Energy analysts have shown deep caution regarding bullish statements that US energy majors will swiftly invest tens of billions of dollars to fix Venezuela's dilapidated oil infrastructure.
Requirement of Absolute Assurances
Lacking an solid promise of full reimbursement from the US federal government, analysts expect multinational oil companies to move with extreme caution.
“It is hasty to speculate on any upcoming plans,” a representative commented in response.
The ambitious timeline of less than 18 months has been publicly proposed. Yet, realistic assessments indicate a different picture.
A More Realistic Schedule
“It is likely going to take multiple years for any significant production bounce,” noted one chief investment officer.
He suggested operators would likely spend:
- The first year: Sorting through new government and security contracts.
- The second year: Investing in overhaul of infrastructure.
- Year three: Reaching a position to boost output.
This would lead to an rise of around 500,000 barrels per day maybe by the end of the decade.
Interest vs. Appetite for Investment
There is a important separation between companies' curiosity and their readiness to commit substantially.
“I think their attention is an high score, on a scale of one to 10. But their appetite is a much lower, because there is a lack of certainty yet.”
Experienced operators in the country echo this view. They believe that firms will politically call it fantastic while privately proceeding with deliberate slowness.
The Enormous Investment Required
The financial investment would be colossal. Independent estimates suggest that increasing production by between half a million and a million bpd would require more than $10 billion in capital spending over two to three years.
Yet, returning production to historical levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over many more years.
The Unanswered Issue of Government Backing
The prospect of firms being paid back by the US taxpayer has been often mentioned. But, specific plans on any guarantee have not yet been announced.
This lack of clarity is the key factor behind the sector's reluctance. Operators seek safeguards against nationalization and the chance that a different president could refuse any promise.
“They must be shielded from sovereign risk, that we’ve experienced in Venezuela previously.”
Ultimately, while political promises runs high, the financial realities suggest a path of slow deliberation for any large-scale venture in the country's oil sector.
