Industry experts have shown considerable caution regarding bullish predictions that US oil giants will rapidly invest tens of billions of dollars to revive Venezuela's dilapidated production facilities.
The Need for Solid Protections
Absent an absolute assurance of full reimbursement from the US federal government, experts believe global energy giants to proceed with extreme caution.
“It seems premature to discuss any potential investments,” a representative said recently.
The aggressive timeframe of under 18 months has been publicly suggested. Nevertheless, expert analyses suggest a more cautious outlook.
A More Realistic Outlook
“It’s probably going to take multiple years for any meaningful production bounce,” noted one chief investment officer.
Experts believe operators would likely spend:
- Initial phase: Sorting through new government and security contracts.
- The second year: Commencing overhaul of facilities.
- The third year: Reaching a position to boost output.
The result could be an rise of around half a million bpd perhaps by the end of the decade.
Interest vs. Appetite for Risk
Analysts draw a key distinction between firms' attention and their willingness to spend significantly.
“I think their interest is an eight, on a scale of one to 10. However, their appetite is a much lower, because there is a lack of certainty yet.”
Experienced diplomats in the sector reinforce this sentiment. The expectation is that majors will publicly express enthusiasm while in practice acting with deliberate slowness.
The Colossal Cost
The financial investment would be vast. Research analysis suggest that increasing production by between 500,000 and a million barrels per day would require over $10 billion in investment over two to three years.
However, rebuilding production 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 Pending Issue of Taxpayer Funding
The suggestion of energy companies being paid back by the government has been repeatedly floated. However, formal assurances on such a mechanism have not yet been provided.
The absence of a solid plan is the main reason behind the sector's hesitation. Operators seek safeguards against sovereign risk and the chance that a subsequent administration could renege on any deal.
“They must be insured against sovereign risk, that we’ve seen in Venezuela previously.”
Ultimately, while political promises runs high, the financial risks suggest a journey of measured steps for potential significant venture in the Venezuelan energy industry.
