Energy analysts have voiced deep caution regarding optimistic predictions that US large firms will quickly pump tens of billions of dollars to rebuild Venezuela's dilapidated production facilities.
Requirement of Absolute Protections
Absent an absolute assurance of complete repayment from the American government, analysts expect multinational oil companies to act with great care.
“It would be too early to comment on any potential investments,” a representative commented this weekend.
The ambitious timeframe of less than a year and a half was boldly proposed. Yet, realistic assessments paint a longer timeline.
A More Realistic Timeline
“It’s probably going to take 36 months for any kind of output increase,” noted an energy analyst.
Experts believe operators would likely spend:
- Initial phase: Securing new government and security contracts.
- The second year: Commencing reconstruction of equipment.
- The third year: Reaching a position to boost yield.
This would lead to an boost of around half a million bpd maybe by the end of the decade.
Appetite Compared to Willingness for Risk
Experts make a critical difference between multinationals’ interest and their appetite to invest substantially.
“I believe their interest is an high score, on a range of one to 10. However, their readiness is a much lower, because there is no clarity yet.”
Seasoned operators in the sector echo this sentiment. The thinking is that firms will publicly express enthusiasm while in practice acting with great care.
The Enormous Price Tag
The required investment would be vast. Independent estimates suggest that adding between 500,000 and a million barrels per day would require in excess of $10 billion in funding over two to three years.
But, restoring 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 Outstanding Question of Federal Guarantees
The suggestion of energy companies being paid back by the government has been repeatedly mentioned. Nevertheless, specific plans on such a mechanism have not yet been provided.
Without certainty is the key impediment for the industry's reluctance. Operators seek safeguards against political risk and the risk that a subsequent administration could renege on any promise.
“You need to be protected from political change, that we’ve witnessed in Venezuela before.”
In summary, while political promises runs high, the financial risks suggest a road of extreme caution for potential major investment in the Venezuelan oil sector.
