Industry experts have expressed considerable doubt regarding bullish predictions that US large firms will quickly invest vast sums of dollars to fix Venezuela's dilapidated production facilities.
Requirement of Solid Assurances
Without an absolute assurance of complete repayment from the Washington, specialists predict global energy giants to move with significant hesitation.
“It would be too early to discuss any potential investments,” a representative said recently.
The aggressive schedule of less than 18 months was publicly outlined. Yet, expert analyses indicate a different picture.
A Probable Schedule
“It is likely going to take 36 months for any kind of output increase,” said an industry expert.
The analysis indicates oil companies would likely spend:
- The first year: Sorting through new operating agreements.
- Year two: Beginning reconstruction of equipment.
- Year three: Being able to significantly ramp up output.
The result could be an boost of around 500,000 bpd maybe by the end of the decade.
Appetite Compared to Appetite for Investment
Analysts draw a critical difference between multinationals’ interest and their readiness to commit significantly.
“In my view their interest is an eight, on a scale of one to 10. But their readiness is a four or five, because there is no clarity yet.”
Seasoned operators in the region share this sentiment. The thinking is that firms will politically talk up the opportunity while actually proceeding with deliberate slowness.
The Enormous Price Tag
The required bill would be colossal. University estimates suggest that increasing production by between half a million and a million bpd would require more than $10 billion in capital spending over two to three years.
Yet, 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 Issue of Government Backing
The suggestion of energy companies being paid back by the government has been repeatedly raised. However, formal assurances on any guarantee have not yet been announced.
Without certainty is the primary reason behind the industry's reluctance. Companies seek guarantees against sovereign risk and the chance that a different administration could renege on any promise.
“It is essential to be protected from nationalization, that we’ve experienced in Venezuela already.”
Ultimately, while political promises runs high, the practical risks suggest a journey of measured steps for potential major investment in the country's energy industry.
