Energy analysts have voiced considerable skepticism regarding bullish predictions that US oil giants will rapidly commit vast sums of dollars to fix Venezuela's broken production facilities.
The Need for Iron-Clad Protections
Absent an absolute assurance of full reimbursement from the American government, analysts expect global energy giants to proceed with significant hesitation.
“It would be hasty to speculate on any future business activities,” a representative said recently.
The optimistic schedule of under a year and a half has been publicly suggested. Yet, realistic assessments indicate a more cautious outlook.
A Likely Timeline
“It is likely going to take multiple years for any meaningful recovery in production,” noted an industry expert.
He suggested operators would likely spend:
- The first year: Securing new government and security contracts.
- The second year: Commencing reconstruction of infrastructure.
- The third year: Being able to boost production.
The result could be an increase of around half a million bpd maybe by the end of the decade.
Desire Versus Appetite for Risk
There is a key distinction between multinationals’ interest and their willingness to spend substantially.
“In my view their curiosity is an high score, on a scale of one to 10. I think their willingness is a mid-range score, because there is significant uncertainty yet.”
Experienced diplomats in the sector share this caution. The expectation is that firms will publicly talk up the opportunity while privately moving with extreme caution.
The Vast Cost
The monetary investment would be vast. University estimates suggest that adding between half a million and a million bpd would require in excess of $10 billion in capital spending over several years.
However, rebuilding production to historical levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over many more years.
The Pending Question of Taxpayer Funding
The suggestion of oil giants being compensated by the government has been repeatedly mentioned. But, specific plans on such a mechanism have not yet been forthcoming.
This lack of a solid plan is the key impediment behind the industry's caution. Operators seek guarantees against sovereign risk and the possibility that a future administration could renege on any promise.
“You need to be insured against political change, that we’ve witnessed in Venezuela previously.”
Therefore, while political promises runs strong, the practical realities suggest a path of extreme caution for potential major venture in the Venezuelan oil sector.
