Market specialists have expressed considerable caution regarding optimistic predictions that US large firms will quickly commit tens of billions of dollars to revive Venezuela's crumbling energy sector.
The Need for Iron-Clad Protections
Without an “iron-clad guarantee” of complete repayment from the American government, specialists predict global energy giants to act with significant hesitation.
“It would be hasty to discuss any potential investments,” a representative commented recently.
The aggressive timeline of under a year and a half has been boldly outlined. Yet, realistic assessments indicate a longer timeline.
A Likely Schedule
“Chances are going to take 36 months for any kind of recovery in production,” noted one industry expert.
Experts believe oil companies would likely spend:
- The first year: Sorting through new operating agreements.
- The second year: Investing in reconstruction of facilities.
- Year three: Starting to boost output.
This suggests an rise of around 500,000 bpd maybe by the end of the decade.
Appetite Compared to Willingness for Spending
There is a key distinction between firms' attention and their willingness to spend substantially.
“In my view their interest is an eight, on a range of one to 10. But their appetite is a mid-range score, because there is a lack of certainty yet.”
Veteran observers in the region reinforce this caution. The expectation is that majors will publicly express enthusiasm while privately acting with great care.
The Vast Price Tag
The required outlay would be vast. Research estimates suggest that increasing production by between half a million and a million barrels per day would require more than $10 billion in investment over two to three years.
Yet, rebuilding output to historical levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over many more years.
The Outstanding Issue of Federal Guarantees
The suggestion of oil giants being reimbursed by the federal government has been often floated. Nevertheless, concrete details on any guarantee have so far not been forthcoming.
Without a solid plan is the key reason for the industry's caution. Firms seek guarantees against political risk and the possibility that a subsequent government could cancel any deal.
“They must be insured against political change, that we’ve witnessed in Venezuela previously.”
Therefore, while rhetorical promises runs high, the operational risks suggest a journey of extreme caution for potential major venture in the country's energy industry.
