Market specialists have shown significant caution regarding recent predictions that American energy majors will swiftly commit tens of billions of dollars to revive Venezuela's crumbling energy sector.
Requirement of Solid Protections
Lacking an solid promise of complete repayment from the American government, analysts expect global energy giants to act with significant hesitation.
“It would be premature to comment on any potential investments,” a representative said this weekend.
The aggressive timeframe of less than a year and a half has been boldly outlined. However, realistic assessments indicate a different picture.
A More Realistic Outlook
“It’s probably going to take 36 months for any kind of recovery in production,” commented an industry expert.
Experts believe oil companies would likely spend:
- Initial phase: Securing new government and security contracts.
- Year two: Investing in rebuilding of infrastructure.
- The third year: Being able to significantly ramp up output.
This suggests an increase of around half a million barrels per day maybe by the end of the decade.
Interest vs. Willingness for Investment
Experts make a critical difference between companies' curiosity and their willingness to spend significantly.
“In my view their attention is an eight, on a scale of ten. However, their willingness is a mid-range score, because there is no clarity yet.”
Veteran observers in the sector reinforce this sentiment. They believe that majors will publicly express enthusiasm while actually proceeding with great care.
The Vast Investment Required
The financial outlay would be vast. Independent analysis suggest that increasing production by between half a million and a million bpd would require over $10 billion in capital spending over two to three years.
But, rebuilding production to historical levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over six or seven years.
The Pending Issue of Taxpayer Funding
The idea of firms being reimbursed by the US taxpayer has been repeatedly raised. But, concrete details on any guarantee have not yet been announced.
This lack of a solid plan is the key reason behind the sector's caution. Companies seek guarantees against political risk and the chance that a subsequent president could cancel any deal.
“You need to be insured against political change, that we’ve seen in Venezuela already.”
Ultimately, while political confidence runs high, the financial realities suggest a path of measured steps for any significant venture in the country's oil sector.
