Energy analysts have voiced deep skepticism regarding optimistic claims that US energy majors will quickly commit billions of dollars to fix Venezuela's broken production facilities.
Requirement of Iron-Clad Assurances
Lacking an “iron-clad guarantee” of full reimbursement from the American government, analysts expect multinational oil companies to proceed with extreme caution.
“It seems too early to speculate on any future business activities,” a representative said this weekend.
The ambitious schedule of less than a year and a half has been boldly suggested. Yet, expert analyses suggest a longer timeline.
A Probable Timeline
“It’s probably going to take three years for any meaningful output increase,” commented an chief investment officer.
Experts believe operators would likely spend:
- Year one: Sorting through new regulatory frameworks.
- Following phase: Commencing overhaul of equipment.
- The third year: Reaching a position to boost yield.
This suggests an rise of around 500,000 bpd possibly by the end of the decade.
Desire Versus Readiness for Investment
Experts make a key distinction between firms' attention and their willingness to spend substantially.
“I think their curiosity is an high score, on a scale of ten. I think their readiness is a four or five, because there is significant uncertainty yet.”
Experienced observers in the sector share this view. They believe that firms will politically express enthusiasm while in practice acting with extreme caution.
The Colossal Investment Required
The financial investment would be colossal. Independent analysis suggest that adding between 500,000 and a million bpd would require in excess of $10 billion in funding over several years.
But, rebuilding production to previous levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over six or seven years.
The Unanswered Question of Government Backing
The prospect of firms being paid back by the federal government has been often mentioned. However, formal assurances on any guarantee have not yet been forthcoming.
Without clarity is the main impediment behind the industry's caution. Operators seek protection against sovereign risk and the possibility that a subsequent president could renege on any deal.
“You need to be protected from political change, that we’ve witnessed in Venezuela already.”
Therefore, while political promises runs strong, the financial challenges suggest a road of measured steps for potential major investment in the Venezuelan oil sector.
