Energy analysts have voiced deep caution regarding bullish claims that US oil giants will quickly pump vast sums of dollars to fix Venezuela's crumbling production facilities.
The Need for Iron-Clad Guarantees
Without an solid promise of complete repayment from the US federal government, experts believe multinational oil companies to proceed with significant hesitation.
“It would be hasty to comment on any upcoming plans,” a representative commented this weekend.
The ambitious timeline of less than 18 months has been publicly outlined. However, industry projections paint a more cautious outlook.
A More Realistic Timeline
“Chances are going to take multiple years for any significant output increase,” commented one chief investment officer.
He suggested energy firms would likely spend:
- The first year: Sorting through new government and security contracts.
- Following phase: Investing in reconstruction of equipment.
- Year three: Being able to meaningfully increase production.
This would lead to an increase of around 500,000 barrels per day perhaps by the end of the decade.
Interest vs. Readiness for Spending
There is a critical difference between firms' attention and their willingness to spend substantially.
“In my view their curiosity is an eight, on a scale of one to 10. But their willingness is a mid-range score, because there is no clarity yet.”
Veteran diplomats in the region reinforce this sentiment. The thinking is that majors will publicly talk up the opportunity while privately moving with great care.
The Vast Price Tag
The required investment would be colossal. University analysis suggest that adding between 500,000 and a million bpd would require over $10 billion in funding over two to three years.
But, returning output to peak levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over many more years.
The Unanswered Question of Taxpayer Funding
The idea of energy companies being paid back by the government has been often floated. Nevertheless, concrete details on any guarantee have not yet been announced.
This lack of clarity is the main factor behind the industry's reluctance. Operators seek guarantees against nationalization and the risk that a subsequent president could cancel any deal.
“They must be insured against sovereign risk, that we’ve witnessed in Venezuela already.”
Ultimately, while political confidence runs high, the operational challenges suggest a path of measured steps for any large-scale investment in the country's oil sector.
