Energy analysts have shown deep caution regarding optimistic claims that US oil giants will quickly commit tens of billions of dollars to fix Venezuela's broken energy sector.
Requirement of Solid Assurances
Lacking an “iron-clad guarantee” of complete repayment from the US federal government, specialists predict global energy giants to move with significant hesitation.
“It is too early to comment on any future business activities,” an official said this weekend.
The aggressive timeline of less than 18 months was boldly suggested. However, expert analyses paint a longer timeline.
A Likely Schedule
“Chances are going to take three years for any significant recovery in production,” commented one industry expert.
He suggested energy firms would likely spend:
- Year one: Sorting through new operating agreements.
- Year two: Investing in overhaul of infrastructure.
- Year three: Reaching a position to boost output.
The result could be an rise of around 500,000 bpd perhaps by the end of the decade.
Appetite Compared to Readiness for Risk
There is a critical difference between firms' attention and their willingness to spend heavily.
“In my view their interest is an high score, on a range of ten. I think their willingness is a much lower, because there is a lack of certainty yet.”
Veteran diplomats in the sector share this sentiment. The expectation is that majors will politically talk up the opportunity while privately proceeding with great care.
The Colossal Investment Required
The financial outlay would be vast. Research estimates suggest that increasing production by between 500,000 and a million bpd would require in excess of $10 billion in capital spending over several years.
However, rebuilding 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 Question of Federal Guarantees
The suggestion of oil giants being compensated by the US taxpayer has been often raised. Nevertheless, formal assurances on this proposal have not yet been announced.
The absence of certainty is the key impediment for the industry's hesitation. Firms seek safeguards against nationalization and the chance that a subsequent president could renege on any deal.
“They must be insured against political change, that we’ve witnessed in Venezuela before.”
Ultimately, while political optimism runs strong, the financial realities suggest a path of measured steps for potential major investment in the country's oil sector.
