Industry experts have shown considerable doubt regarding optimistic statements that US large firms will quickly pump tens of billions of dollars to fix Venezuela's crumbling oil infrastructure.
The Need for Iron-Clad Guarantees
Without an absolute assurance of complete repayment from the Washington, experts believe multinational oil companies to move with extreme caution.
“It seems too early to speculate on any potential investments,” a representative stated this weekend.
The aggressive timeframe of less than a year and a half was publicly suggested. Yet, realistic assessments paint a longer timeline.
A More Realistic Timeline
“It is likely going to take 36 months for any significant output increase,” noted an energy analyst.
He suggested oil companies would likely spend:
- Initial phase: Sorting through new government and security contracts.
- Following phase: Investing in rebuilding of equipment.
- The third year: Starting to boost yield.
This would lead to an rise of around 500,000 barrels per day perhaps by the end of the decade.
Appetite Compared to Appetite for Risk
There is a key distinction between firms' attention and their willingness to spend heavily.
“I think their interest is an eight, on a range of ten. I think their willingness is a four or five, because there is no clarity yet.”
Experienced diplomats in the region share this view. The thinking is that companies will publicly call it fantastic while actually proceeding with deliberate slowness.
The Enormous Price Tag
The monetary investment would be vast. Research analysis suggest that increasing production by between 500,000 and a million bpd would require more than $10 billion in capital spending over several years.
However, returning output to previous levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over many more years.
The Pending Issue of Federal Guarantees
The prospect of energy companies being compensated by the federal government has been often mentioned. However, formal assurances on any guarantee have so far not been announced.
The absence of clarity is the main impediment behind the industry's caution. Companies seek safeguards against sovereign risk and the risk that a different administration could refuse any promise.
“They must be insured against sovereign risk, that we’ve experienced in Venezuela before.”
In summary, while rhetorical promises runs high, the financial realities suggest a road of extreme caution for potential significant investment in the Venezuelan energy industry.
