Energy analysts have shown significant doubt regarding recent statements that US large firms will quickly commit tens of billions of dollars to revive the country's broken production facilities.
Requirement of Iron-Clad Assurances
Lacking an “iron-clad guarantee” of financial backing from the Washington, analysts expect international firms to move with great care.
“It would be premature to discuss any upcoming plans,” a spokesperson said this weekend.
The aggressive schedule of under 18 months has been boldly proposed. However, industry projections paint a different picture.
A More Realistic Schedule
“Chances are going to take 36 months for any kind of recovery in production,” commented an chief investment officer.
The analysis indicates oil companies would likely spend:
- Year one: Sorting through new operating agreements.
- The second year: Beginning overhaul of equipment.
- Year three: Starting to significantly ramp up production.
The result could be an increase of around 500,000 barrels per day maybe by the end of the decade.
Interest vs. Readiness for Investment
Experts make a critical difference between firms' attention and their willingness to spend heavily.
“I think their interest is an high score, on a range of one to 10. I think their willingness is a four or five, because there is significant uncertainty yet.”
Veteran operators in the sector reinforce this sentiment. The thinking is that majors will publicly talk up the opportunity while privately moving with extreme caution.
The Enormous Price Tag
The required investment would be vast. University projections suggest that increasing production by between half a million and a million bpd would require more than $10 billion in investment over two to three years.
But, rebuilding output to historical levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over many more years.
The Pending Question of Government Backing
The idea of firms being reimbursed by the US taxpayer has been often mentioned. Nevertheless, formal assurances on any guarantee have not yet been announced.
This lack of a solid plan is the key reason for the sector's caution. Firms seek guarantees against nationalization and the chance that a subsequent government could cancel any agreement.
“They must be shielded from sovereign risk, that we’ve seen in Venezuela before.”
In summary, while rhetorical promises runs strong, the financial challenges suggest a road of extreme caution for any major investment in the Venezuelan oil sector.
