Industry experts have shown deep skepticism regarding bullish claims that US energy majors will quickly commit billions of dollars to rebuild Venezuela's dilapidated energy sector.
Demand for Solid Guarantees
Absent an absolute assurance of full reimbursement from the American government, experts believe multinational oil companies to move with extreme caution.
“It seems too early to speculate on any upcoming plans,” an official commented in response.
The aggressive schedule of under a year and a half has been publicly proposed. Yet, expert analyses paint a more cautious outlook.
A Likely Timeline
“It’s probably going to take three years for any significant production bounce,” commented one chief investment officer.
The analysis indicates oil companies would likely spend:
- Initial phase: Navigating new operating agreements.
- Year two: Commencing overhaul of facilities.
- The third year: Reaching a position to significantly ramp up output.
The result could be an boost of around half a million bpd perhaps by the end of the decade.
Interest vs. Appetite for Spending
Experts make a important separation between companies' curiosity and their willingness to spend significantly.
“I think their curiosity is an eight, on a scale of ten. But their readiness is a mid-range score, because there is a lack of certainty yet.”
Seasoned observers in the region echo this caution. The expectation is that firms will publicly talk up the opportunity while actually moving with extreme caution.
The Vast Investment Required
The financial outlay would be colossal. Independent estimates suggest that increasing production by between half a million and a million barrels per day would require over $10 billion in funding over two to three years.
But, restoring production to previous levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over many more years.
The Unanswered Issue of Federal Guarantees
The prospect of firms being reimbursed by the federal government has been often raised. But, concrete details on this proposal have so far not been announced.
The absence of a solid plan is the main impediment behind the industry's reluctance. Firms seek protection against nationalization and the risk that a subsequent president could renege on any deal.
“They must be protected from nationalization, that we’ve experienced in Venezuela before.”
Ultimately, while political confidence runs high, the financial challenges suggest a road of extreme caution for any large-scale venture in the country's oil sector.
