Industry experts have expressed considerable caution regarding bullish statements that American energy majors will rapidly pump vast sums of dollars to rebuild Venezuela's broken energy sector.
The Need for Iron-Clad Protections
Without an solid promise of full reimbursement from the American government, analysts expect international firms to act with great care.
“It would be too early to speculate on any upcoming plans,” a spokesperson commented recently.
The optimistic timeline of less than a year and a half was boldly outlined. Yet, realistic assessments suggest a more cautious outlook.
A More Realistic Timeline
“It’s probably going to take three years for any kind of production bounce,” commented an chief investment officer.
He suggested oil companies would likely spend:
- Year one: Sorting through new government and security contracts.
- The second year: Commencing rebuilding of equipment.
- Year three: Starting to significantly ramp up yield.
This suggests an increase of around half a million bpd perhaps by the end of the decade.
Desire Versus Readiness for Risk
Analysts draw a critical difference between firms' attention and their appetite to invest heavily.
“In my view their interest is an eight, on a range of ten. However, their willingness is a mid-range score, because there is no clarity yet.”
Experienced diplomats in the country reinforce this caution. The thinking is that companies will publicly talk up the opportunity while actually acting with deliberate slowness.
The Vast Price Tag
The financial bill would be vast. 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 two to three years.
However, returning output to previous 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 idea of oil giants being paid back by the US taxpayer has been often mentioned. But, concrete details on such a mechanism have so far not been announced.
The absence of a solid plan is the main impediment behind the sector's caution. Operators seek protection against sovereign risk and the risk that a subsequent president could renege on any agreement.
“It is essential to be shielded from nationalization, that we’ve experienced in Venezuela before.”
Ultimately, while rhetorical confidence runs high, the operational risks suggest a path of slow deliberation for potential major financial commitment in the country's energy industry.
