Industry experts have shown significant caution regarding bullish predictions that US large firms will rapidly invest billions of dollars to rebuild Venezuela's broken production facilities.
The Need for Solid Guarantees
Absent an “iron-clad guarantee” of financial backing from the Washington, specialists predict multinational oil companies to move with significant hesitation.
“It is too early to comment on any future business activities,” an official commented recently.
The aggressive timeframe of less than a year and a half was publicly outlined. However, realistic assessments paint a different picture.
A More Realistic Timeline
“It’s probably going to take three years for any significant recovery in production,” commented one chief investment officer.
Experts believe operators would likely spend:
- Year one: Sorting through new operating agreements.
- Following phase: Beginning overhaul of facilities.
- Final phase: Starting to boost production.
This would lead to an rise of around half a million barrels per day maybe by the end of the decade.
Desire Versus Appetite for Spending
Experts make a important separation between multinationals’ interest and their willingness to spend substantially.
“In my view their curiosity is an high score, on a scale of ten. However, their readiness is a much lower, because there is a lack of certainty yet.”
Veteran diplomats in the country reinforce this caution. The thinking is that firms will publicly express enthusiasm while privately proceeding with deliberate slowness.
The Vast Cost
The required outlay would be enormous. Research analysis suggest that adding between half a million and a million barrels per day would require more than $10 billion in capital spending over several years.
But, restoring production to peak levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over many more years.
The Pending Question of Federal Guarantees
The prospect of energy companies being compensated by the federal government has been often raised. Nevertheless, formal assurances on such a mechanism have not yet been forthcoming.
Without certainty is the key reason behind the sector's caution. Firms seek safeguards against nationalization and the risk that a different administration could refuse any agreement.
“It is essential to be insured against nationalization, that we’ve experienced in Venezuela already.”
Therefore, while rhetorical confidence runs strong, the financial risks suggest a road of extreme caution for any large-scale investment in the country's energy industry.
