Industry experts have expressed considerable doubt regarding optimistic claims that US oil giants will swiftly invest vast sums of dollars to fix Venezuela's crumbling energy sector.
Demand for Solid Protections
Lacking an solid promise of full reimbursement from the Washington, experts believe multinational oil companies to proceed with significant hesitation.
“It would be premature to comment on any future business activities,” a representative said this weekend.
The optimistic timeframe of under a year and a half has been boldly suggested. However, industry projections suggest a more cautious outlook.
A More Realistic Outlook
“It is likely going to take three years for any significant production bounce,” said one energy analyst.
The analysis indicates energy firms would likely spend:
- Year one: Sorting through new operating agreements.
- The second year: Commencing reconstruction of facilities.
- Year three: Being able to significantly ramp up yield.
This suggests an boost of around half a million barrels per day possibly by the end of the decade.
Desire Versus Appetite for Risk
Experts make a critical difference between firms' attention and their readiness to commit substantially.
“I believe their attention is an eight, on a range of one to 10. But their readiness is a much lower, because there is a lack of certainty yet.”
Veteran observers in the sector reinforce this caution. The thinking is that firms will politically talk up the opportunity while actually proceeding with great care.
The Colossal Cost
The required outlay would be enormous. Research analysis suggest that increasing production by between 500,000 and a million bpd would require over $10 billion in funding over two to three years.
Yet, rebuilding output to peak levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over many more years.
The Unanswered Issue of Taxpayer Funding
The idea of oil giants being reimbursed by the federal government has been repeatedly mentioned. Nevertheless, concrete details on this proposal have not yet been forthcoming.
The absence of certainty is the key impediment for the industry's caution. Companies seek guarantees against sovereign risk and the possibility that a different government could refuse any promise.
“You need to be insured against sovereign risk, that we’ve seen in Venezuela already.”
Ultimately, while rhetorical optimism runs high, the financial risks suggest a journey of slow deliberation for any major investment in the Venezuelan oil sector.
