Industry experts have voiced significant caution regarding optimistic statements that American large firms will rapidly commit tens of billions of dollars to rebuild Venezuela's dilapidated oil infrastructure.
Requirement of Solid Assurances
Lacking an “iron-clad guarantee” of full reimbursement from the US federal government, analysts expect global energy giants to proceed with extreme caution.
“It is premature to speculate on any upcoming plans,” a representative said recently.
The optimistic timeframe of under 18 months was publicly outlined. Yet, realistic assessments indicate a different picture.
A Likely Schedule
“Chances are going to take 36 months for any significant production bounce,” commented an energy analyst.
Experts believe operators would likely spend:
- Year one: Securing new operating agreements.
- Year two: Investing in overhaul of infrastructure.
- The third year: Starting to boost yield.
The result could be an rise of around half a million bpd possibly by the end of the decade.
Desire Versus Willingness for Spending
There is a critical difference between firms' attention and their readiness to commit substantially.
“In my view their interest is an eight, on a range of one to 10. But their willingness is a four or five, because there is no clarity yet.”
Experienced operators in the country share this sentiment. The expectation is that majors will politically talk up the opportunity while in practice acting with great care.
The Enormous Cost
The financial investment would be enormous. University analysis suggest that increasing production by between half a million and a million barrels per day would require in excess of $10 billion in capital spending over several years.
Yet, rebuilding output to historical levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over six or seven years.
The Pending Question of Federal Guarantees
The idea of energy companies being paid back by the US taxpayer has been often raised. Nevertheless, concrete details on such a mechanism have not yet been forthcoming.
This lack of a solid plan is the key reason behind the sector's reluctance. Firms seek protection against sovereign risk and the risk that a different government could refuse any promise.
“You need to be insured against sovereign risk, that we’ve seen in Venezuela already.”
Ultimately, while rhetorical optimism runs high, the practical realities suggest a path of slow deliberation for any significant venture in the Venezuelan oil sector.
