Industry experts have shown considerable doubt regarding bullish statements that American large firms will rapidly commit tens of billions of dollars to fix Venezuela's dilapidated energy sector.
Requirement of Iron-Clad Protections
Absent an solid promise of full reimbursement from the American government, specialists predict global energy giants to proceed with great care.
“It seems premature to speculate on any future business activities,” a representative stated this weekend.
The optimistic timeline of under a year and a half has been publicly outlined. However, realistic assessments indicate a longer timeline.
A Likely Timeline
“It’s probably going to take three years for any kind of output increase,” noted one chief investment officer.
He suggested oil companies would likely spend:
- Year one: Securing new operating agreements.
- Year two: Commencing overhaul of facilities.
- The third year: Starting to boost production.
This suggests an increase of around 500,000 barrels per day maybe by the end of the decade.
Appetite Compared to Willingness for Risk
There is a key distinction between multinationals’ interest and their appetite to invest significantly.
“I think their interest is an high score, on a scale of ten. I think their appetite is a much lower, because there is a lack of certainty yet.”
Experienced observers in the sector share this caution. The thinking is that majors will publicly call it fantastic while in practice acting with extreme caution.
The Vast Investment Required
The monetary investment would be vast. Independent estimates suggest that adding between 500,000 and a million bpd would require over $10 billion in funding over several years.
But, restoring production to historical levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Taxpayer Funding
The prospect of energy companies being reimbursed by the federal government has been repeatedly raised. But, concrete details on any guarantee have so far not been announced.
This lack of clarity is the main factor behind the sector's caution. Companies seek safeguards against political risk and the risk that a subsequent president could refuse any promise.
“You need to be insured against sovereign risk, that we’ve experienced in Venezuela before.”
Therefore, while political promises runs high, the financial challenges suggest a journey of slow deliberation for potential significant venture in the country's oil sector.
