Market specialists have voiced deep caution regarding recent statements that US energy majors will rapidly invest billions of dollars to fix Venezuela's dilapidated oil infrastructure.
The Need for Solid Assurances
Without an absolute assurance of financial backing from the American government, experts believe global energy giants to act with great care.
“It would be premature to comment on any future business activities,” a representative stated recently.
The ambitious schedule of less than a year and a half was boldly proposed. Nevertheless, industry projections paint a more cautious outlook.
A More Realistic Schedule
“Chances are going to take 36 months for any meaningful output increase,” commented one chief investment officer.
Experts believe operators would likely spend:
- Initial phase: Navigating new operating agreements.
- The second year: Investing in overhaul of facilities.
- Year three: Being able to boost yield.
The result could be an increase of around half a million barrels per day possibly by 2029.
Interest vs. Appetite for Investment
Analysts draw a key distinction between companies' curiosity and their willingness to spend heavily.
“In my view their attention is an eight, on a range of ten. However, their appetite is a much lower, because there is significant uncertainty yet.”
Experienced observers in the region share this view. The expectation is that firms will publicly talk up the opportunity while actually proceeding with great care.
The Enormous Cost
The monetary bill would be vast. University estimates suggest that increasing production by between 500,000 and a million barrels per day would require over $10 billion in funding over two to three years.
However, rebuilding production to historical levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over many more years.
The Pending Issue of Taxpayer Funding
The suggestion of oil giants being reimbursed by the federal government has been repeatedly floated. But, specific plans on this proposal have so far not been forthcoming.
Without certainty is the key factor for the industry's reluctance. Companies seek safeguards against nationalization and the possibility that a subsequent president could renege on any agreement.
“You need to be shielded from sovereign risk, that we’ve witnessed in Venezuela already.”
Ultimately, while rhetorical promises runs strong, the financial realities suggest a journey of extreme caution for potential major venture in the country's oil sector.
