Venezuela Energy Reform and US Sanctions Relief Are Moving Together. Here’s What That Means.

The recent partial reform of Venezuela’s organic hydrocarbons law in tandem with the relaxation of US sanctions on Venezuela are creating a more favorable environment for foreign investment to support increased production in the Venezuelan oil and associated gas industry.

Key changes expected under the reforms, announced in January, include:

• A more favorable and flexible taxation, contributions and royalty system, establishing caps and allowing for potential reductions of the tax and royalty burdens for private sector companies operating or looking to invest in Venezuela. The new system also repeals some prior taxes and declares certain contributions as inapplicable for this sector. The net result should be a more attractive system for investors.
• Permitting minority shareholders participating in a joint venture with PdVSA (Petróleos de Venezuela) or mixed company to manage operations, open and manage bank accounts in any currency and within and outside of Venezuela and to commercialize hydrocarbons produced. This is a significant shift away from the former state-exclusive model and is expected to encourage investments to support increased oil production in Venezuela.
• Permitting arbitration (including outside of Venezuela) and alternative dispute resolution mechanisms. The previous legal framework allowed dispute resolution only through local courts.
• For both privately owned operators and mixed operating companies, the mandatory inclusion of a clause for the maintenance of the project’s economic financial balance. This guarantees investors that the initial economic financial balance, as well as any additional benefit subsequently acquired, is maintained throughout the life of the agreement.

These changes should help better secure long-term investments in Venezuela’s oil and associated gas sector.

In light of these amendments, existing mixed companies and production sharing agreements (locally referred to as CPPs) will be the subject of review to ensure that they are adjusted to the parameters of the new law within 180 days from the date that the reform went into effect (Jan. 29, 2026). During this period of transition, the former tax system will continue to be applied.

It is important to note that, so far, no announcements or changes have been made to legislation governing non-associated gas.

The US sanctions perspective: Recent general licenses issued by OFAC

Outside of Venezuela, US sanctions are shaping investment considerations for companies operating both within and outside of the US. Since January, the US Office of Foreign Assets Control (OFAC) has issued various general licenses and guidance that provide some sanction relief, primarily as it relates to the oil and gas sector in Venezuela. However, the government of Venezuela and relevant state-owned entities still remain subject to blocking under US sanctions. These general licenses create avenues for US persons to engage in oil trading, upstream energy services, investment planning and, most recently, broader PdVSA transactions, including for Venezuelan origin gold.

General License 46

GL 46 is primarily downstream in nature, authorizing established US entities to engage in transactions ordinarily incidental and necessary to the lifting, exportation, sale, transportation, storage and refining of Venezuelan-origin oil, even where those transactions involve the government of Venezuela or PdVSA. This GL does not authorize upstream investment or new production. It also imposes strict conditions. For example, contracts with the government of Venezuela or PdVSA must be governed by US law and provide for dispute resolution in the US. Payments under these agreements must be made into US Treasury-controlled foreign government deposit funds accounts with limited exceptions.

General License 47

This GL complements GL 46 by authorizing the export, sale and transport of US-origin diluents to Venezuela. Diluents are essential for moving and processing Venezuela’s heavy crude. Unlike GL 46, GL 47 does not require that activity is conducted by an established US entity, but it otherwise retains similar contractual and payment conditions of GL 46 with respect to the governing law, dispute resolution and payments to PdVSA.

General License 48

Focused on upstream activities, GL 48 authorizes US persons to provide goods, technology, software and services necessary for the exploration, development, production and maintenance of oil and gas operations in Venezuela. This includes repair and refurbishment of existing infrastructure. It expressly prohibits the formation of new joint ventures (JVs) or other entities in Venezuela for purposes of exploration and development. In effect, GL 48 supports operational continuity but not ownership expansion.

General License 49

GL 49 opens the door for future investment planning, authorizing US persons to negotiate and enter into contingent contracts for new oil and gas investments in Venezuela provided that performance of such agreements is expressly conditional on future OFAC approval.

General License 50

GL 50 is a company-specific general license rather than a general authorization to the broader market. It authorizes transactions related to oil and gas sector operations in Venezuela for specifically named companies in the general license. These companies may conduct activities ordinarily incident to their Venezuelan operations, subject to specific contractual conditions.

General License 51

GL 51 concerns Venezuelan-origin gold and is the first OFAC-issued general license to apply beyond the energy sector. It authorizes established US entities to import, refine, resell and export Venezuelan-origin gold, covering transactions involving Venezuela’s state mining company. GL 51 was recently replaced by an amended General License 51A , which among other key changes expands the original scope of the license to cover “Venezuelan-origin minerals.”

General License 52

GL 52 authorizes all transactions between PdVSA or PdVSA entities and established US entities. It includes the governing law and payment requirements consistent with the earlier GLs. GL 52 covers all transactions involving PdVSA that were not already authorized by the other new Venezuela GLs related to oil and gas, including petrochemicals. Notably, GL 52 authorizes the entry into new investment contracts for exploration, development or production activities in the Venezuela oil and gas sectors, meaning that US persons do not need to rely on GL 49 to enter contracts with PdVSA or related entities. The practical impact of GL 52, however, may be limited in that it does not authorize transactions involving the government of Venezuela other than those necessary for the activity set forth in the GL. For example, activities involving other government of Venezuela-owned industries, such as mining or electricity generation are not authorized.

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Sanction implications for non-US companies

There are two types of sanctions that the US government deploys that are relevant for non-US-headquartered companies as well as foreign subsidiaries of US companies:

• Primary sanctions: Apply if US persons or US touchpoints are involved. Violations of primary sanctions can result in criminal and civil penalties. Within OFAC’s recent suite of licenses, most require the involvement of a US company.
• Secondary sanctions: Not monetary or criminal penalties but can include blacklisting by the US Treasury Department. The US government uses secondary sanctions to impose its foreign policy and national security objectives on companies that are otherwise not impacted by primary sanctions.

For non-US companies engaging in activities with Venezuela, US touchpoints can include:

• Direct engagement in an activity with a US company.
• The use of US dollars as the settlement currency. This touchpoint would not typically arise in an intra-Venezuela transaction but likely would in a cross-border matter.
• The involvement of US citizens or permanent resident aliens who are employed by a non-US company, creating individual liability and exposure.
• A non-US company that is a subsidiary of a US company. Whether this is a touchpoint depends on whether the subsidiary has corporate authority to engage in these types of activities independently or requires approval or support from the US parent company.

As a precedent, the US government has penalized non-US companies for violating US primary sanctions. Whether the US government will follow suit in relation to Venezuela likely depends on how the activity relates to the US administration’s broader priorities.

Ultimately, non-US companies should consistently check for US touchpoints and evaluate their US sanctions exposure where existing general licenses don’t apply. For those with no US touchpoints but who are engaged in cross-border transactions in the energy sector in Venezuela, there should be no US primary sanctions risk, but there is still a risk of secondary sanctions.

Under longstanding OFAC guidance, non-US companies engaged in activities covered under a GL that only applies to US persons would not be subjected to secondary sanctions for engaging in those same activities. On March 31, OFAC issued guidance in the form of FAQ 1247, providing specific comments on the application of US secondary sanctions. This FAQ notably does not reference a requirement for non-US companies to include US governing law or US dispute resolution provisions in order to avoid the risk of US secondary sanctions.

It is likely that for businesses that are overall directionally consistent with the GL, this risk would be relatively low given that OFAC has so far taken no action against non-US companies already engaged with PdVSA in relation to the energy sector.

In cases where the relevant GL requires that a contract be governed by US law or have a US dispute resolution mechanism, for non-US companies entering a contract with PdVSA, it’s unlikely that this would be the case and therefore they could be exposed to potential secondary sanctions risk.

Impact of recent changes on contracts of commercialization for the refinement and sale of crude oil

As Venezuela’s new hydrocarbons law fundamentally changes who can commercialize, refine and market crude oil in Venezuela and under what contractual structures they are permitted to operate, there are several types of relevant agreements that might be applicable.

Productions sharing agreements (PSAs)

A PSA is a contractual agreement between the foreign or independent oil company (IOC) — the investor — and the state-owned enterprises, in this case PdVSA. This agreement is a critical pillar for investment as it is required for the exploration and production of oil.

Under this type of contract, the ownership of the resources remains with the host state (in this case, Venezuela). While the IOC does not have immediate property rights over production or mineral or mining rights, it does have an economic right to its share of the oil with respect to the specific oil field.

The PSA outlines minimal capital commitments from the IOC, who must supply the funds needed for exploration and production activities and generally supports the national oil company (NOC) during exploration. The NOC may have an option to contribute costs of development if there is a commercial discovery.

The IOC recoups its costs when production begins. Therefore, if no production occurs, then all costs and investments will result in a loss for the IOC. Compensation is calculated by reference to the production and the profit generated by the oil, meaning these are long-term contracts tied to the life of the oilfield, and it is important to understand the laws of the host country.

Crude oil sale and purchase agreement (CSPA)

Also known as a crude offtake agreement, this type of contract governs the sale and purchase of crude oil, typically, between an upstream producer — which could be either the independent oil company, national oil company or a joint venture — and a trader or refinery. The buyer would typically be a commodity trader or a large IOC.

This type of contract looks at the quantity and quality requirements of the oil that will be sold and includes provisions like take-or-pay, supply obligations, delivery terms, pricing framework, title and risk transfer, payment, termination and dispute resolution terms.

Terms for CSPAs are typically much shorter than a PSA, often a one-off transaction or covering sales between six and 12 months with the option to renew for a longer term of one to five years.

These contracts are often financed by third-party financiers, banks and lenders so the tenor of financing mirrors the duration of the offtake agreement. The longer the term of the CSPA, the more likely it is that a price review mechanism will be put into place given the potential for fluctuation and volatility of crude oil prices.

Tolling or processing agreements (TPAs)

A TPA is a key agreement for companies that do not own refining capacity, allowing a crude owner to have its crude processed in a refinery for a fee and receive back refined products such as jet fuel, diesel or gasoline. The relevant parties in this agreement are the refinery owner or operator and the crude owner, producer or trader. The key elements include a fixed or variable processing fee dependent on the refinery complexity, a yield agreement specifying the product slate and expected yields, and quality and loss provisions.

During the refinement process, there might be loss, contamination or off-spec outputs, which should also be outlined in the contract terms. Contract terms can also include required refinery resources, such as utilities and storage charges, steam, water and tankage.

The average term of a TPA is typically between one and three years but can be shorter for merchant refinements.

There are several other types of agreements that also will be affected by the new hydrocarbons law, including those pertaining to the disposing of crude oil, crude swaps and exchange agreements, crude prep prepayment, pre-financing, storage, tank leases, commercial support and transportation agreements.

What’s next?

The recent changes to Venezuela’s organic hydrocarbons law mean that international companies, including those based in the US, have a renewed opportunity to perform primary activities like the exploration, extraction, initial transportation and storage of hydrocarbons in Venezuela.

The relevant agreements may also lead to private sector companies having the authority to commercialize hydrocarbons produced either as a minority shareholder managing a mixed operating company or as a private sector company operating under a contract for the development of primary activities.

At the same time, a more relaxed US sanctions environment is allowing companies to explore these opportunities, but on both fronts, careful planning and understanding the latest developments is key to ensuring compliance with both US sanctions requirements and Venezuelan law.