Market specialists have expressed significant doubt regarding bullish predictions that US energy majors will quickly commit billions of dollars to rebuild Venezuela's crumbling production facilities.
Requirement of Absolute Guarantees
Absent an “iron-clad guarantee” of full reimbursement from the American government, specialists predict multinational oil companies to proceed with great care.
“It is hasty to comment on any future business activities,” an official commented in response.
The aggressive schedule of under 18 months was publicly suggested. Yet, industry projections indicate a longer timeline.
A Probable Schedule
“It is likely going to take three years for any kind of output increase,” said an industry expert.
He suggested operators would likely spend:
- Initial phase: Sorting through new government and security contracts.
- The second year: Investing in reconstruction of equipment.
- The third year: Being able to boost yield.
The result could be an rise of around half a million barrels per day maybe by the end of the decade.
Desire Versus Appetite for Investment
There is a critical difference between companies' curiosity and their appetite to invest significantly.
“I believe their curiosity is an eight, on a scale of one to 10. But their willingness is a much lower, because there is significant uncertainty yet.”
Seasoned diplomats in the sector share this view. The expectation is that majors will politically express enthusiasm while actually proceeding with extreme caution.
The Colossal Price Tag
The required investment would be vast. Research projections suggest that increasing production by between half a million and a million bpd would require over $10 billion in capital spending 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 six or seven years.
The Pending Issue of Federal Guarantees
The suggestion of oil giants being paid back by the government has been often raised. But, formal assurances on such a mechanism have not yet been provided.
Without a solid plan is the main factor for the sector's caution. Firms seek protection against sovereign risk and the risk that a subsequent administration could cancel any deal.
“It is essential to be protected from sovereign risk, that we’ve witnessed in Venezuela before.”
Ultimately, while political confidence runs high, the practical challenges suggest a journey of slow deliberation for any significant investment in the country's oil sector.
