Industry experts have shown deep caution regarding bullish claims that US oil giants will rapidly commit vast sums of dollars to fix Venezuela's dilapidated production facilities.
Requirement of Iron-Clad Guarantees
Without an solid promise of full reimbursement from the American government, specialists predict global energy giants to move with great care.
“It seems hasty to discuss any upcoming plans,” an official said in response.
The ambitious schedule of less than a year and a half has been publicly outlined. Nevertheless, realistic assessments indicate a more cautious outlook.
A Probable Outlook
“It’s probably going to take three years for any kind of recovery in production,” said one chief investment officer.
Experts believe operators would likely spend:
- Year one: Sorting through new operating agreements.
- Year two: Beginning overhaul of equipment.
- Final phase: Reaching a position to boost production.
This suggests an boost of around 500,000 barrels per day maybe by the end of the decade.
Interest vs. Appetite for Risk
Analysts draw a critical difference between multinationals’ interest and their appetite to invest heavily.
“In my view their curiosity is an high score, on a scale of ten. However, their appetite is a four or five, because there is significant uncertainty yet.”
Veteran observers in the region share this view. The thinking is that companies will politically talk up the opportunity while in practice moving with extreme caution.
The Colossal Investment Required
The monetary outlay would be colossal. Independent estimates suggest that increasing production by between half a million and a million barrels per day would require in excess of $10 billion in capital spending over several years.
Yet, returning 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 Question of Government Backing
The prospect of energy companies being paid back by the government has been often mentioned. Nevertheless, formal assurances on such a mechanism have not yet been forthcoming.
The absence of certainty is the key reason behind the sector's hesitation. Operators seek safeguards against political risk and the risk that a subsequent president could refuse any agreement.
“They must be protected from political change, that we’ve witnessed in Venezuela before.”
Ultimately, while political confidence runs high, the financial risks suggest a road of extreme caution for potential large-scale investment in the country's oil sector.
