Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued General License 46 (GL 46), which significantly eases sanctions on Venezuela’s oil sector following a regime change in the country.
While the license is a major shift, it contains specific distinctions regarding upstream vs. downstream activities:
- Scope of General License 46 (GL 46)
Downstream Focus: The new license primarily authorises “ordinarily incident” transactions for the exportation, transport, storage, and refining of Venezuelan-origin oil by established U.S. entities.
Upstream Exclusion: Crucially, GL 46 does not automatically authorise new upstream crude production (drilling/extraction). Currently, Chevron remains the only U.S. company with a special license to operate upstream.
Financial Restrictions: Payments to the Venezuelan government or state-run PDVSA must be deposited into U.S.-controlled Foreign Government Deposit Funds. - Venezuela’s Internal Upstream Reform
Coinciding with the U.S. move, Venezuela’s National Assembly approved an overhaul of the Hydrocarbons Law to attract foreign investment:
Ownership Shift: The reform eliminates the requirement for PDVSA to hold a 60% majority stake in upstream projects, allowing private companies to potentially control and operate fields directly.
Productive Participation Contracts (CPPs): A new framework allows external operators to recover costs and market production more flexibly. - Key Constraints & Requirements
Prohibited Counterparties: Deals involving entities from Russia, Iran, North Korea, Cuba, or China (if the entity is headquartered in China) remain strictly prohibited under GL 46.
Legal Jurisdiction: All new contracts with the Venezuelan government must be governed by U.S. law, and disputes must be settled in U.S. courts.
Reporting: Companies exporting oil to countries other than the U.S. must provide detailed reports on volumes and payments every 90 days
Note by Alessandro Bazzoni