Industry experts have voiced significant doubt regarding recent claims that US energy majors will rapidly commit billions of dollars to fix Venezuela's crumbling production facilities.
Demand for Absolute Assurances
Without an absolute assurance of financial backing from the US federal government, analysts expect multinational oil companies to move with significant hesitation.
“It is too early to discuss any future business activities,” a representative said recently.
The ambitious schedule of under a year and a half was publicly proposed. Yet, realistic assessments indicate a longer timeline.
A Likely Outlook
“Chances are going to take 36 months for any meaningful output increase,” said one energy analyst.
Experts believe oil companies would likely spend:
- The first year: Securing new government and security contracts.
- The second year: Investing in rebuilding of facilities.
- Final phase: Being able to meaningfully increase yield.
This would lead to an rise of around half a million bpd maybe by 2029.
Interest vs. Willingness for Investment
Analysts draw a critical difference between companies' curiosity and their appetite to invest heavily.
“I believe their attention is an eight, on a range of ten. However, their appetite is a four or five, because there is significant uncertainty yet.”
Seasoned operators in the country share this sentiment. The thinking is that firms will publicly talk up the opportunity while in practice acting with deliberate slowness.
The Colossal Price Tag
The required outlay would be vast. Independent estimates suggest that increasing production by between 500,000 and a million barrels per day would require in excess of $10 billion in investment over two to three years.
Yet, restoring production to peak levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over six or seven years.
The Outstanding Question of Federal Guarantees
The suggestion of firms being compensated by the government has been repeatedly mentioned. But, specific plans on this proposal have so far not been provided.
This lack of a solid plan is the key impediment behind the sector's caution. Operators seek guarantees against sovereign risk and the risk that a subsequent president could renege on any agreement.
“It is essential to be insured against nationalization, that we’ve experienced in Venezuela already.”
Ultimately, while political promises runs strong, the practical risks suggest a road of extreme caution for potential significant venture in the country's energy industry.
