Industry experts have voiced deep doubt regarding recent statements that US energy majors will rapidly pump vast sums of dollars to rebuild Venezuela's dilapidated oil infrastructure.
Requirement of Iron-Clad Assurances
Lacking an “iron-clad guarantee” of full reimbursement from the US federal government, specialists predict multinational oil companies to act with great care.
“It seems too early to comment on any upcoming plans,” a representative said in response.
The aggressive schedule of under a year and a half was boldly suggested. However, realistic assessments indicate a different picture.
A More Realistic Schedule
“It’s probably going to take multiple years for any kind of production bounce,” noted one energy analyst.
The analysis indicates oil companies would likely spend:
- Initial phase: Sorting through new government and security contracts.
- Year two: Investing in overhaul of facilities.
- Year three: Starting to significantly ramp up yield.
The result could be an boost of around 500,000 bpd perhaps by the end of the decade.
Interest vs. Willingness for Risk
There is a key distinction between firms' attention and their willingness to spend substantially.
“In my view their interest is an eight, on a range of one to 10. But their appetite is a much lower, because there is no clarity yet.”
Experienced operators in the region reinforce this sentiment. They believe that companies will politically talk up the opportunity while privately proceeding with great care.
The Enormous Cost
The financial outlay would be enormous. University projections suggest that adding between 500,000 and a million barrels per day would require in excess of $10 billion in investment over two to three years.
But, restoring production to historical levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over many more years.
The Unanswered Issue of Federal Guarantees
The suggestion of firms being reimbursed by the US taxpayer has been often floated. Nevertheless, concrete details on any guarantee have so far not been forthcoming.
The absence of clarity is the primary factor for the sector's reluctance. Operators seek guarantees against political risk and the possibility that a different government could renege on any promise.
“You need to be shielded from sovereign risk, that we’ve witnessed in Venezuela before.”
Ultimately, while political optimism runs high, the financial risks suggest a road of extreme caution for any significant venture in the Venezuelan energy industry.
