Industry experts have shown significant skepticism regarding bullish statements that US oil giants will quickly invest billions of dollars to fix Venezuela's crumbling production facilities.
Demand for Solid Assurances
Lacking an solid promise of full reimbursement from the US federal government, analysts expect global energy giants to move with great care.
“It seems too early to discuss any upcoming plans,” an official stated this weekend.
The ambitious timeframe of less than a year and a half has been boldly suggested. Yet, expert analyses indicate a different picture.
A Likely Outlook
“Chances are going to take three years for any meaningful production bounce,” noted one chief investment officer.
Experts believe energy firms would likely spend:
- Initial phase: Sorting through new operating agreements.
- The second year: Investing in overhaul of equipment.
- Final phase: Reaching a position to significantly ramp up output.
This suggests an increase of around 500,000 bpd maybe by the end of the decade.
Interest vs. Willingness for Risk
There is a important separation between companies' curiosity and their willingness to spend substantially.
“In my view their interest is an eight, on a scale of one to 10. I think their readiness is a much lower, because there is significant uncertainty yet.”
Experienced diplomats in the region echo this sentiment. They believe that firms will publicly express enthusiasm while in practice proceeding with great care.
The Colossal Investment Required
The monetary bill would be colossal. Independent estimates suggest that increasing production by between half a million and a million bpd would require over $10 billion in capital spending over two to three years.
However, returning production to peak levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over six or seven years.
The Unanswered Question of Taxpayer Funding
The prospect of energy companies being reimbursed by the US taxpayer has been often mentioned. But, formal assurances on any guarantee have not yet been forthcoming.
Without certainty is the primary reason behind the sector's hesitation. Operators seek guarantees against sovereign risk and the risk that a different administration could renege on any deal.
“They must be protected from sovereign risk, that we’ve experienced in Venezuela previously.”
Therefore, while rhetorical promises runs strong, the financial realities suggest a journey of measured steps for potential large-scale investment in the country's energy industry.
