Industry experts have voiced significant skepticism regarding bullish predictions that US oil giants will quickly invest vast sums of dollars to fix Venezuela's broken energy sector.
Demand for Solid Protections
Without an “iron-clad guarantee” of complete repayment from the US federal government, specialists predict global energy giants to act with significant hesitation.
“It seems premature to speculate on any future business activities,” a representative said this weekend.
The aggressive schedule of less than 18 months has been boldly outlined. Yet, industry projections suggest a different picture.
A More Realistic Timeline
“It’s probably going to take 36 months for any meaningful recovery in production,” commented one energy analyst.
The analysis indicates oil companies would likely spend:
- Year one: Sorting through new regulatory frameworks.
- Year two: Commencing reconstruction of facilities.
- Year three: Reaching a position to meaningfully increase yield.
The result could be an boost of around half a million bpd possibly by the end of the decade.
Appetite Compared to Readiness for Risk
Experts make a important separation between companies' curiosity and their appetite to invest heavily.
“I believe their curiosity is an high score, on a range of ten. I think their willingness is a mid-range score, because there is a lack of certainty yet.”
Experienced observers in the sector reinforce this caution. The thinking is that majors will politically express enthusiasm while in practice moving with extreme caution.
The Vast Cost
The financial investment would be colossal. Research projections suggest that adding between half a million and a million bpd would require in excess of $10 billion in capital spending over several years.
But, restoring production to previous levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over six or seven years.
The Unanswered Issue of Taxpayer Funding
The prospect of firms being paid back by the federal government has been repeatedly mentioned. But, concrete details on any guarantee have not yet been forthcoming.
This lack of clarity is the key impediment for the sector's caution. Operators seek safeguards against political risk and the risk that a subsequent president could cancel any deal.
“They must be insured against nationalization, that we’ve seen in Venezuela before.”
Therefore, while political confidence runs high, the financial realities suggest a path of extreme caution for any large-scale financial commitment in the country's oil sector.
