On April 21, 2020, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued General License 8F. OFAC’s amended General License 8F is a significant change in the scope of activities that certain U.S. companies are permitted to perform in Venezuela, and, in particular, with Petroleos de Venezuela, S.A. (“PdVSA”).
Prior iterations of General License 8 had authorized certain U.S. companies to engage in a wide-range of transactions involving PdVSA necessary for the maintenance of operations in Venezuela until April 22, 2020. The companies named in the General License were Chevron Corporation, Halliburton, Schlumberger Limited, Baker Hughes, Weatherford International, and each of their subsidiaries (the “Companies”). Specifically, the prior iteration of the General License authorized “all transactions and activities ordinarily incident and necessary to the maintenance of operations, contracts, or other agreements in Venezuela involving PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest” that would otherwise be prohibited by certain U.S. sanctions.
The new General License 8F significantly limits the scope of permissible transactions, authorizing the limited maintenance of essential operations in Venezuela or the wind down of operations in Venezuela. Specifically, General License 8F now provides that “all transactions and activities” otherwise prohibited by certain U.S. sanctions against Venezuela “that are 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 percent or greater interest; and (iii) were in effect prior to July 26, 2019,” are thereby authorized through December 1, 2020 for the Companies and their subsidiaries. Notably, OFAC’s announcement was not accompanied by a Frequently Asked Question (“FAQ”) to provide additional color on General License 8F’s scope.
In short, while the revised General License appears to limit the scope of permissible activities that certain U.S. companies can engage in Venezuela and with PdVSA, OFAC has not clarified what exactly qualifies as “essential operations, contracts, or other agreements,” as provided in the revised General License. As such, that will remain an area for further interpretation going forward. In addition, the revised General License could have an impact on the global energy industry, and in particular, could impact contractual relationships with the Companies and those otherwise dealing in the Venezuelan petroleum industry, including charter party arrangements, vessel owners, and financing arrangements.
We will continue to closely monitor developments in this space. If you have any questions or concerns about U.S. sanctions, please contact Bruce G. Paulsen (212-574-1533), Andrew S. Jacobson (212-574-1477), or Noah S. Czarny (212-574-1642) at Seward & Kissel’s Sanctions Practice Group.
