Energy analysts have expressed significant skepticism regarding bullish predictions that US energy majors will swiftly pump vast sums of dollars to revive Venezuela's crumbling oil infrastructure.
Requirement of Solid Assurances
Absent an “iron-clad guarantee” of financial backing from the Washington, analysts expect multinational oil companies to move with extreme caution.
“It is premature to discuss any upcoming plans,” a spokesperson commented this weekend.
The aggressive timeframe of less than a year and a half has been publicly outlined. Yet, industry projections suggest a more cautious outlook.
A More Realistic Outlook
“It is likely going to take three years for any meaningful production bounce,” commented an energy analyst.
He suggested operators would likely spend:
- Year one: Sorting through new operating agreements.
- Following phase: Beginning reconstruction of infrastructure.
- Final phase: Starting to meaningfully increase yield.
The result could be an rise of around 500,000 barrels per day perhaps by 2029.
Desire Versus Appetite for Investment
Analysts draw a critical difference between companies' curiosity and their appetite to invest significantly.
“In my view their curiosity is an eight, on a scale of one to 10. But their readiness is a four or five, because there is a lack of certainty yet.”
Seasoned operators in the country reinforce this view. The thinking is that firms will politically talk up the opportunity while in practice acting with extreme caution.
The Enormous Price Tag
The monetary outlay would be colossal. University projections suggest that adding between 500,000 and a million barrels per day would require in excess of $10 billion in investment over two to three years.
But, rebuilding production to peak levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Taxpayer Funding
The prospect of firms being compensated by the federal government has been often mentioned. Nevertheless, concrete details on such a mechanism have so far not been forthcoming.
This lack of clarity is the key impediment behind the sector's caution. Firms seek guarantees against sovereign risk and the possibility that a future government could cancel any agreement.
“You need to be protected from nationalization, that we’ve witnessed in Venezuela previously.”
Therefore, while political confidence runs high, the financial realities suggest a road of slow deliberation for potential significant investment in the country's oil sector.
