Industry experts have shown deep doubt regarding optimistic statements that US energy majors will rapidly invest billions of dollars to fix Venezuela's dilapidated production facilities.
Demand for Absolute Protections
Absent an absolute assurance of complete repayment from the Washington, analysts expect multinational oil companies to act with great care.
“It is premature to speculate on any potential investments,” an official said this weekend.
The ambitious timeframe of less than 18 months was publicly proposed. Yet, industry projections indicate a longer timeline.
A Probable Timeline
“It’s probably going to take multiple years for any kind of output increase,” noted one chief investment officer.
Experts believe energy firms would likely spend:
- The first year: Sorting through new operating agreements.
- Year two: Investing in overhaul of facilities.
- The third year: Reaching a position to significantly ramp up yield.
The result could be an increase of around half a million bpd perhaps by 2029.
Appetite Compared to Readiness for Investment
Analysts draw a key distinction between multinationals’ interest and their willingness to spend substantially.
“I believe their attention is an eight, on a scale of ten. But their readiness is a mid-range score, because there is significant uncertainty yet.”
Seasoned diplomats in the sector reinforce this sentiment. The thinking is that majors will politically call it fantastic while privately moving with deliberate slowness.
The Vast Investment Required
The monetary outlay would be vast. University analysis suggest that increasing production by between half a million and a million barrels per day would require more than $10 billion in investment over several years.
However, restoring output to historical levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over many more years.
The Pending Question of Federal Guarantees
The idea of energy companies being reimbursed by the federal government has been repeatedly mentioned. However, formal assurances on such a mechanism have so far not been announced.
Without clarity is the main factor for the industry's caution. Firms seek protection against nationalization and the possibility that a future government could renege on any promise.
“It is essential to be shielded from sovereign risk, that we’ve witnessed in Venezuela already.”
Therefore, while rhetorical promises runs strong, the financial realities suggest a journey of extreme caution for any large-scale venture in the country's oil sector.
