Venezuela, its oil exports decimated by U.S. sanctions, is testing a new method of getting its crude to market: allocating cargoes to joint-venture partners including Chevron Corp (CVX.N), which in turn market the oil to customers in Asia and Africa.

This would not violate sanctions as long as sale proceeds are used for paying off a venture’s debts, according to three sources from joint ventures. They said this approach could help Venezuela overcome obstacles to producing and exporting oil.

Venezuela’s oil exports fell 32% last year as the U.S. government blocked imports by American companies and transactions made in U.S. dollars. PDVSA was forced to use intermediaries for crude sales as Washington pressured Venezuela’s Indian and Chinese customers to halt direct purchases.

The sanctions were designed to oust Venezuelan President Nicolas Maduro after most Western nations branded his 2018 re-election a sham.

By acting as an intermediary for PDVSA’s oil sales, Russia’s Rosneft (ROSN.MM) in 2019 became the largest receiver of Venezuelan crude, using the sales to amortize billions of dollars in loans granted to Venezuela in the last decade.

Washington has mostly allowed mechanisms to pay off debt with oil or to swap Venezuelan crude for imported fuel, but Venezuela’s opposition is lobbying the U.S. administration to punish intermediaries.

PDVSA, the U.S. Treasury Department and the State Department did not answer Reuters’ requests for comment.

The latest tests of the policy come this month. A 1 million-barrel cargo of Venezuelan upgraded crude consigned to Chevron is scheduled to load at PDVSA’s Jose port, according to internal documents from the state-run firm seen by Reuters.

Chevron has a stake in the Petropiar joint venture with PDVSA to upgrade oil in the OPEC nation’s Orinoco belt, one of the world’s largest oil reserves. Chevron’s license to operate in Venezuela despite sanctions expires on Jan. 22 unless the U.S. Treasury renews it.

“Proceeds from these marketing activities are paid to our joint venture accounts to cover the cost of maintenance operations, in full compliance with all applicable laws and regulations,” said Chevron spokesperson Ray Fohr.

In the past, Chevron itself used to refine Venezuelan crude at its U.S facilities, often bought from PDVSA’s joint ventures.

Another cargo of 670,000 barrels of Tia Juana and Boscan crudes, chartered by Venezuelan oil firm Suelopetrol, set sail at the beginning of January, the documents showed.

Suelopetrol, a minority stakeholder in joint ventures with PDVSA, said it was recently allocated a Venezuelan crude cargo under contracts signed prior to U.S. sanctions with PDVSA and joint venture Petrocabimas to support investment and development of oilfields.

“Those contracts include the designation of Suelopetrol as offtaker of crude produced for compensating accounts receivable, due since 2015, for capital contributions, technical assistance, provision of services and accumulated dividends,” it said in response to questions from Reuters.

By Venezuelan law, state-run PDVSA is required to market all Venezuela’s crude exports, except for upgraded oil, whose output was suspended in 2019 due to accumulation of stocks. Only Petropiar, one of four upgrading projects in the Orinoco, has recently resumed operations.

To avoid violating Venezuelan law, the joint ventures that are not allowed to market their output for exports first sell the oil to PDVSA, which then allocates the cargoes to its joint venture partners, according to two of sources and documents.

The private partners take possession of the cargoes at Venezuelan ports and transport them in chartered vessels to refineries around the world, according to the documents and tanker tracking data from Refinitiv Eikon.

Proceeds from these sales to ultimate buyers are being transferred to the joint venture’s trustees to fund operational expenses as well as paying debt and dividends owed to partners.

“It is a matter of life or death for joint ventures to achieve this so operations can restart,” said a top executive from one of the joint ventures that accepted the mechanism.

According to the PDVSA documents and sources, Chevron took two cargoes of Venezuelan Boscan and Merey crudes in the last quarter of 2019, before lifting a cargo of Hamaca crude in January. Suelopetrol’s cargo, on tanker Ace, set sail on Jan. 5.

ACCUMULATED DEBT
Several of PDVSA’s more than 40 oil producing joint ventures owe hundreds of millions of dollars to minority partners as PDVSA demanded from 2013 to 2017 they extend funding to the projects.

Minority stakeholders put the money through credit lines and loans backed by supply contracts so sale proceeds would go to trustees for paying the projects’ costs while amortizing the loans.

But U.S. sanctions deprived PDVSA and some joint ventures of the supply contracts used to guarantee the loans, leaving the projects without sources of cash and freezing the credit lines.

The new mechanism is intended to unfreeze cash flow to continue production, the sources said. It could also make it easier to trade Venezuelan oil by using joint-venture partners as buyers or traders while sanctions are in place.

Very high freight tariffs for transporting Venezuelan oil, the difficulty in finding willing buyers, and problems at oilfields and shipping terminals remain obstacles to implementing the mechanism, the sources added.

Lawyers consulted by some PDVSA partners interested in lifting Venezuelan crude told them the sales are allowed under sanctions as long as proceeds paying off debts remain out of Maduro’s reach, which is the main intention of the measures, one of the sources said.

Source: Reuters (Reporting by Marianna Parraga in Mexico City, Mircely Guanipa in Punto Fijo, Venezuela, and Deisy Buitrago and Luc Cohen in Caracas. Additional reporting by Timothy Gardner in Washington; Editing by Daniel Flynn, Gary McWilliams and David Gregorio)