Market specialists have voiced significant skepticism regarding recent claims that US energy majors will rapidly pump tens of billions of dollars to rebuild Venezuela's broken production facilities.
Demand for Absolute Guarantees
Lacking an absolute assurance of financial backing from the US federal government, specialists predict international firms to move with significant hesitation.
“It is too early to speculate on any potential investments,” an official commented this weekend.
The aggressive schedule of under a year and a half has been boldly proposed. Nevertheless, expert analyses indicate a more cautious outlook.
A More Realistic Outlook
“It is likely going to take 36 months for any kind of output increase,” commented one chief investment officer.
He suggested operators would likely spend:
- The first year: Sorting through new government and security contracts.
- Year two: Investing in overhaul of infrastructure.
- Final phase: Reaching a position to significantly ramp up output.
This suggests an rise of around 500,000 bpd maybe by the end of the decade.
Interest vs. Willingness for Risk
Experts make a key distinction between firms' attention and their willingness to spend significantly.
“I believe their attention is an eight, on a scale of ten. But their readiness is a four or five, because there is significant uncertainty yet.”
Veteran diplomats in the region reinforce this sentiment. The expectation is that majors will publicly call it fantastic while in practice acting with deliberate slowness.
The Colossal Cost
The required bill would be vast. Independent analysis suggest that adding between 500,000 and a million bpd would require in excess of $10 billion in capital spending over two to three years.
But, rebuilding output to peak levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over many more years.
The Pending Issue of Federal Guarantees
The idea of energy companies being compensated by the US taxpayer has been repeatedly mentioned. Nevertheless, formal assurances on this proposal have so far not been forthcoming.
This lack of a solid plan is the main reason behind the sector's hesitation. Firms seek safeguards against sovereign risk and the risk that a subsequent president could refuse any agreement.
“They must be protected from sovereign risk, that we’ve experienced in Venezuela already.”
Ultimately, while rhetorical optimism runs strong, the operational challenges suggest a path of slow deliberation for any major investment in the country's oil sector.
