backIntroduction
On January 29, 2026, Venezuela’s National Assembly (the “National Assembly”) approved—after a second reading—a bill partially reforming the Organic Law on Hydrocarbons (the “LOH Reform”). An initial draft bill was approved on January 22, 2026. This legislative development comes just weeks after the U.S. military operation that removed President Nicolás Maduro from power on January 3, 2026, and marks a potentially historic shift in Venezuela’s approach to foreign investment in its oil and gas sector. For U.S. companies—many of which were forced out of the country during the Chávez-era nationalizations—the LOH Reform signals a possible reopening of what remains the world’s largest proven oil reserve.
This alert summarizes the key provisions of the LOH Reform, contextualizes them against the current political and legal landscape, and analyzes their implications for foreign investors, particularly U.S. oil companies considering a return to Venezuela. The LOH Reform was published in the Official Gazette and is immediately effective, with certain tax related provisions becoming effective 60 days after publication. The LOH Reform was approved after extensive debate and numerous proposals submitted nationwide.
Background: A New Chapter for Venezuela
The ouster of Nicolás Maduro on January 3, 2026, following a U.S. special operations raid, has fundamentally altered Venezuela's political landscape. Vice President Delcy Rodríguez was sworn in as interim president of the Bolivarian Republic of Venezuela (the “Republic”) on January 6, 2026, and while her government has publicly condemned Maduro's removal, reports indicate ongoing negotiations with U.S. officials regarding the country's future direction. Secretary of State Marco Rubio has also stated that the U.S. seeks to influence Venezuela’s direction rather than govern directly.
The Trump Administration has signaled its intent to rebuild Venezuela’s oil industry, meeting with major U.S. oil executives and announcing plans and beginning to selectively roll back sanctions to enable oil production and exports. Against this backdrop, the LOH Reform is designed to create a legal framework attractive to the foreign capital and expertise Venezuela desperately needs to revive its moribund oil sector, which has seen production collapse from approximately 3.5 million barrels per day in the 1990s to roughly 860,000 barrels per day today.
Key Provisions of the LOH Reform
The LOH Reform represents a potentially significant liberalization of Venezuela’s hydrocarbons legal framework while maintaining the state’s foundational role in the sector. The following are the most consequential changes:
Upstream Activity Framework
Under the LOH Reform, upstream hydrocarbon activities (exploration, production, and initial transportation and storage of oil and associated gas) may be conducted by: (i) the National Executive, Venezuelan wholly state-owned entities, including Petróleos de Venezuela, S.A. (“PDVSA”), or their affiliates; (ii) joint venture companies (empresas mixtas) in which the Republic or a state entity directly or indirectly holds an ownership interest greater than 50% providing them shareholder control; and (iii) private companies domiciled in Venezuela, acting under contractual arrangements with state-owned companies or their affiliates.
The initial draft bill waived the explicit requirement for state ownership exceeding fifty percent in joint ventures, which introduced flexibility that could have allowed for creative structuring with greater economic participation by foreign partners. However, the final LOH Reform reinstates the requirement that the state hold an ownership interest greater than 50% in joint ventures. While this reduces some of the structuring flexibility contemplated by the initial draft bill, the LOH Reform still offers meaningful opportunities for foreign participation through enhanced minority shareholder rights and the new contractual framework described below.
Joint Venture Governance and Terms
Joint ventures under the LOH Reform are authorized by Presidential Decree, which establishes the conditions for their upstream activities. The Ministry of Hydrocarbons (the “Ministry”) must notify the National Assembly for parliamentary oversight and submit a report on each joint venture’s formation, principal terms, and any special advantages granted to the Republic.
Joint ventures are governed by their authorizing Presidential Decree, articles of incorporation, and bylaws. The Venezuelan Code of Commerce and other laws apply on a supplementary basis. While exempt from the Public Procurement Law, joint ventures must implement transparent procurement mechanisms based on principles like honesty, efficiency, and publicity.
The initial term for a joint venture is up to 25 years, with a possible renewal for up to 15 years. Renewal must be requested after half the original term has passed and at least five years before it expires. The majority shareholder has a preferential right to purchase the minority shareholder's shares in a sale or transfer.
All assets used in upstream activities revert to the Republic free of charge upon termination of the joint venture’s rights. The assets must be maintained in good condition to ensure operational continuity or an orderly shutdown with minimal impact. The joint venture’s management must preserve its economic and financial equilibrium to allow for investment recovery.
Expanded Rights for Minority Shareholders in Joint Ventures
Subject to Ministry authorization, the LOH Reform grants important operational rights to minority shareholders in joint ventures. The Ministry may authorize them to: directly market some or all of the joint venture’s production under the Hydrocarbons Law; open and operate bank accounts in any currency or jurisdiction to manage funds; and manage the venture's technical and operational aspects, either directly or through an affiliate.
If a minority shareholder manages technical and operational aspects, service costs must be reasonable and the production cost per barrel must be at or below that of Venezuela's state-owned entity. When any of these rights are granted, the shareholders must update their agreements to ensure the joint venture’s financial stability and investment recovery.
These provisions address longstanding investor concerns about controlling cash flows, making operational decisions, and accessing international markets—issues that affected prior joint venture arrangements. However, minority shareholders must still evaluate the potential execution risk associated with the discretionary nature of the authorization process.
New Contractual Framework for Private Companies
The LOH Reform introduces an alternative upstream business model allowing full private-sector participation. Under this model, Venezuelan state-owned entities or their affiliates may sign agreements (contratos de participación productiva) (“New CPPs”) with private companies domiciled in Venezuela (“Contractors”) for upstream activities. Contractors must demonstrate their technical and financial capacity through a business plan approved by the Ministry and will assume full management, responsibility, cost, and risk. The Republic retains ownership of all hydrocarbon reservoirs.
Contractor compensation may include: (i) a percentage of produced hydrocarbons, which the Contractor can market directly after fulfilling government obligations under the Hydrocarbons Law; and/or (ii) another form of profit sharing determined by the Ministry. Although not traditional production-sharing agreements, New CPPs link compensation to production volumes and sales. This represents a meaningful departure from the more restrictive regime that prevailed under Maduro and creates a contractual model familiar to international oil companies operating elsewhere in the world.
New CPPs statutorily replace certain economic features implemented through existing CPPs signed under the Constitutional Anti-Blockade Law for National Development and the Guarantee of Human Rights (the “Anti-Blockade Law”), while expressly situating those features within the general hydrocarbons legal framework. New CPPs may grant Contractors the right to lease State-owned assets and use the operational and delimited areas authorized by the Ministry. Contractors must pay rent specified in the New CPP to the state-owned entities. All such rights terminate automatically upon termination of the New CPP.
Upon termination, Contractors must return leased assets and transfer any assets built or acquired during the New CPP's term to the State, free of any liens and without compensation. Contractors are subject to the tax regime under the Hydrocarbons Law, with state-owned entities acting as agents for collecting and remitting royalties and taxes. New CPPs may include an economic-financial equilibrium clause to allow for investment recovery.
Marketing Rights Liberalization
Under the LOH Reform, state-owned operating companies generally retain the right to market natural hydrocarbons and derivative products designated by the National Executive. However, the Ministry may authorize joint ventures or Contractors to directly market all or a portion of the volumes produced in the assigned area.
Direct marketing does not imply (i) transfer of ownership of reservoirs, or (ii) authorization to grant security interests over reservoirs or on sovereign rights. Joint ventures or Contractors authorized to directly market hydrocarbons must comply with the marketing plan approved by the Ministry, market the hydrocarbons within market prices so that there is no significant difference between the realized sales prices and market prices, satisfy applicable tax and environmental obligations, and meet domestic supply requirements established by the Minister of Hydrocarbons.
This represents a potentially significant revenue enhancement for foreign partners, though the discretionary nature of such authorizations entails some execution risk.
Revised Royalty Structure
The LOH Reform provides that royalties of up to 30% apply to volumes extracted from any reservoir. The applicable royalty rate for each project will be determined by the Ministry, with the opinion of the Ministry of Finance, considering the nature of the project, required capital investments, economic feasibility, and the need to ensure international competitiveness. The Ministry may adjust the royalty rate within the 30% cap where necessary to preserve the project’s economic equilibrium.
This approach differs from the initial draft bill, which set the base royalty at 30% and provided for tiered reductions based on the type of activity: to 20% for primary activities carried out by private companies under contract, and to 15% for activities conducted by joint ventures, in cases of proven economic unviability. The revised framework provides greater flexibility by allowing project-by-project determination of rates within the 30% cap.
New Integrated Hydrocarbons Tax
The LOH Reform creates a new integrated hydrocarbons tax (impuesto integrado de hidrocarburos) (the “Hydrocarbons Tax”) of up to 15% on gross annual revenues. This tax is calculated based on monthly gross revenues, with deductions only for returns, unconditional discounts, and documented invoicing errors. The Ministry, using criteria similar to those for royalties, will set and may adjust the rate for each project to maintain its economic equilibrium. The Hydrocarbons Tax is calculated monthly and paid annually.
This new tax, which was not in the initial draft bill, significantly changes the fiscal framework. Foreign investors should evaluate how this tax will affect project economics, but should note that the flexible rate and economic equilibrium provisions may offer relief in certain cases.
Income Tax Flexibility
The Ministry, with the opinion of the Ministry of Finance, may reduce the applicable income tax rate (currently 50%) where necessary to preserve the economic equilibrium of the project, applying the same criteria used for royalties. This provides additional fiscal flexibility not explicitly contemplated in the initial draft bill.
Tax Exemptions
The LOH Reform exempts public or private entities conducting activities under the Hydrocarbons Law from the following taxes: (i) large wealth tax (impuesto a los grandes patrimonios); (ii) the special contribution under the Organic Law on Science, Technology, and Innovation; (iii) the special contribution under the Organic Law on Sports, Physical Activity, and Physical Education; (iv) the special contribution under the Organic Law on Drugs; and (v) the contribution under the Law for the Protection of Social Security Pensions Against the Imperialist Blockade.
These activities are also exempt from the social responsibility commitment under the Public Procurement Law and all state or municipal taxes, offering potentially significant cost savings for companies operating in the sector.
Alternative Dispute Resolution
In a provision of particular importance to foreign investors, the LOH Reform explicitly provides that disputes may be resolved through alternative dispute resolution methods, including mediation and arbitration. The specific parameters of such alternative dispute resolution mechanisms—including venue, applicable rules, and availability of administering institutions—will require clarification through implementing regulations or contractual provisions. The Ministry, in consultation with the Attorney General’s Office (Procuraduría General de la República), will issue such guidelines. Clauses adopted pursuant to such guidelines will not require separate authorization under the Attorney General’s Office Law or the Commercial Arbitration Law. Once implemented, this could provide foreign investors with greater confidence regarding the enforceability of their contractual rights.
Transitional Provisions
The LOH Reform includes several transitional provisions relevant to existing investments and prior legal frameworks. The Ministry is empowered to evaluate and conform existing joint ventures to the new framework within 180 days of the effectiveness of the LOH Reform. Similarly, PDVSA must adjust existing CPPs and other contracts signed under the Anti-Blockade Law within 180 days of the effectiveness of the new law. The tax regime in effect prior to the enactment of the LOH Reform will continue to apply during this transition period.
Repeal of Prior Oil-Related Laws
The LOH Reform repeals the 2006 law reserving upstream activities to the Republic, the 2009 law reserving hydrocarbon-related assets and services to the Republic, the 2013 windfall tax law, the 2007 Presidential Decree 5,200 relating to migration of Orinoco Belt association agreements to joint venture companies, the 2006 National Assembly resolution approving the terms and conditions of the joint ventures and joint venture model contract (and 2009 amendment), and any other legal provisions inconsistent with the LOH Reform. The Law on the Regularization of Private Participation in Primary Activities will also be partially repealed.
Easing of U.S. Sanctions in the Oil and Gas Sector
The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has issued a number of licenses to facilitate oil and gas transactions in Venezuela. On January 29, 2026, OFAC issued General License No. 46, authorizing certain activities for U.S. companies seeking to engage in “downstream-related” transactions involving Venezuelan-origin oil. Please refer to our alert “U.S. Government Issues General License Authorizing Transactions Involving Venezuelan Oil” for more additional sanctions information and implications for companies as they assess potential transactions in this space.
Subsequently, on February 10, 2026, OFAC issued General License No. 48 (“GL 48”), which authorizes U.S. persons to engage in transactions related to the exploration and production of crude oil in Venezuela. However, GL 48 expressly prohibits the formation of joint ventures or other entities in Venezuela to explore or produce oil or gas.
On February 13, 2026, OFAC issued General License No. 49 (“GL 49”), which significantly expands the scope of authorized oil and gas activities in Venezuela. GL 49 authorizes U.S. persons to engage in transactions related to new investments in Venezuela’s oil and gas activities in Venezuela, including the formation of new joint ventures and other entities – a marked departure from the prohibition under GL 48. This development more closely aligns U.S. sanctions policy with the LOH Reform’s joint venture requirements for upstream activities.
Prior to GL 49, the GL 48 prohibition on forming joint ventures or entities created significant tension with the LOH reform, which (as discussed above) requires that upstream hydrocarbon activities be conducted through one of two structures: (i) joint venture companies in which the Venezuelan state holds an ownership interest greater than 50%, or (ii) contractual arrangements, i.e., New CPPs, between private companies domiciled in Venezuela and state-owned entities. GL 49 now largely resolves this tension by authorizing the formation of new joint ventures and entities necessary to participate in Venezuela’s upstream sector under the LOH Reform framework, provided that the execution of any such contract relating to the creation of new joint ventures or other entities be made expressly contingent upon separate authorization from OFAC. Please refer to our alert “OFAC Issues New Venezuela General License Expanding Authorization For Oil and Gas Activities” for additional information regarding this development, as well as other recent general licenses issued by OFAC.
The practical implications following GL 49 are as follows:
- Existing Joint Ventures: U.S. companies that already hold interests in existing Venezuelan joint ventures would appear to be permitted to continue operating under GL 48, as the prohibition applies only to “new” joint ventures or entities. Such companies may also be able to make additional investments into their existing joint venture interests.
- New Joint Venture Formation: With the issuance of GL 49, U.S. companies without existing Venezuelan joint venture interests may now pursue new joint venture opportunities under the LOH Reform framework, subject to further authorization from OFAC.
- New CPP Contractual Framework: The alternative New CPP contractual model under the LOH Reform remains a viable path for U.S. companies seeking new upstream opportunities. As required under GL 49, the execution of these New CCPs would require OFAC approval.
U.S. companies evaluating new upstream opportunities in Venezuela should carefully assess the structure that best satisfies their commercial objectives. Companies should continue to monitor for any additional OFAC guidance clarifying the scope of GL 49 and any conditions or limitations that may apply to specific transaction types.
Despite these developments and the LOH Reform, substantial U.S. sanctions remain in effect against Venezuela. Executive Order 13884, issued in 2019, blocks all property and interests of the Government of Venezuela—defined broadly to include state oil company PDVSA and its subsidiaries—that are in the United States or controlled by U.S. persons. Significantly, Acting President Delcy Rodríguez herself remains a Specially Designated National (as well as other senior government officials), meaning U.S. persons are generally prohibited from engaging in dealings with her absent OFAC authorization.
The recent sanctions relief provided by the U.S. government comes with a number of restrictions and conditions which we have discussed in detail in the above-referenced alerts. Companies should conduct rigorous sanctions due diligence before pursuing any Venezuelan opportunity and may need to seek specific OFAC licenses for contemplated activities absent a general license(s) authorizing the same. Additional information can be found in our alert Venezuela Business Risks and Regulations - King & Spalding.
Outstanding Claims and Historical Grievances
Major U.S. oil companies hold billions of dollars in outstanding arbitration awards against Venezuela stemming from the Chávez-era expropriations. How these historical claims will factor into new investment opportunities remains an open question. Industry executives have indicated that significant new investments would likely require resolution of these legacy issues, along with fundamental regulatory changes and robust assurances of contract sanctity.
Investment Scale and Timeline
Revitalizing Venezuela’s oil sector will require substantial capital over an extended timeframe. Industry estimates suggest that initial improvements yielding approximately 500,000 additional barrels per day would require ten to twenty billion dollars in capital expenditure over two to four years. Achieving a more substantial production increase of approximately one million additional barrels per day could demand seventy to eighty billion dollars and considerably longer timeframes. These realities counsel patience and careful planning rather than immediate market entry.
Looking Ahead
The LOH Reform represents a meaningful step toward creating a legal framework conducive to foreign investment in Venezuela’s oil sector. However, significant uncertainties remain, including with respect to U.S. sanctions relief. The political situation in Caracas remains fluid, with questions persisting about the interim government's durability and its willingness or ability to cooperate with U.S. policy objectives.
For companies evaluating Venezuelan opportunities, we recommend monitoring developments in U.S. sanctions policy and preparing to act when the appropriate authorizations are available. It will be important to conduct thorough due diligence on potential partners, recognizing that many Venezuelan entities and individuals may be subject to sanctions or reputational risks. Companies should engage experienced counsel to help navigate the complex intersection of Venezuelan law, U.S. sanctions, and international arbitration frameworks.
We are continuously monitoring developments in Venezuela, including implications of additional reforms and sanctions relief. Please contact any member of our team to discuss how these developments may affect your business.