Market specialists have voiced deep skepticism regarding recent predictions that US energy majors will swiftly invest tens of billions of dollars to fix Venezuela's broken production facilities.
The Need for Iron-Clad Assurances
Absent an solid promise of full reimbursement from the US federal government, specialists predict global energy giants to proceed with great care.
“It seems hasty to comment on any future business activities,” an official commented this weekend.
The aggressive timeline of less than a year and a half has been publicly suggested. However, expert analyses indicate a different picture.
A Likely Schedule
“It is likely going to take 36 months for any significant production bounce,” said one chief investment officer.
Experts believe oil companies would likely spend:
- The first year: Securing new operating agreements.
- Year two: Commencing reconstruction of facilities.
- Final phase: Reaching a position to boost yield.
This would lead to an boost of around 500,000 bpd possibly by 2029.
Desire Versus Appetite for Risk
There is a critical difference between firms' attention and their readiness to commit substantially.
“I think their curiosity is an eight, on a range of ten. I think their appetite is a much lower, because there is a lack of certainty yet.”
Experienced diplomats in the country echo this sentiment. The expectation is that companies will publicly express enthusiasm while actually moving with extreme caution.
The Vast Cost
The financial outlay would be vast. Independent analysis suggest that adding between half a million and a million barrels per day would require more than $10 billion in funding over two to three years.
But, rebuilding production to historical levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over six or seven years.
The Unanswered Question of Federal Guarantees
The suggestion of energy companies being compensated by the federal government has been often raised. But, formal assurances on this proposal have so far not been forthcoming.
Without clarity is the key impediment for the industry's hesitation. Firms seek guarantees against political risk and the risk that a future administration could refuse any promise.
“They must be protected from sovereign risk, that we’ve seen in Venezuela previously.”
Therefore, while rhetorical promises runs strong, the financial challenges suggest a road of measured steps for any large-scale financial commitment in the Venezuelan energy industry.
