Crude & Fuel Oil Initiative

What we are asking counsel to do

This memorandum exists so that the engagement can begin from a defined factual record. The regulatory research below has already been done and the operative license texts have been read in full. We are not asking counsel to rediscover them. We are asking for opinion work on seven specific questions, in the order in which they gate the project.

The seven questions, in gating order

1. Does the contemplated transaction fall within the general licenses as they currently stand, and what falls outside? Our working conclusion is that it does fall within them and that no specific license is required. We would like that confirmed or corrected. If some leg falls outside, we need to know which, and whether the right instrument is a specific license application or an interpretive guidance request, which we understand to be a different and faster process.
2. What does "diluents" mean in General License 47B? This is the single highest-value question in the memorandum. GL 47B authorizes the sale of U.S.-origin diluents to Venezuela and, unlike GL 46E, imposes no "established U.S. entity" requirement. But the license does not define the term. Whether light sweet crude oil and condensate qualify as diluents determines whether an entire business line exists. We believe this is a strong candidate for an interpretive guidance request.
3. Does acquiring a qualifying entity, and the resulting change of control, affect its eligibility? "Established U.S. entity" is defined by date of organization, and the target was organized in 2021. Nothing we have found says a later change of ownership disqualifies the entity; nothing blesses it either. Since OFAC looks to ownership and control rather than to the certificate of incorporation alone, we would like a view, and if the view is uncertain, advice on whether to seek guidance before closing.
4. Is the participation structure for producers a securities offering? Section 10 sets out the analysis we have run and the design we believe stays on the commercial side of the line. We need counsel's opinion on the structure as finally proposed, and a clear statement of the governance conduct required to keep it there.
5. What is the antitrust exposure of a horizontal purchasing consortium among competing producers? We have identified a tension: the governance and information rights that support the non-security characterization run against the information-sharing limits that antitrust counsels. We need that tension resolved deliberately at the design stage.
6. What compliance program does the group need, and what does it have to capture? Specifically: an admission screen for every participant, seller, bank and vessel; the reporting obligations under each license, which differ between the crude and diluent legs; and the recordkeeping that would withstand examination.
7. What else applies that is not OFAC? We are aware that the licenses do not relieve compliance with other federal requirements, expressly including the Department of Commerce's Bureau of Industry and Security, and that a U.S. export of diluent raises its own export-control question. We would like the full list rather than the part we have spotted.

What we believe we already know, and would like checked rather than repeated

What we are not asking for

We are not asking counsel to opine on commercial merit. Sections 6, 7, 13 and 14 are included because the securities and antitrust analysis turns on who the participants are and what they actually do, and because the sequencing has legal consequences. The commercial judgment is ours.

The initiative in one page

The original concept. Acquire Magnus Petrocorp Industry Inc., a U.S. entity that qualifies under the OFAC general licenses; obtain any further licenses required; aggregate small U.S. independent crude producers who hold relationships with refiners; and, through a trust administered by U.S. counsel, fund cargoes of Venezuelan crude for importation into the United States.

The assessment. The opportunity is real and the timing is right: U.S. imports of Venezuelan crude reached 701,000 b/d in July 2026, the highest monthly figure since May 2017. But five premises in the original concept do not survive the research, and one opportunity that was not identified turns out to carry the stronger legal position.

The five premises the research corrects

The constraint that governs the calendar

The opportunity that was not in the original concept

Orinoco crude is approximately 8 to 10 degrees API and must be diluted to reach export grade. Diluent is therefore the binding physical constraint on Venezuelan export volume. Venezuela imported an average of roughly 112,000 b/d of diluent between February and July 2026, peaking near 148,000 b/d in March.

Recommended sequence

A specific license is probably unnecessary

The original concept included obtaining further specific licenses from OFAC. That premise should be tested before any cost is incurred, because if it is wrong the entire project calendar changes.

General License 46E authorizes transactions ordinarily incident and necessary to the lifting, exportation, reexportation, sale, resale, supply, storage, marketing, purchase, delivery and transportation of Venezuelan-origin oil, including its refining, and extends to transactions involving the Government of Venezuela and PDVSA and its entities. General License 52C, dated 14 September 2026, separately authorizes transactions involving PDVSA.

Why applying for a specific license when a general license covers the activity is counterproductive

The instruction we would propose for the engagement

Not "obtain the license." Rather:

1. Does the specific transaction contemplated fall within the general licenses as currently in force?
2. If any leg falls outside, which one, and is the correct instrument a specific license application or an interpretive guidance request?
3. Does the acquisition of a qualifying entity, and the resulting change of control, affect its eligibility?
4. What registration, reporting and diligence obligations attach, and how are they documented from day one?

What the license actually requires

1 · The operative instrument is GL 46E

The license has been replaced five times in nine months:

2 · The governing-law requirement no longer exists

3 · The eligibility cutoff is 2025, and it cannot be engineered

GL 46E Note 1 defines the term verbatim: an established U.S. entity is any entity organized under the laws of the United States or any jurisdiction within the United States on or before 29 January 2025 — one year before the license issued.

4 · Two openings that require no qualified entity

5 · The payment mechanism is a State Department process, not a bank escrow

6 · The country exclusions, and the asymmetry within them

7 · Reporting, and the difference between the two legs

8 · The remaining conditions

Acquiring Magnus: what it is worth, what it carries

The target. Magnus Petrocorp Industry Inc., a Florida corporation organized 11 October 2021, document P21000088526, EIN 87-3104992, active. Its stated business is commodity trading — fuel oil, diesel, methanol, bitumen, petroleum coke and minerals — in Asian, African and South American markets. A sanctions screen conducted in June 2026 against the entity and its officers, Álvaro J. De Vera Machado and Franklin A. Rodríguez González, returned clear results against the OFAC and OpenSanctions lists.

What is actually being purchased

One thing, and it should be stated plainly: the date of organization. GL 46E reserves the authorization to entities organized on or before 29 January 2025, and that window is closed. A new company cannot be formed to qualify. Acquiring an entity that already qualifies is therefore the obvious move — and for that reason it is a move OFAC has plainly anticipated.

The question that sets the price

Before negotiating consideration, one question must be answered: does the entity hold anything operational, or does it hold a date?

The prior question: is the acquisition necessary at all?

Share purchase versus asset purchase

Because eligibility attaches to the identity of the entity, the shares are most likely required. Acquiring shares means acquiring the entire history of the company, including the portions that appear on no list.

What pre-closing diligence must cover

1. Counterparties across the last five fiscal years, by name and jurisdiction, screened against the five excluded countries, including intermediaries, agents and banks.
2. Beneficial ownership traced to natural persons, not to the first corporate layer. OFAC examines ownership and control, not the commercial register.
3. Vessels employed, verified against blocked vessel lists by IMO number.
4. Banking history: accounts closed at the bank's initiative, regulatory inquiries, suspicious activity reporting.
5. Florida corporate and tax standing, and absence of litigation.
6. The two current officers: if they remain, their history remains; if they exit, the reason and what departs with them.

Minimum transaction terms

Change of control: the unanswered question

Nothing located indicates that a change of ownership subsequent to issuance disqualifies the entity. Nothing blesses it either. The express exclusions are of nationality — the five countries — not of change of ownership. At the same time, the evident purpose of limiting the authorization to pre-existing companies is to prevent the formation of new vehicles to exploit it, and OFAC assesses ownership and control rather than the date on the certificate alone.

The alternative that belongs on the table

Before acquiring the company, it is worth asking whether the objective is achievable without acquiring it: engaging Magnus as a contracted counterparty rather than as a subsidiary. It retains its history and its liability; the group contracts its capacity and pays per transaction or per barrel.

• In favor: no successor liability, no acquisition outlay, materially faster start.
• Against: no control over the entity on which the business depends, reliance on a third party's willingness, and a shared margin.

Our reading: contract first, acquire later, once there is a joint record and a clear view of what is being bought. It appears slower at the outset and avoids the scenario of paying for an entity and discovering the problem with the money already gone.

Who actually sells, and what the public record does not contain

The clearest evidence: CITGO purchased its first Venezuelan cargo since 2019 — approximately 500,000 barrels — from Trafigura, not from PDVSA. A U.S. refiner with decades of Venezuelan history and the closest corporate connection to the country entered by buying from a trader.

The four routes, ordered by practical accessibility

There is an official list of named partners, and it sits in a license annex

What is not in the public record regarding the seventeen fields

The physical bottleneck

Equipment failures, quality problems and power outages during loading and discharge are reported. PDVSA incurs demurrage of significant daily amounts and has agreed to settle it only in crude. Terminal repair is not a priority of the reconstruction plan, which concentrates on production. PDVSA retains control of its terminals, including all cargo scheduling.

Two compliance traps in the Venezuelan chain

Registration and export permitting

The documented mechanism is the R.U.C.C.V.E. — Registro Único de Clientes Calificados para Ventas de Exportación — PDVSA's master registry of companies qualified to purchase export crude and refined products. It admits only companies registered outside Venezuela, so a Florida corporation qualifies from the Venezuelan perspective. Registration is made directly by the applicant without intermediaries, and the available source indicates the process carries no fee. Apostilled corporate documents and shareholder passports are required.

Who they are, what they lose today, and where the margin actually is

The concept refers to "small local crude operators without access to large volumes." The research confirms that intuition and quantifies it against published prices. This section is included because the securities and antitrust analysis turns on who these participants are and what they actually do.

The small-lot penalty is published

In Appalachian Penn Grade crude, the two purchasers that publish prices do so with identical postings and an identical volume ladder:

A 30 to 60 barrel tank battery receives USD 5.00 per barrel less than a 150-barrel battery for identical crude — a 5.5 percent haircut. This is not a negotiated discount or a market opinion; it is published in both purchasers' current bulletins.

But that penalty is not capturable profit, and the distinction matters

The universe, and it is contracting

A second, geographic penalty

First purchase price at the wellhead, July 2026, by state:

The model already exists at the contemplated scale

Independent first purchasers operate this business today, and they are more instructive than the majors:

Sourcing the counterparty list without guesswork

The three published levers on a lease barrel

1. Volume tier. Up to USD 5.00 per barrel, documented.
2. Gravity. Flat between 30 and 40 degrees API; below 30, deductions run from 0.05 to 0.15 dollars per degree depending on the purchaser. Scale letters are not portable between companies — one purchaser's Scale A is not another's. Each bulletin must be read on its own terms.
3. Haulage cost. Contract clauses permit deduction up to the actual cost of transportation where movement is other than by pipeline.

Posted prices from bulletins current 9 to 11 October 2026. Per-barrel margins derived from audited accounts for fiscal 2023, the most recent available for that company. Volume figures for the market leader are for 2024, the last disclosure before that line was discontinued.

Who buys Venezuelan heavy crude in the United States

This section derives from EIA Form EIA-820 refinery capacity data as of 1 January 2026, cross-referenced against EIA import history. The governing variable is the coker-to-crude ratio: a refinery without a coking unit is not a home for extra-heavy crude, however large it is.

Why the gap exists

Demand does not exist because Venezuelan crude is good. It exists because the U.S. Gulf Coast is short of heavy crude, for two simultaneous structural reasons:

U.S. coking capacity is chronically under-fed. That is the gap, and it is real.

The warm list: refiners that have already purchased in 2026

Capacities from EIA Form EIA-820, Refinery Capacity Report, data as of 1 January 2026. Crude in barrels per calendar day, coker in barrels per stream day; the ratio mixes the two bases and serves for ranking rather than as a precise figure. Buyer shares for 2024 from EIA company-level import data, January to November 2024.

The approach list: three under-served names

The majors purchase through tender and through the trading houses. These three can be approached directly by a new entrant:

Quality: the grades against which Merey is priced

The two-way thesis: light crude south, heavy crude north

The physical fact

Orinoco Belt crude is approximately 8 to 10 degrees API. At that density it cannot be pipelined or loaded as is. It must be diluted to export grade — Merey 16, at 15.9 to 16.4 degrees. This is a permanent physical requirement rather than a commercial preference, and it makes diluent the binding constraint on Venezuelan export volume: the country cannot export more crude than it can dilute.

Verification against the operative text · 11 October 2026

The signed OFAC document was downloaded and read in full. The following is no longer third-party interpretation.

Two obligations that the earlier working assumptions had wrong

Two further exposures on this leg

Where the thesis is weaker than it first appears

Blending is linear in specific gravity, not in API degrees. Performed correctly, bringing 8.5-degree crude to 16 degrees requires:

Where light sweet crude does win: sulfur

Sulfur blends linearly by mass, and the result is counter-intuitive:

A scale check, stated honestly

The diluent volume figures derive from official U.S. trade statistics. The blending and sulfur arithmetic is derived rather than published, and the methodology is stated so that it can be checked. The claim that GL 47B imposes no entity requirement is verified against the operative text; the meaning of "diluents" is not, and is referred to counsel.

Four pieces, and why each is separate

The separation is not a tax refinement. Each piece exists so that a specific risk does not contaminate the others.

The flow

Open design decisions

• Delaware or Texas for the aggregation company. Texas is closer to the producer and carries sector credibility; Delaware offers better corporate law and the series structure. A combination is available: Delaware with qualification to do business in Texas.
• Who holds the funds for each cargo: a bank or a title company, settled before the first contract. Not counsel.
• Whether the qualified entity is acquired or contracted. Section 4 sets out the case for contracting first.

Structuring without creating an unregistered security

This section sets out the analysis run to date and the design believed to remain on the commercial side of the line. It is offered so that counsel can test a defined position rather than build one from nothing. It is not an opinion and should not be relied upon as one.

The threshold objection, which is economic rather than legal

This matters because the strongest available defense — the consumption or use doctrine of United Housing Foundation, Inc. v. Forman, 421 U.S. 837 (1975) — depends on the participant wanting the barrels rather than the margin. A producer with no refinery, no storage, no marketing desk and no use for imported heavy sour crude cannot credibly assert a commercial procurement motive.

The authorities that help, and the one that does not

Related adverse authority includes SEC v. Continental Commodities Corp., 497 F.2d 516 (5th Cir. 1974), on discretionary commodity trading accounts, and Hocking v. Dubois, 885 F.2d 1449 (9th Cir. 1989) (en banc), for the principle that the court examines the whole transaction as offered rather than the instrument alone.

The three features that do the damage

1. The sponsor performs the resale and distributes the proceeds. This is Glen-Arden. It converts a purchase into an investment in the sponsor's marketing ability.
2. The sponsor takes a share of profits rather than a fee. Profit participation is the classic marker of a common enterprise and of reliance on the efforts of others.
3. Participants' economics are pooled. Horizontal commonality, and in the Fifth Circuit a near-certain finding of common enterprise.

The governance warning

The related line of authority on when an interest in a joint venture is not a security — Williamson v. Tucker, 645 F.2d 404 (5th Cir. 1981) — protects participants who genuinely exercise decision-making power. That the participants here are operating oil producers rather than passive investors helps materially: they understand the product and can evaluate the transaction. But the protection follows conduct, not drafting.

Two exposures not previously identified

Characterization as a note · Reves v. Ernst & Young, 494 U.S. 56 (1990)

An arrangement of "pay now, receive barrels or cash later, with an expected uplift" may be characterized not only as an investment contract but as a note, and notes are securities unless they fall within a judicially recognized family-resemblance category. A genuine commercial prepayment under a sale contract plausibly falls within "an open-account debt incurred in the ordinary course of business." A prepayment marketed to thirty or fifty participants with an advertised return probably does not. This exposure is independent of the investment-contract analysis.

Antitrust

The four candidate structures, compared

The highest-value structuring step, at no cost

Three drafting conventions that reduce risk across every regime at once

The question that determines the structure, and it is the client's to answer

How many participants, and of what size? With ten to fifteen genuinely operating producers writing real tickets, Structure A functions. With fifty small-ticket participants, the arrangement is in substance a fund, and Structure C is the honest answer — subject to the accredited investor requirement, which may render the premise unworkable at that scale.

A hybrid merits consideration: Structure A for the large active participants and Structure C for the small passive ones, with an integration analysis ensuring the two are not a single offering. More work at the outset and materially less risk.

Case citations should be verified before reliance. Several points in this section are fact-dependent and will turn on the structure as finally documented.

Receivables, not letters of credit

The correct instrument

What monetizes an investment-grade buyer's credit is not the discounting of a letter of credit. It is a receivables purchase, structured as a true sale, non-recourse over the specific invoice, and priced against the refiner's credit rather than the group's.

The sequence

1. A firm sale contract with the refiner, signed before purchasing. Delivered Gulf Coast, priced against the published Merey 16 DAP USGC assessment over an agreed pricing period, payment 30 days against documents. And with the refiner's written consent to assignment inside the contract itself — most refiner general terms contain an anti-assignment clause that would otherwise defeat the financing.
2. A receivables purchase agreement with a bank or fund, as a true sale without recourse over that invoice. Indicative cost of roughly 5.4 to 6.4 percent per annum, equating to some USD 0.30 to 0.55 per barrel over a 45 to 60 day cycle on a cargo of approximately USD 45 million.
3. A transactional advance to fund the purchase, drawn against that commitment. The lender takes assignment of the sale contract, a pledge over the cargo and its documents, assignment of insurance proceeds, and control of the collection account. The refiner pays directly into that account.
4. Trade credit insurance on the refiner receivable — not on Venezuela. This is available in the ordinary market, because the risk is a U.S. investment-grade corporate.
5. A freight hedge or period charter, fixed before the price is agreed. In the present market this is not optional.

The provision that opens the bank's door

Why payments function now, and it was not from January

The January crude license did not by itself resolve payments. What resolved them were two licenses dated 14 April 2026 that de-blocked the Central Bank of Venezuela and three state banks, authorizing for the first time since 2019 dollar transfers, correspondent banking, payment processing and foreign exchange participation.

Two clocks, one of which expires shortly

Two banking relationships assessed, and ruled out

The group's Miami trade finance relationship retains value — for structuring, for the receivables leg, and for introductions. Not as issuing or confirming institution on this risk.

The largest unmitigated exposure in the structure

Political risk and export credit cover: the door is closed

Fuel oil: the business that can start first

The initiative is titled "Crude & Fuel Oil" and everything above concerns crude. Fuel oil warrants separate treatment because it is not the same business with a different product: it is a business of different scale, different buyer and different cycle. It is also the one that can generate cash first.

That last point is not incidental. The acquisition target's stated business begins with fuel oil. If the company holds any live commercial relationship, it is most likely on that side — which is precisely what diligence must establish, because it changes the valuation.

Where it sells

This is where the Caribbean jurisdictions become relevant. The Dominican Republic is not a place to hold an entity; it is a market. The Caribbean and Central America burn fuel oil for power generation, and Venezuelan heavy fuel oil has a long history in that basin.

Why it belongs in parallel rather than in sequence

Fuel oil does not compete with crude for resources; it competes for attention. And it carries an advantage crude does not: it permits inexpensive mistakes. A mishandled partial lot costs a fraction of a mishandled cargo and teaches exactly the same lessons — inspection, documents, demurrage, quality, collection, and the mechanics of payment into the Treasury-designated account.

This section is structural reasoning rather than market research. The statements on relative scale and buyer profile follow from sector logic and require validation against post-2020 data before being used to support a decision.

Indicative cargo economics, and a conclusion stated without softening

Why

The Merey discount — 18 to 20 dollars under Brent — was set when freight stood at approximately USD 5.00 per barrel. Freight today is near 11, and rising.

The cause lies outside the business: the conflict between the United States and Iran that began in late February 2026, and attacks on shipping near Hormuz.

Cost build, per barrel

Result

How the trade looked when it did work

January 2026, on actual data: traders bought at Brent less 15 and sold to Gulf Coast refiners at Brent less 8.50 to 9.50. Gross of USD 5.50 to 6.50 per barrel, less approximately 1.90 of freight:

A twenty-dollar inconsistency that must be resolved before capital is committed

The basis risk that is rarely priced

The demand side is not unanimous

Cost build and scenarios constructed on public prices as of 11 October 2026. The principal price assessment services are subscription-based and were not accessible; several price points rest on free-tier sources of uncertain vintage. None of these figures should support a capital commitment without broker confirmation and without resolving the inconsistency identified above.

Five phases, each profitable on its own

The design principle is that no phase depends on the next occurring. If the Venezuelan leg stalls — because OFAC changes position, because barrel allocation does not materialize, because the agreement cools — phases one and two continue to generate revenue. That is what makes this a business rather than a wager, and it is also why the sequencing has legal consequences worth counsel's attention.

Eleven exposures, and what contains them

Ordered by probability multiplied by consequence, rather than by how uncomfortable they are to read.

What remains, and the proposed sequence

This memorandum is a structure, not an executable plan. What is missing to make it one is set out below.

Verified against primary sources on 11 October 2026

Still open, in order of consequence

Proposed immediate sequence

The three questions that are the client's to answer

1. How many participants, and of what size? Ten to fifteen operating producers writing real tickets supports a bilateral sale structure. Fifty small-ticket participants is in substance a fund, requiring a registered-exemption vehicle with every participant accredited — which may render the premise unworkable at that scale. This single answer determines the structure.
2. Is there a live conversation with any of the six named field partners, or is this a hypothesis to be worked? They are two different projects on two different timelines.
3. What does the acquisition target hold beyond its date of organization? Without this there is no basis on which to value the acquisition or negotiate the price.