Market specialists have voiced deep doubt regarding optimistic claims that US oil giants will rapidly invest tens of billions of dollars to revive Venezuela's dilapidated production facilities.
The Need for Absolute Assurances
Lacking an “iron-clad guarantee” of complete repayment from the US federal government, experts believe international firms to act with significant hesitation.
“It would be premature to comment on any potential investments,” an official said in response.
The ambitious schedule of less than a year and a half was boldly outlined. However, expert analyses suggest a longer timeline.
A Probable Schedule
“Chances are going to take multiple years for any kind of recovery in production,” commented an industry expert.
He suggested energy firms would likely spend:
- Year one: Sorting through new government and security contracts.
- Year two: Commencing overhaul of equipment.
- Year three: Starting to significantly ramp up yield.
The result could be an rise of around half a million barrels per day possibly by the end of the decade.
Interest vs. Willingness for Investment
Experts make a critical difference between multinationals’ interest and their appetite to invest significantly.
“I think their interest is an eight, on a scale of ten. However, their willingness is a much lower, because there is a lack of certainty yet.”
Veteran operators in the country echo this sentiment. The expectation is that companies will publicly talk up the opportunity while privately acting with deliberate slowness.
The Colossal Price Tag
The required bill would be colossal. Research analysis suggest that increasing production by between 500,000 and a million barrels per day would require in excess of $10 billion in investment over two to three years.
But, restoring output to historical levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over six or seven years.
The Unanswered Question of Taxpayer Funding
The suggestion of energy companies being compensated by the federal government has been often floated. However, specific plans on such a mechanism have so far not been forthcoming.
This lack of clarity is the primary reason behind the sector's reluctance. Firms seek protection against political risk and the risk that a subsequent president could cancel any deal.
“It is essential to be shielded from sovereign risk, that we’ve seen in Venezuela previously.”
Therefore, while rhetorical promises runs high, the financial challenges suggest a journey of extreme caution for potential significant venture in the country's energy industry.
