Market specialists have shown significant skepticism regarding bullish statements that US energy majors will swiftly invest tens of billions of dollars to rebuild Venezuela's dilapidated production facilities.
Demand for Solid Assurances
Absent an solid promise of financial backing from the American government, analysts expect multinational oil companies to move with extreme caution.
“It is premature to discuss any potential investments,” an official commented this weekend.
The ambitious schedule of under 18 months has been publicly outlined. Nevertheless, realistic assessments indicate a different picture.
A Likely Outlook
“It’s probably going to take 36 months for any significant production bounce,” said one chief investment officer.
The analysis indicates operators would likely spend:
- Year one: Sorting through new operating agreements.
- Year two: Beginning reconstruction of infrastructure.
- Final phase: Starting to significantly ramp up production.
This suggests an increase of around 500,000 barrels per day maybe by the end of the decade.
Appetite Compared to Readiness for Risk
There is a critical difference between companies' curiosity and their willingness to spend significantly.
“In my view their curiosity is an high score, on a scale of ten. I think their appetite is a much lower, because there is no clarity yet.”
Veteran observers in the region share this caution. The thinking is that firms will publicly talk up the opportunity while in practice proceeding with great care.
The Colossal Investment Required
The monetary bill would be enormous. Independent estimates suggest that adding between half a million and a million barrels per day would require in excess of $10 billion in investment over two to three years.
However, restoring production to peak levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over many more years.
The Outstanding Question of Government Backing
The suggestion of oil giants being compensated by the US taxpayer has been repeatedly floated. Nevertheless, specific plans on this proposal have so far not been provided.
The absence of a solid plan is the key factor behind the industry's reluctance. Companies seek guarantees against nationalization and the chance that a future administration could cancel any agreement.
“They must be shielded from sovereign risk, that we’ve witnessed in Venezuela already.”
Ultimately, while political promises runs strong, the operational challenges suggest a road of slow deliberation for potential significant venture in the country's energy industry.
