Industry experts have voiced deep skepticism regarding recent claims that US large firms will rapidly commit tens of billions of dollars to fix Venezuela's crumbling oil infrastructure.
Requirement of Iron-Clad Assurances
Lacking an “iron-clad guarantee” of full reimbursement from the US federal government, experts believe multinational oil companies to move with extreme caution.
“It is hasty to comment on any future business activities,” an official commented in response.
The aggressive schedule of less than a year and a half has been publicly suggested. Nevertheless, realistic assessments indicate a different picture.
A Probable Outlook
“Chances are going to take 36 months for any significant production bounce,” commented one energy analyst.
The analysis indicates energy firms would likely spend:
- The first year: Navigating new regulatory frameworks.
- Following phase: Beginning rebuilding of equipment.
- Year three: Starting to meaningfully increase yield.
The result could be an increase of around half a million barrels per day possibly by the end of the decade.
Appetite Compared to Appetite for Investment
There is a key distinction between companies' curiosity and their appetite to invest heavily.
“I believe their curiosity is an eight, on a scale of one to 10. But their appetite is a much lower, because there is no clarity yet.”
Veteran operators in the country reinforce this sentiment. The thinking is that companies will politically talk up the opportunity while privately moving with great care.
The Vast Investment Required
The monetary investment would be vast. Independent projections suggest that increasing production by between half a million and a million barrels per day would require in excess of $10 billion in capital spending over several years.
But, rebuilding production to historical levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over six or seven years.
The Unanswered Issue of Federal Guarantees
The suggestion of energy companies being paid back by the federal government has been repeatedly raised. But, specific plans on any guarantee have so far not been provided.
This lack of certainty is the key factor behind the sector's hesitation. Firms seek protection against political risk and the risk that a different government could refuse any deal.
“It is essential to be protected from nationalization, that we’ve experienced in Venezuela already.”
In summary, while political promises runs high, the financial risks suggest a journey of slow deliberation for any major investment in the country's energy industry.
