Industry experts have shown considerable caution regarding optimistic statements that US large firms will swiftly invest tens of billions of dollars to revive Venezuela's crumbling energy sector.
Demand for Absolute Assurances
Absent an “iron-clad guarantee” of financial backing from the American government, experts believe global energy giants to move with great care.
“It is too early to discuss any future business activities,” a representative said recently.
The optimistic timeframe of under a year and a half was boldly outlined. Nevertheless, industry projections suggest a different picture.
A More Realistic Outlook
“Chances are going to take 36 months for any significant recovery in production,” noted one chief investment officer.
The analysis indicates operators would likely spend:
- Initial phase: Sorting through new operating agreements.
- Following phase: Investing in reconstruction of equipment.
- Year three: Being able to meaningfully increase production.
This would lead to an increase of around half a million bpd possibly by 2029.
Interest vs. Willingness for Investment
Analysts draw a important separation between multinationals’ interest and their appetite to invest significantly.
“I believe their attention is an eight, on a scale of ten. I think their appetite is a four or five, because there is significant uncertainty yet.”
Experienced operators in the region share this view. They believe that majors will politically express enthusiasm while in practice acting with deliberate slowness.
The Enormous Cost
The required outlay would be enormous. Research analysis suggest that adding between half a million and a million bpd would require over $10 billion in funding over two to three years.
But, returning production to previous levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over six or seven years.
The Outstanding Question of Federal Guarantees
The prospect of firms being paid back by the federal government has been repeatedly mentioned. But, specific plans on such a mechanism have so far not been provided.
Without a solid plan is the main impediment behind the sector's reluctance. Firms seek safeguards against political risk and the possibility that a different administration could renege on any promise.
“It is essential to be protected from sovereign risk, that we’ve experienced in Venezuela before.”
In summary, while rhetorical promises runs high, the financial risks suggest a road of measured steps for any significant financial commitment in the country's oil sector.
