Energy analysts have expressed considerable doubt regarding recent predictions that American energy majors will rapidly pump tens of billions of dollars to rebuild Venezuela's crumbling energy sector.
The Need for Absolute Assurances
Absent an solid promise of financial backing from the American government, experts believe multinational oil companies to act with great care.
“It would be too early to discuss any future business activities,” a representative said this weekend.
The aggressive schedule of under a year and a half was boldly outlined. Yet, realistic assessments suggest a different picture.
A Probable Schedule
“Chances are going to take 36 months for any significant production bounce,” commented an chief investment officer.
He suggested energy firms would likely spend:
- The first year: Securing new government and security contracts.
- Following phase: Beginning reconstruction of infrastructure.
- Final phase: Reaching a position to boost output.
This would lead to an rise of around 500,000 barrels per day maybe by the end of the decade.
Appetite Compared to Readiness for Risk
Analysts draw a critical difference between multinationals’ interest and their appetite to invest heavily.
“I think their curiosity is an eight, on a range of ten. I think their readiness is a mid-range score, because there is no clarity yet.”
Seasoned operators in the country share this sentiment. The thinking is that firms will politically talk up the opportunity while privately moving with great care.
The Colossal Cost
The financial bill would be enormous. University analysis suggest that adding between half a million and a million barrels per day would require in excess of $10 billion in funding over several years.
But, rebuilding production to previous levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over six or seven years.
The Unanswered Issue of Taxpayer Funding
The prospect of oil giants being reimbursed by the US taxpayer has been repeatedly mentioned. But, concrete details on any guarantee have not yet been provided.
Without a solid plan is the main factor behind the industry's caution. Operators seek guarantees against political risk and the possibility that a future administration could renege on any promise.
“They must be protected from sovereign risk, that we’ve witnessed in Venezuela previously.”
Therefore, while political confidence runs high, the financial realities suggest a road of extreme caution for any significant financial commitment in the country's oil sector.
