OFAC Extends Venezuela General License 8, Enabling US Energy Companies to Continue Engaging in Limited Activities With PdVSA

On November 17, OFAC issued General License 8G, Authorizing Transactions Involving Petróleos de Venezuela, S.A. (“PdVSA”) Necessary for the Limited Maintenance of Essential Operations in Venezuela or the Wind Down of Operations in Venezuela for Certain Entities (“GL 8G.”).

GL 8G, like its predecessor General License No. 8F (“GL 8F”), authorizes several  US energy companies to engage in limited activities necessary for the safety or maintenance of assets in Venezuela for a defined period of time. GL 8F’s authorization was set to expire on December 31, 2020. However, GL 8G extends this authorization through June 3, 2021, alleviating a significant source of short-term uncertainty for energy companies that have maintained a limited presence in Venezuela since the imposition of sanctions on PdVSA in January 2019.

Overview of GL 8G

Like GL 8F, GL 8G continues to authorize certain transactions and activities for the following corporations: Chevron Corporation; Halliburton; Schlumberger Limited; Baker Hughes, a GE Company; and Weatherford International, Public Limited Company (collectively, the “Covered Entities”).

First, with respect to the Covered Entities, GL 8G continues to authorize all transactions and activities ordinarily incident and necessary to the limited maintenance of essential operations, contracts, or other agreements, that: (i) are for safety or the preservation of assets in Venezuela; (ii) involve PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest; and (iii) were in effect prior to July 26, 2019.

GL 8G explains that transactions and activities that are “necessary for safety or the preservation of assets in Venezuela,” include:

• Transactions and activities necessary to ensure the safety of personnel, or the integrity of operations and assets in Venezuela;
• Participation in shareholder and board of directors meetings;
• Making payments on third-party invoices for transactions and activities authorized by GL 8G or incurred prior to April 21, 2020, provided such activity was authorized at the time it occurred;
• Payment of local taxes and purchase of utility services in Venezuela; and
• Payment of salaries for employees and contractors in Venezuela.

Absent a General License or other authorization, these transactions would be prohibited by Executive Order (“E.O.”) 13850 of November 1, 2018, as amended by E.O. 13857 of January 25, 2019, or E.O. 13884 of August 5, 2019, each as incorporated into the Venezuela Sanctions Regulations, 31 C.F.R. part 591 (the “VSR”).

However, OFAC clarified that GL 8G does not authorize:

• The drilling, lifting, or processing of, purchase or sale of, or transport or shipping of any Venezuelan-origin petroleum or petroleum products;
• The provision or receipt of insurance or reinsurance with respect to the transactions and activities described in GL 8G;
• The design, construction, installation, repair, or improvement of any wells or other facilities or infrastructure in Venezuela or the purchasing or provision of any goods or services, except as required for safety;
• Contracting for additional personnel or services, except as required for safety; or
• The payment of any dividend, including in kind, to PdVSA, or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest.

Second, with respect to the Covered Entities, GL 8G also continues to authorize all transactions and activities that: (i) are ordinarily incident and necessary to the wind down of operations, contracts, or other agreements in Venezuela involving PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest, and (ii) were in effect prior to July 26, 2019. These transactions were previously prohibited by E.O. 13850, as amended, or E.O. 13884, each as incorporated into the VSR. But now, these transactions and activities are authorized through June 3, 2021.

However, OFAC clarified that GL 8G does not authorize:

• Any transactions or dealings related to the exportation or reexportation of diluents, directly or indirectly, to Venezuela;
• Any loans to, accrual of additional debt by, or subsidization of PdVSA, or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest, including in kind, prohibited by E.O. 13808 of August 24, 2017, as amended by E.O. 13857, and incorporated into the VSR; or
• Any transactions or activities otherwise prohibited by the VSR, or any other part of 31 C.F.R. chapter V, or any transactions or activities with any blocked person other than the blocked persons identified in GL 8G.

GL 8G available here.

We will continue to monitor developments in this area. Please contact the authors or your usual Herbert Smith Freehills contacts for more information.