Energy analysts have voiced considerable skepticism regarding recent predictions that American oil giants will quickly pump vast sums of dollars to revive Venezuela's crumbling energy sector.
Demand for Absolute Protections
Lacking an “iron-clad guarantee” of complete repayment from the US federal government, experts believe multinational oil companies to act with extreme caution.
“It would be hasty to speculate on any potential investments,” an official said this weekend.
The ambitious schedule of less than 18 months has been publicly proposed. Yet, industry projections suggest a longer timeline.
A More Realistic Outlook
“It’s probably going to take multiple years for any significant output increase,” said one energy analyst.
He suggested oil companies would likely spend:
- Initial phase: Sorting through new government and security contracts.
- The second year: Commencing overhaul of equipment.
- Final phase: Reaching a position to significantly ramp up yield.
This would lead to an rise of around half a million bpd possibly by the end of the decade.
Desire Versus Willingness for Spending
Experts make a critical difference between companies' curiosity and their willingness to spend significantly.
“I believe their curiosity is an eight, on a range of one to 10. I think their appetite is a four or five, because there is no clarity yet.”
Seasoned operators in the country echo this view. The thinking is that firms will publicly express enthusiasm while in practice moving with extreme caution.
The Vast Cost
The financial outlay would be colossal. Research projections suggest that increasing production by between half a million and a million bpd would require in excess of $10 billion in capital spending over two to three years.
But, rebuilding production to historical levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over six or seven years.
The Unanswered Issue of Taxpayer Funding
The idea of firms being reimbursed by the federal government has been repeatedly raised. But, formal assurances on any guarantee have not yet been announced.
This lack of a solid plan is the key factor for the industry's hesitation. Operators seek protection against sovereign risk and the possibility that a different government could refuse any deal.
“You need to be protected from nationalization, that we’ve seen in Venezuela previously.”
Therefore, while political confidence runs strong, the practical realities suggest a road of extreme caution for any large-scale venture in the country's oil sector.
