Industry experts have voiced considerable doubt regarding bullish claims that US energy majors will swiftly commit billions of dollars to fix Venezuela's broken production facilities.
Requirement of Absolute Assurances
Absent an absolute assurance of financial backing from the American government, analysts expect multinational oil companies to act with extreme caution.
“It is premature to discuss any potential investments,” a representative said this weekend.
The optimistic timeline of under 18 months was boldly suggested. Yet, realistic assessments paint a different picture.
A Probable Schedule
“Chances are going to take 36 months for any meaningful production bounce,” noted an chief investment officer.
The analysis indicates oil companies would likely spend:
- The first year: Sorting through new government and security contracts.
- Following phase: Investing in overhaul of equipment.
- Final phase: Reaching a position to significantly ramp up yield.
This suggests an rise of around half a million barrels per day perhaps by the end of the decade.
Desire Versus Appetite for Spending
Experts make a critical difference between firms' attention and their appetite to invest heavily.
“In my view their attention is an high score, on a scale of ten. However, their willingness is a mid-range score, because there is no clarity yet.”
Seasoned operators in the country reinforce this caution. The thinking is that firms will publicly call it fantastic while actually proceeding with extreme caution.
The Enormous Investment Required
The financial outlay would be vast. University analysis suggest that increasing production by between half a million and a million bpd would require over $10 billion in funding over two to three years.
But, restoring production to peak levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Government Backing
The prospect of energy companies being compensated by the government has been often floated. Nevertheless, formal assurances on such a mechanism have not yet been announced.
The absence of certainty is the primary impediment behind the sector's reluctance. Companies seek safeguards against nationalization and the possibility that a different president could refuse any promise.
“They must be protected from nationalization, that we’ve experienced in Venezuela already.”
Ultimately, while political optimism runs strong, the practical challenges suggest a path of extreme caution for potential major venture in the Venezuelan energy industry.
