OFAC Sanctions and the Venezuela Energy Sector: A Guide to the Licensing Regime and Recent Developments

I.Understanding OFAC and U.S. Sanctions

The Office of Foreign Assets Control ("OFAC") is a financial intelligence and enforcement agency of the U.S. Department of the Treasury. Its mandate is to administer and enforce economic and trade sanctions based on U.S. foreign policy and national security objectives. OFAC acts against foreign governments, individuals, and entities that pose threats to U.S. national security, foreign policy goals, or the economy.

OFAC sanctions take the form of asset freezes, import/export prohibitions, and most relevant for the energy sector, restrictions on business transactions. Any company, person, or financial institution subject to U.S. jurisdiction that violates OFAC regulations may face severe civil and criminal penalties.

In the case of Venezuela, OFAC administers the Venezuela Sanctions Regulations (31 C.F.R. Part 591), which impose broad restrictions on dealings with the Venezuelan government, its state oil company Petróleos de Venezuela S.A. ("PDVSA"), and entities in which PDVSA holds a 50% or greater stake. These sanctions effectively barred most foreign investment and commercial activity in Venezuela's energy sector, unless specifically authorized by a license.

II.Who Is Subject to OFAC Sanctions?

A common misconception is that OFAC sanctions apply only to U.S. companies. In reality, the reach of OFAC is significantly broader. The sanctions apply to "U.S. persons" as well as to any transaction that has a U.S. nexus, regardless of the nationality of the parties involved.

Definition: U.S. Persons

For OFAC purposes, "U.S. persons" include: (i) U.S. citizens and permanent residents, wherever they are located in the world; (ii) companies incorporated under U.S. law; and (iii) U.S. branches of foreign companies.

Beyond U.S. persons, a non-U.S. company may also require an OFAC license if its transaction has any of the following U.S. connections:

• Payments denominated in U.S. dollars (USD) cleared through U.S. banks
• Use of U.S. financial institutions as correspondents or intermediaries
• Reliance on U.S. insurers or reinsurers for marine, cargo, or liability coverage
• Use of U.S.-flagged vessels, U.S. ports, or U.S.-based logistics providers
• Involvement of U.S. citizens or residents as employees, directors, or counterparties

This is of critical importance for international oil trading. Because virtually all crude oil transactions are denominated in U.S. dollars and settled through U.S. correspondent banks, most companies, whether European oil majors, Swiss-based commodity traders, or Asian refiners, effectively require OFAC authorization to deal with sanctioned Venezuelan entities. Non-U.S. companies can and regularly do receive OFAC licenses to conduct otherwise-prohibited activities.

III.What Is an OFAC License, and How Does It Work?

An OFAC license is a formal written authorization that permits activity which would otherwise be prohibited by U.S. sanctions regulations. Think of it as an exception granted by the U.S. government that allows specifically identified parties to engage in designated transactions under defined conditions.

There are two types of licenses:

How to Apply for a Specific OFAC License?

Companies that do not qualify under a General License, or that seek authorizations beyond those covered by an existing GL, must apply directly to OFAC. The process generally involves the following steps:

• Submission of a detailed application via OFAC's online licensing system, including a full description of the proposed activities, the parties involved, and the legal basis for the request.

• Review by OFAC, which may consult other U.S. government agencies (e.g., State Department, National Security Council) depending on the policy sensitivity of the request.

• Issuance of a license with specific conditions, including permitted activities, authorized counterparties, reporting requirements, and expiration dates.

• Ongoing compliance obligations, including record-keeping and periodic reporting to OFAC.

It is worth emphasizing that a license is not a guarantee of commercial viability, it is simply a legal clearance. Companies must still negotiate terms with PDVSA and Venezuelan authorities, and commercial and operational risks remain significant.

IV.Recent OFAC General Licenses: A New Chapter for Venezuela

Over the past week, OFAC issued several significant new General Licenses: GL48, GL49, GL50, and GL50A, which collectively mark the most substantial easing of Venezuela energy sanctions in years. These licenses appear to reflect a deliberate U.S. policy shift: using sanctions relief as a lever to encourage political reform in Venezuela while simultaneously incentivizing investment that could increase global oil supply.

Taken together, these licenses create a framework that could allow Venezuela's oil and gas sector, which has suffered a dramatic production collapse over the past decade, to begin a meaningful recovery. Below we describe the most recent licenses and their implications.

General License 48: Supply of Goods and Services

GL48 authorizes U.S. persons and companies with a U.S. nexus to provide goods, services, technology, and software for use in the exploration, development, or production of oil and gas in Venezuela.

Transactions under GL48 must meet two important conditions: contracts must be governed by U.S. law, and any disputes must be subject to U.S. dispute resolution mechanisms. This gives U.S. authorities some degree of ongoing oversight and leverage. Notably, GL48 does not authorize the formation of new joint ventures, and it excludes transactions involving nationals of China, Cuba, Iran, North Korea, and Russia.

General License 49: Contingent Contracts

GL49 allows companies to negotiate and sign "contingent contracts" related to new investments in Venezuela's energy sector and the expansion of existing energy activities, without waiting for a full OFAC authorization for actual operations. This allows companies to move forward with deal structuring, due diligence, and commercial negotiations, while actual implementation remains subject to a separate, specific OFAC authorization.

In practical terms, GL49 reduces the commercial risk associated with prolonged negotiations: companies can sign binding agreements contingent on receiving the necessary licenses, rather than waiting entirely on the sidelines. This reflects a more sophisticated use of the licensing architecture to manage the sequencing of investment decisions.

General Licenses 50 and 50A: Oil and Gas Sector Authorization

GL50 and GL50A are, in our view, the most consequential of the recent licenses. They authorize six named oil majors and their subsidiaries to conduct a broad range of oil and gas sector activities in Venezuela that would otherwise be prohibited by sanctions:

Authorized Entities under GL50 / GL50A:

BP PLC | Chevron Corporation | Eni S.p.A.| Repsol S.A. | Maurel & Prom SA | Shell PLC

Authorized activities include upstream development, production, sales, export, and transportation of hydrocarbons. One important condition: all oil and gas royalties and tax payments owed to the Venezuelan government must be directed to accounts designated by the U.S. Treasury Department.

Other companies not named in GL50/50A may still apply to OFAC for their own specific licenses.

The OFAC licensing framework described in this memorandum operates in conjunction with Venezuela’s recently amended Hydrocarbons Law, which has been restructured to attract foreign investment and create a more defined legal environment for the development of the country’s oil and gas resources. The amended law introduced updated provisions on royalties, tax treatment, contractual arrangements with PDVSA, and the conditions under which private and foreign participation in the sector is permitted under Venezuelan law.

Companies operating under the OFAC licenses described above will also need to ensure that their activities comply with this domestic legal framework, including any required approvals, contract structures, and registration requirements under Venezuelan law.

LEC Abogados is one of the leading law firms in Venezuela, and is ready to advise on the Venezuelan law aspects of energy sector operations and on the interaction between the OFAC license regime and the applicable domestic regulatory framework.

Disclaimer

This memorandum is prepared for informational purposes only and does not constitute legal or financial advice. The interpretation and application of OFAC sanctions regulations are a complex area of law, and companies are strongly encouraged to consult qualified U.S. sanctions counsel before taking any action in reliance on the licenses described herein. Information is current as of the date of preparation.

LEC Abogados is a Venezuelan law firm, and the services provided by LEC Abogados, its partners and associates, are rendered exclusively under Venezuelan law. LEC Abogados does not practice U.S. law and does not provide advice on U.S. sanctions or OFAC regulations.