Energy analysts have shown considerable skepticism regarding optimistic statements that American energy majors will rapidly pump vast sums of dollars to rebuild Venezuela's crumbling production facilities.
Demand for Solid Guarantees
Lacking an “iron-clad guarantee” of full reimbursement from the Washington, analysts expect international firms to move with extreme caution.
“It is premature to comment on any upcoming plans,” an official commented in response.
The ambitious timeline of less than 18 months has been publicly suggested. Yet, realistic assessments suggest a more cautious outlook.
A Probable Timeline
“Chances are going to take 36 months for any kind of production bounce,” commented one energy analyst.
The analysis indicates oil companies would likely spend:
- Year one: Navigating new government and security contracts.
- The second year: Investing in rebuilding of facilities.
- The third year: Being able to meaningfully increase production.
The result could be an boost of around half a million bpd perhaps by the end of the decade.
Appetite Compared to Willingness for Spending
There is a critical difference between companies' curiosity and their appetite to invest heavily.
“I think their attention is an high score, on a scale of one to 10. However, their willingness is a four or five, because there is a lack of certainty yet.”
Veteran diplomats in the sector reinforce this view. They believe that majors will politically talk up the opportunity while actually proceeding with deliberate slowness.
The Enormous Price Tag
The required investment would be vast. Research projections suggest that increasing production by between half a million and a million bpd would require in excess of $10 billion in investment over several years.
However, restoring production to historical levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Federal Guarantees
The prospect of firms being compensated by the federal government has been often mentioned. But, specific plans on this proposal have not yet been announced.
This lack of a solid plan is the main impediment behind the industry's caution. Firms seek guarantees against nationalization and the possibility that a different administration could cancel any deal.
“It is essential to be insured against sovereign risk, that we’ve seen in Venezuela previously.”
Ultimately, while political confidence runs high, the operational risks suggest a path of measured steps for potential significant investment in the Venezuelan oil sector.
