Energy analysts have voiced considerable skepticism regarding optimistic claims that US large firms will rapidly commit billions of dollars to revive Venezuela's broken oil infrastructure.
The Need for Solid Protections
Without an solid promise of financial backing from the Washington, experts believe global energy giants to act with extreme caution.
“It is too early to comment on any potential investments,” an official said in response.
The ambitious timeline of less than 18 months was publicly suggested. Yet, realistic assessments paint a more cautious outlook.
A More Realistic Timeline
“Chances are going to take 36 months for any significant output increase,” noted one energy analyst.
Experts believe operators would likely spend:
- The first year: Securing new operating agreements.
- Following phase: Commencing overhaul of infrastructure.
- The third year: Being able to meaningfully increase yield.
This suggests an increase of around 500,000 barrels per day possibly by the end of the decade.
Interest vs. Readiness for Risk
There is a key distinction between firms' attention and their willingness to spend substantially.
“I believe their attention is an eight, on a range of one to 10. However, their willingness is a much lower, because there is no clarity yet.”
Seasoned observers in the country share this sentiment. The thinking is that firms will publicly express enthusiasm while privately moving with deliberate slowness.
The Vast Cost
The required investment would be enormous. Independent projections suggest that adding between half a million and a million barrels per day would require more than $10 billion in capital spending over two to three years.
Yet, restoring output to historical levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over six or seven years.
The Outstanding Question of Government Backing
The suggestion of energy companies being paid back by the federal government has been often floated. But, specific plans on any guarantee have so far not been forthcoming.
Without certainty is the main factor for the industry's reluctance. Companies seek safeguards against nationalization and the risk that a different president could cancel any deal.
“They must be insured against sovereign risk, that we’ve witnessed in Venezuela already.”
Ultimately, while rhetorical optimism runs high, the financial challenges suggest a journey of extreme caution for any significant investment in the country's oil sector.
