Industry experts have shown considerable caution regarding bullish statements that US oil giants will quickly invest tens of billions of dollars to fix Venezuela's dilapidated oil infrastructure.
The Need for Absolute Guarantees
Absent an solid promise of complete repayment from the US federal government, analysts expect global energy giants to proceed with extreme caution.
“It would be too early to speculate on any upcoming plans,” an official said recently.
The optimistic timeframe of under 18 months was publicly proposed. However, realistic assessments suggest a different picture.
A More Realistic Outlook
“It is likely going to take three years for any kind of recovery in production,” commented an chief investment officer.
The analysis indicates energy firms would likely spend:
- Initial phase: Securing new operating agreements.
- Year two: Beginning reconstruction of equipment.
- Final phase: Reaching a position to boost output.
The result could be an increase of around 500,000 barrels per day perhaps by the end of the decade.
Desire Versus Readiness for Spending
There is a key distinction between firms' attention and their readiness to commit heavily.
“I believe their curiosity is an eight, on a range of one to 10. I think their willingness is a four or five, because there is a lack of certainty yet.”
Veteran operators in the sector echo this caution. They believe that majors will politically express enthusiasm while actually acting with extreme caution.
The Colossal Cost
The required outlay would be vast. Research analysis suggest that increasing production by between half a million and a million barrels per day would require in excess of $10 billion in funding over two to three years.
However, returning production to peak levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over six or seven years.
The Pending Question of Government Backing
The prospect of firms being compensated by the US taxpayer has been repeatedly floated. Nevertheless, concrete details on any guarantee have not yet been forthcoming.
The absence of clarity is the key factor for the sector's hesitation. Firms seek protection against nationalization and the risk that a future president could refuse any promise.
“You need to be protected from sovereign risk, that we’ve witnessed in Venezuela previously.”
Ultimately, while political optimism runs high, the operational challenges suggest a journey of slow deliberation for potential significant financial commitment in the country's oil sector.
