Industry experts have expressed deep caution regarding optimistic statements that US energy majors will quickly pump billions of dollars to fix Venezuela's broken production facilities.
Requirement of Solid Assurances
Absent an absolute assurance of complete repayment from the Washington, analysts expect multinational oil companies to move with extreme caution.
“It is premature to discuss any potential investments,” an official said in response.
The optimistic timeframe of under 18 months has been publicly suggested. Yet, expert analyses suggest a different picture.
A More Realistic Timeline
“It’s probably going to take multiple years for any kind of output increase,” commented one industry expert.
The analysis indicates oil companies would likely spend:
- Year one: Sorting through new operating agreements.
- Year two: Commencing rebuilding of infrastructure.
- Year three: Starting to boost production.
The result could be an increase of around 500,000 bpd possibly by the end of the decade.
Desire Versus Appetite for Spending
Analysts draw a key distinction between companies' curiosity and their willingness to spend substantially.
“In my view their curiosity is an eight, on a scale of ten. I think their willingness is a much lower, because there is a lack of certainty yet.”
Seasoned observers in the country echo this view. The expectation is that companies will politically call it fantastic while privately moving with great care.
The Vast Cost
The financial bill would be vast. Research analysis suggest that adding between 500,000 and a million barrels per day would require more than $10 billion in capital spending over two to three years.
Yet, rebuilding production to peak levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over many more years.
The Unanswered Question of Federal Guarantees
The idea of energy companies being paid back by the US taxpayer has been repeatedly floated. But, specific plans on any guarantee have not yet been announced.
Without a solid plan is the main impediment for the industry's reluctance. Operators seek guarantees against political risk and the possibility that a subsequent administration could cancel any deal.
“You need to be protected from sovereign risk, that we’ve seen in Venezuela before.”
Therefore, while rhetorical confidence runs strong, the practical challenges suggest a road of extreme caution for potential major financial commitment in the country's oil sector.
