------    ---------

Net (decrease) increase in cash and cash equivalents        (878)         174         (296)

Cash and cash equivalents - beginning of year              5,381        5,207        5,503
                                                       =========    =========    =========

Cash and cash equivalents - end of year                $   4,503    $   5,381    $   5,207
                                                       =========    =========    =========

</TABLE>