Industry experts have shown considerable caution regarding bullish statements that US large firms will quickly commit vast sums of dollars to fix Venezuela's dilapidated production facilities.
Requirement of Iron-Clad Guarantees
Absent an absolute assurance of complete repayment from the American government, analysts expect international firms to move with great care.
“It is hasty to speculate on any future business activities,” an official said in response.
The aggressive timeframe of under 18 months was boldly suggested. Yet, expert analyses indicate a longer timeline.
A More Realistic Schedule
“It’s probably going to take multiple years for any significant production bounce,” said an chief investment officer.
The analysis indicates operators would likely spend:
- Year one: Sorting through new operating agreements.
- The second year: Beginning rebuilding of infrastructure.
- Year three: Reaching a position to boost output.
The result could be an rise of around half a million bpd perhaps by the end of the decade.
Interest vs. Readiness for Spending
There is a important separation between multinationals’ interest and their readiness to commit significantly.
“In my view their interest is an eight, on a scale of one to 10. But their willingness is a much lower, because there is significant uncertainty yet.”
Experienced operators in the region share this sentiment. The thinking is that majors will politically call it fantastic while in practice proceeding with great care.
The Enormous Investment Required
The required bill would be vast. Independent analysis suggest that increasing production by between 500,000 and a million barrels per day would require more than $10 billion in capital spending over several years.
However, rebuilding production to previous levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over six or seven years.
The Pending Question of Federal Guarantees
The prospect of oil giants being reimbursed by the government has been repeatedly mentioned. Nevertheless, concrete details on this proposal have so far not been provided.
The absence of clarity is the key reason behind the sector's reluctance. Operators seek protection against sovereign risk and the risk that a different administration could cancel any agreement.
“They must be protected from sovereign risk, that we’ve experienced in Venezuela previously.”
In summary, while rhetorical confidence runs high, the practical realities suggest a journey of slow deliberation for any major venture in the Venezuelan energy industry.
