Range Penalties should be used for the attack. That covers the OCV penalty. I would make the PC take WF: Lariat if they want to use one.
Western Hero says STR Min of 8, but in 5ER you can't have a STR Min on a non-damaging power.
The lariat weighs 5 pounds, and appears to not be "just a rope". There is a fair amount of craftsmanship that goes into them and they are often waxed to allow them to slip closed quickly.
A grab with a lariat is going to usually pin the person's arms to their torso so it is unlikely that a weapon will be able to be used unless it was already in hand, or is easy to draw. I would probably say one strapped to the thigh is going to be more useful than one on the waist. The grabbed character will need to win a STR contest to get the knife under the rope to be able to cut it. I would also use the standard grabbing rules during the initial phase that they are grabbed and after that it is going to be harder as the rope is pulled tight. However... There is a very simple and easy way to beat a lariat, but I'm not going to post it here in the event that one of my players reads this. (They need something to get experience for figuring out.

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A larger creature would just be able to handle a longer lariat and, as you said, would probably be stronger.
A few more facts about lariats:
Background of the Invention
Lariats originally evolved as an early cowboy's most important tool. Cowboys used lariats to catch cattle, to tie horses in place, to pull wagons across rivers and swamps, to kill snakes, etc. A famous quotation from Ramon F. Adams book Western Words states the cowboy ". . . does everything with his rope except eat with it." The word lariat evolved from the Spanish la reata, meaning the rope.
Early cowboys used ropes made of horsehair, grass or henequen. Most lariat ropes today are made of nylon. Typically, cowboy lariats range from 30 to 70 feet in length.
How to rope a moving target
http://www.inquiry.net/outdoor/spin_...ng_targets.htm
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