Industry experts have voiced significant skepticism regarding recent predictions that US large firms will swiftly invest vast sums of dollars to revive Venezuela's dilapidated oil infrastructure.
Demand for Solid Protections
Without an “iron-clad guarantee” of financial backing from the American government, analysts expect multinational oil companies to act with great care.
“It seems hasty to speculate on any upcoming plans,” an official said this weekend.
The ambitious timeframe of less than a year and a half was boldly outlined. Yet, realistic assessments paint a different picture.
A Probable Schedule
“It is likely going to take three years for any kind of output increase,” commented one industry expert.
The analysis indicates energy firms would likely spend:
- Year one: Sorting through new operating agreements.
- The second year: Investing in overhaul of equipment.
- Final phase: Being able to boost yield.
The result could be an rise of around half a million barrels per day possibly by the end of the decade.
Appetite Compared to Readiness for Spending
Analysts draw a critical difference between multinationals’ interest and their willingness to spend heavily.
“In my view their attention is an eight, on a range of one to 10. However, their willingness is a mid-range score, because there is significant uncertainty yet.”
Experienced diplomats in the sector share this sentiment. The thinking is that majors will publicly call it fantastic while in practice acting with great care.
The Colossal Investment Required
The financial outlay would be colossal. Independent analysis suggest that increasing production by between half a million and a million barrels per day would require more than $10 billion in investment over several years.
But, restoring output to peak levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over six or seven years.
The Unanswered Question of Federal Guarantees
The prospect of energy companies being compensated by the US taxpayer has been repeatedly raised. Nevertheless, formal assurances on any guarantee have so far not been provided.
This lack of clarity is the key impediment behind the sector's hesitation. Firms seek protection against political risk and the risk that a subsequent president could refuse any deal.
“You need to be insured against sovereign risk, that we’ve seen in Venezuela before.”
Therefore, while political confidence runs high, the financial realities suggest a path of extreme caution for potential large-scale financial commitment in the Venezuelan oil sector.
