Industry experts have shown significant doubt regarding recent claims that US energy majors will rapidly pump billions of dollars to fix Venezuela's dilapidated production facilities.
Demand for Absolute Assurances
Absent an absolute assurance of complete repayment from the American government, experts believe multinational oil companies to proceed with great care.
“It seems premature to speculate on any future business activities,” an official said this weekend.
The aggressive timeline of under 18 months was publicly proposed. Nevertheless, expert analyses paint a different picture.
A Likely Schedule
“It is likely going to take multiple years for any kind of production bounce,” noted an energy analyst.
The analysis indicates energy firms would likely spend:
- Year one: Sorting through new government and security contracts.
- The second year: Commencing rebuilding of facilities.
- Final phase: Being able to significantly ramp up production.
The result could be an rise of around half a million bpd maybe by the end of the decade.
Appetite Compared to Willingness for Spending
There is a key distinction between firms' attention and their appetite to invest substantially.
“In my view their interest is an high score, on a scale of one to 10. I think their appetite is a much lower, because there is a lack of certainty yet.”
Seasoned operators in the region share this caution. They believe that companies will publicly talk up the opportunity while actually acting with great care.
The Vast Cost
The monetary outlay 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 capital spending over two to three years.
But, rebuilding output to peak 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 Question of Government Backing
The idea of energy companies being compensated by the federal government has been repeatedly floated. But, formal assurances on any guarantee have so far not been forthcoming.
This lack of certainty is the key reason behind the sector's hesitation. Firms seek guarantees against sovereign risk and the possibility that a different president could refuse any promise.
“You need to be protected from political change, that we’ve seen in Venezuela previously.”
Ultimately, while political confidence runs high, the practical challenges suggest a road of extreme caution for potential large-scale financial commitment in the Venezuelan oil sector.
