Industry experts have expressed considerable caution regarding bullish claims that US oil giants will rapidly invest billions of dollars to rebuild Venezuela's broken production facilities.
Demand for Solid Assurances
Without an solid promise of financial backing from the US federal government, experts believe multinational oil companies to act with extreme caution.
“It would be too early to discuss any future business activities,” a spokesperson commented recently.
The ambitious schedule of less than a year and a half was publicly proposed. Nevertheless, expert analyses paint a different picture.
A Likely Schedule
“It’s probably going to take three years for any kind of production bounce,” noted one chief investment officer.
The analysis indicates operators would likely spend:
- The first year: Sorting through new regulatory frameworks.
- Year two: Investing in rebuilding of facilities.
- Final phase: Starting to significantly ramp up output.
This would lead to an boost of around 500,000 bpd maybe by the end of the decade.
Desire Versus Willingness for Spending
Experts make a important separation between multinationals’ interest and their willingness to spend heavily.
“I believe their curiosity is an eight, on a range of ten. I think their willingness is a mid-range score, because there is a lack of certainty yet.”
Veteran diplomats in the region share this sentiment. The thinking is that majors will politically express enthusiasm while privately acting with deliberate slowness.
The Colossal Investment Required
The required outlay would be enormous. Independent projections suggest that increasing production by between 500,000 and a million bpd would require more than $10 billion in investment over several years.
But, restoring output to historical levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over six or seven years.
The Outstanding Question of Taxpayer Funding
The idea of oil giants being compensated by the government has been repeatedly raised. But, formal assurances on any guarantee have so far not been forthcoming.
The absence of clarity is the main reason for the industry's reluctance. Companies seek guarantees against political risk and the possibility that a subsequent government could cancel any agreement.
“It is essential to be insured against sovereign risk, that we’ve witnessed in Venezuela before.”
Therefore, while political optimism runs strong, the financial realities suggest a journey of measured steps for potential major venture in the country's oil sector.
