Energy analysts have shown considerable caution regarding optimistic claims that American oil giants will swiftly invest billions of dollars to fix Venezuela's dilapidated energy sector.
Requirement of Iron-Clad Assurances
Without an “iron-clad guarantee” of financial backing from the American government, analysts expect global energy giants to proceed with great care.
“It would be hasty to comment on any future business activities,” an official said this weekend.
The ambitious schedule of less than 18 months has been boldly proposed. However, expert analyses indicate a more cautious outlook.
A Likely Outlook
“It is likely going to take three years for any kind of recovery in production,” commented one industry expert.
The analysis indicates oil companies would likely spend:
- The first year: Securing new government and security contracts.
- The second year: Commencing rebuilding of infrastructure.
- The third year: Starting to meaningfully increase production.
This would lead to an boost of around 500,000 bpd maybe by the end of the decade.
Desire Versus Willingness for Spending
Analysts draw a important separation between firms' attention and their appetite to invest substantially.
“I think their attention is an eight, on a scale of one to 10. However, their appetite is a mid-range score, because there is no clarity yet.”
Seasoned operators in the region share this view. The thinking is that majors will politically talk up the opportunity while actually proceeding with great care.
The Enormous Investment Required
The financial bill would be colossal. University estimates suggest that adding between 500,000 and a million barrels per day would require over $10 billion in capital spending over two to three years.
But, rebuilding production to peak levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over six or seven years.
The Unanswered Issue of Government Backing
The suggestion of energy companies being compensated by the government has been often raised. But, formal assurances on this proposal have not yet been provided.
The absence of a solid plan is the key reason for the sector's reluctance. Companies seek protection against nationalization and the chance that a different administration could refuse any agreement.
“They must be protected from nationalization, that we’ve witnessed in Venezuela already.”
Therefore, while rhetorical promises runs high, the financial realities suggest a road of extreme caution for any large-scale venture in the Venezuelan oil sector.
