This week, the US relaxation of sanctions against Venezuela’s oil and gas sector entered a new phase with the publication of a general license authorizing a broad range of upstream oil and gas activities.
The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC“) has been busy with Venezuela-related actions over the past few weeks. We previously blogged about general licenses authorizing oil trading and downstream activities (blog post here) and the export of diluents (blog post here). Here we focus on the past week’s developments, which include:
- New GL 48 (upstream activities), issued February 10
- Amended GL 46A (downstream activities) and GL 30B (export of diluents), also issued February 10
- The release of FAQs about GL 46 (now 46A) issued February 6
If you would like to explore more of our insights and resources for business operating in Venezuela, please see The Venezuela Brief, which incorporates perspectives from our lawyers in our offices in both the United States and Venezuela.
GL 48 – exploration, development, production (upstream activities)
GL 48 broadly authorizes transactions for the exploration, development, or production of oil or gas in Venezuela. This will allow oil majors and oilfield services companies to engage in a broad range of activities in Venezuela. The inclusion of gas is also noteworthy as GL 46A is limited to oil.
More specifically, the authorization in GL 48 breaks down as covering:
- all transactions prohibited by the Venezuela Sanctions Regulations, 31 CFR Part 591, including those involving the Government of Venezuela (“GOV”), Petróleos de Venezuela, S.A. (“PdVSA”), or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest (“PdVSA Entities”)
- that are ordinarily incident and necessary to the provision from the United States or by a U.S. person
- of goods, technology, software, or services
- for the exploration, development, or production of oil or gas in Venezuela.
Like almost all general licenses, GL 48 comes with certain requirements and restrictions. This includes many restrictions similar to those found in GL 46A. The requirements and restrictions include:
- As with GL 46A, GL 48 requires that any contract with the GOV, PdVSA, or PdVSA Entities involving oil or gas production in Venezuela must specify that (1) the laws of the United States or any jurisdiction within the United States govern the contract and (2) any dispute resolution under the contract occur in the United States.
- Payments to the GOV, PdVSA, or PdVSA Entities must be made into the Foreign Government Deposit Funds accounts (discussed in our previous blog post here) or in any other account as instructed by the Treasury Department.
- GL 48 does not authorize the formation of new joint ventures or other entities in Venezuela to explore or produce oil or gas. OFAC may want to maintain visibility and control over these activities through specific license applications.
- Similar to GL 46A, GL 48 imposes reporting obligations. Specifically, parties that export, reexport, sell, resell, or supply goods, technology, software, or services pursuant to GL 48 must provide a detailed report to the Treasury and State Departments.
Companies needing to ship equipment to Venezuela for transactions authorized by GL 48 should also ensure such shipments comply with applicable export controls. In particular, some equipment might require separate licenses from the Bureau of Industry and Security in the US Commerce Department.
Amended GL 30B – port and airport operations
GL 30B, “Authorizing Certain Transactions Necessary to Port and Airport Operations” replaces and supersedes GL 30A, which authorizes all transactions with the GOV that are “ordinarily incident and necessary to operations or use of ports and airports in Venezuela.” The change to GL 30B removes the prohibition on shipments of diluents to Venezuela, to align with GL 47.
Amended GL 46A and Related FAQs – Venezuelan-origin oil (trading / downstream activities)
GL 46A, “Authorizing Certain Activities Involving Venezuelan-Origin Oil” replaces and supersedes GL 46 (see our previous blog post here) to clarify that payments for GOV taxes, permits, or fees do not need to be deposited into the Foreign Government Deposit Funds accounts.
OFAC also recently issued ten FAQs providing guidance on the scope of this general license. We won’t summarize all ten FAQs here but will share some highlights that we found particularly interesting:
- FAQ 1226 states the term “Venezuelan-origin oil” referenced in GL 46A means crude oil or petroleum products extracted, refined, or exported from Venezuela, regardless of the nationality of the entity involved in the production or sale of such crude oil or petroleum products but specifically does not include natural gas, liquefied natural gas, biofuels, methanol, and other non-petroleum fuels.
- FAQ 1228 clarifies that GL 46A does not authorize exploration activity or negotiations for new investment activities. (Such authorization is now provided in GL 48, as discussed above.)
- FAQ 1230 clarifies that entities that are not “established US entities” can be involved in transactions authorized by GL 46A that are ordinarily incident and necessary to the established US entity’s transactions authorized by GL 46A.
- FAQ 1232 states that “commercially reasonable terms” under GL 46A means terms that are consistent with prevailing market and industry standards for like or similar products produced by a company of similar size and scope, while taking into account characteristics such as quality, quantity, pricing, performance, and safety, among others.
- FAQ 1233 clarifies that not all entities engaged in a transaction authorized by GL 46A are required to have contracts governed by US law or the dispute resolution requirements. For example, this requirement does not apply to indirect parties or indirect counterparties involved in transactions authorized by GL 46, such as downstream transactions involving the provision of shipping, insurance, or other services to an entity engaged in a transaction involving PdVSA.
As US policy regarding Venezuela continues to develop, OFAC may issue new or expanded general licenses that go beyond those discussed above or issue more public guidance. We are closely monitoring these developments and will continue to update this blog as and when new actions are taken.
