Market specialists have shown significant caution regarding optimistic predictions that US energy majors will quickly commit billions of dollars to revive Venezuela's dilapidated energy sector.
Requirement of Iron-Clad Guarantees
Without an “iron-clad guarantee” of full reimbursement from the American government, analysts expect multinational oil companies to proceed with great care.
“It seems hasty to comment on any future business activities,” a representative said recently.
The optimistic timeframe of under a year and a half has been boldly proposed. Yet, realistic assessments paint a different picture.
A Probable Schedule
“It is likely going to take three years for any significant production bounce,” commented an industry expert.
He suggested oil companies would likely spend:
- The first year: Securing new government and security contracts.
- Following phase: Investing in rebuilding of infrastructure.
- Final phase: Starting to meaningfully increase yield.
This suggests an increase of around half a million bpd maybe by 2029.
Appetite Compared to Appetite for Investment
Experts make a key distinction between companies' curiosity and their appetite to invest heavily.
“In my view their curiosity is an high score, on a range of ten. I think their willingness is a four or five, because there is no clarity yet.”
Experienced diplomats in the sector reinforce this caution. They believe that majors will publicly express enthusiasm while actually moving with great care.
The Vast Cost
The required investment would be enormous. Research projections suggest that adding between half a million and a million bpd would require over $10 billion in funding over two to three years.
Yet, rebuilding production to previous levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over many more years.
The Unanswered Issue of Federal Guarantees
The idea of oil giants being reimbursed by the US taxpayer has been often floated. Nevertheless, formal assurances on this proposal have so far not been forthcoming.
The absence of clarity is the key factor for the industry's hesitation. Firms seek guarantees against nationalization and the possibility that a different government could refuse any deal.
“It is essential to be shielded from sovereign risk, that we’ve experienced in Venezuela before.”
Ultimately, while political promises runs high, the operational risks suggest a road of extreme caution for any significant investment in the country's oil sector.
