Foreign oil companies scramble for U.S. licenses amid Venezuela sanctions deadline

(Bloomberg) — Foreign oil companies in Venezuela are concerned they won’t get licenses from the U.S. in time to allow them to operate after May 31. 

Oil firms that want to stay in Venezuela are flooding the U.S. Treasury’s Office of Foreign Assets Control with applications for permits after Washington reimposed sanctions last month, leaving officials struggling to clear the backlog. 

Each individual project requires a case-specific license, which is complicating the process, according to three people with knowledge of the matter. 

The delay might put some companies at risk of either breaching U.S. restrictions or becoming unable to comply with contracts signed with the Venezuelan government. 

Oil majors already operating in Venezuela, such as Spain’s Repsol SA and Italy’s Eni SpA are at the front of the queue for licenses, followed by traders, while little-known and non-oil companies are being treated as a lower priority, one of the people said. 

A spokesperson for Treasury’s Office of Foreign Assets Control said the department does not comment on specific license requests but said the evaluation process generally includes consulting with the State Department on foreign policy and takes into consideration the national security interests of the U.S.

Last month, the U.S. allowed general license 44A, which had offered temporary relief from oil sanctions, to expire. 

The backlog “is not only going to affect potential new businesses but also the ones that are already there, because they are facing a series of contract breaches,” said Margarita Sanchez, lead of the international arbitration practice at Miller & Chevalier, in an interview. 

Presidential election

The U.S. is trying to use sanctions as leverage to ensure fairer presidential elections in July. Last year, Washington temporarily removed restrictions on Venezuela’s gold and oil sectors after the government of President Nicolás Maduro and the opposition signed a deal in Barbados on electoral guarantees. 

After the government’s decision to bar the opposition’s main contender from the presidential race, among other obstacles to a democratic vote, the U.S. reimposed sanctions last month. However, it left the door open for companies seeking to do business in Venezuela to apply for individual permits. 

Washington has signaled that it could offer relief ahead of the July vote, if the government shows progress on electoral commitments. 

But oil companies are in a rush, since they have little more than two weeks to secure a specific license if they want to continue their activities in the country.

Companies from oil majors to smaller operators and trading firms are waiting for approval to either continue work or begin new projects, according to one of the people familiar with the process. U.S. agencies study companies and their projects before making their recommendations to the White House, the person said. 

India’s trading firm Reliance Industries and Colombia’s oil operator Ecopetrol SA said they have requested licenses. 

However, French driller Etablissements Maurel & Prom SA is the only one so far to have disclosed that it has received authorization under the new rules. 

The company signed a deal in November with Venezuela’s state-owned oil company PDVSA to increase oil and gas production in their jointly-run ventures, as well as to set conditions to repay outstanding debt owed to M&P’s local subsidiary.