Industry experts have voiced considerable caution regarding optimistic predictions that US energy majors will quickly commit billions of dollars to fix the country's broken oil infrastructure.
The Need for Solid Assurances
Lacking an absolute assurance of full reimbursement from the US federal government, experts believe multinational oil companies to act with extreme caution.
“It seems premature to comment on any future business activities,” a spokesperson said this weekend.
The optimistic timeframe of less than a year and a half was boldly proposed. However, expert analyses suggest a longer timeline.
A Probable Timeline
“It is likely going to take 36 months for any significant recovery in production,” noted one energy analyst.
The analysis indicates operators would likely spend:
- The first year: Securing new operating agreements.
- Following phase: Investing in rebuilding of facilities.
- Final phase: Reaching a position to meaningfully increase output.
This would lead to an increase of around 500,000 bpd possibly by the end of the decade.
Appetite Compared to Appetite for Investment
Experts make a key distinction between firms' attention and their willingness to spend substantially.
“I think their interest is an eight, on a range of ten. But their willingness is a four or five, because there is no clarity yet.”
Seasoned operators in the sector share this sentiment. The thinking is that majors will politically talk up the opportunity while privately proceeding with great care.
The Enormous Price Tag
The required outlay would be enormous. Research analysis suggest that adding between 500,000 and a million bpd would require more than $10 billion in investment over two to three years.
However, restoring production to historical levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over six or seven years.
The Pending Question of Taxpayer Funding
The prospect of energy companies being reimbursed by the federal government has been repeatedly mentioned. Nevertheless, specific plans on any guarantee have not yet been provided.
This lack of a solid plan is the key impediment behind the sector's caution. Operators seek protection against nationalization and the possibility that a subsequent administration could cancel any deal.
“You need to be insured against sovereign risk, that we’ve experienced in Venezuela previously.”
Ultimately, while rhetorical optimism runs high, the financial risks suggest a path of slow deliberation for potential major financial commitment in the Venezuelan oil sector.
