Industry experts have shown deep skepticism regarding bullish statements that US energy majors will quickly invest billions of dollars to fix Venezuela's dilapidated energy sector.
Requirement of Solid Guarantees
Lacking an absolute assurance of full reimbursement from the Washington, experts believe multinational oil companies to move with great care.
“It would be premature to comment on any future business activities,” a spokesperson said recently.
The ambitious timeline of under 18 months has been publicly outlined. However, realistic assessments paint a different picture.
A More Realistic Outlook
“It is likely going to take multiple years for any kind of output increase,” noted an energy analyst.
Experts believe oil companies would likely spend:
- The first year: Sorting through new government and security contracts.
- Following phase: Commencing overhaul of infrastructure.
- Final phase: Reaching a position to boost production.
This would lead to an rise of around half a million bpd perhaps by the end of the decade.
Appetite Compared to Willingness for Spending
Analysts draw a key distinction between companies' curiosity and their readiness to commit significantly.
“In my view their curiosity is an high score, on a scale of ten. But their readiness is a much lower, because there is significant uncertainty yet.”
Experienced observers in the sector reinforce this view. The thinking is that companies will politically call it fantastic while in practice acting with great care.
The Enormous Investment Required
The required bill would be enormous. University estimates suggest that adding between half a million and a million bpd would require in excess of $10 billion in capital spending over two to three years.
Yet, rebuilding output to historical levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over six or seven years.
The Outstanding Question of Federal Guarantees
The suggestion of firms being reimbursed by the government has been repeatedly mentioned. However, concrete details on any guarantee have so far not been provided.
Without a solid plan is the main impediment for the sector's hesitation. Companies seek safeguards against sovereign risk and the chance that a future administration could renege on any deal.
“It is essential to be protected from sovereign risk, that we’ve experienced in Venezuela before.”
Ultimately, while political optimism runs strong, the financial risks suggest a road of measured steps for potential major investment in the Venezuelan oil sector.
