How oil and gas licenses are working
On November 16, 2023, the Office of Foreign Assets Control (OFAC) issued General License (GL) 8M, extending its validity until May 16, 2024. GL 8 authorizes Halliburton, Schlumberger Limited, Baker Hughes Holdings LLC, and Weatherford International, Public Limited Company to conduct operations “ordinarily incident and necessary to the limited maintenance of essential operations, contracts, or other agreements.”
The scope of GL 8M is more limited compared to GL 44, which provides a broader authorization allowing PDVSA to engage in various prohibited activities until April 18, 2024. The interaction between GL 44 and GL 8M is unclear because the broader scope of the former encompasses the narrower range of activities authorized in the later.
The recently updated “Frequently Asked Questions” clarify how oil and gas licenses function. Companies can choose under which GL they will perform prohibited transactions, with options including GL 8M, GL 41 (applicable to Chevron), and GL 44. In other words, firms are not obligated to operate under the more expansive authorizations provided in GL 44.
However, GL 44 is more favorable than the other licenses. The question arises: why would firms decide to operate under narrower licenses? The answer, found in the updated Q&A, suggests that the renewal of GL 44 is contingent on representatives of Maduro fulfilling commitments and taking concrete steps toward a democratic election by the end of 2024, as outlined in the Secretary of State’s statement from October 18, 2023.
A plausible interpretation is that only GL 44 is subject to genuine advances in electoral reforms, including defining a “specific timeline and process for the expedited reinstatement of all candidates.” Consequently, firms can choose to rely on GL 44, assuming the risk of non-renewal if electoral reforms are not met. Alternatively, they can opt to work under the more limited scope of GL 8M and GL 41, expecting that steps towards a democratic election will not impair the renewal of those licenses.
The renewal of GL 8M confirms the U.S. policy outlined on October 18: licenses issued as a consequence of the Barbados Agreement will depend on genuine advances in achieving agreed-upon electoral reforms and the reinstatement of all candidates, removing bans resulting from political disqualifications.