Industry experts have voiced significant caution regarding recent statements that American large firms will rapidly invest tens of billions of dollars to rebuild Venezuela's crumbling production facilities.
Requirement of Iron-Clad Protections
Lacking an “iron-clad guarantee” of full reimbursement from the American government, experts believe global energy giants to act with extreme caution.
“It would be premature to comment on any upcoming plans,” a representative said in response.
The optimistic timeframe of less than 18 months was boldly outlined. Nevertheless, realistic assessments indicate a different picture.
A More Realistic Outlook
“It is likely going to take multiple years for any meaningful recovery in production,” commented one chief investment officer.
Experts believe oil companies would likely spend:
- The first year: Sorting through new regulatory frameworks.
- The second year: Commencing overhaul of facilities.
- Year three: Starting to boost yield.
This suggests an increase of around 500,000 barrels per day maybe by the end of the decade.
Interest vs. Appetite for Investment
Analysts draw a critical difference between companies' curiosity and their readiness to commit heavily.
“In my view their attention is an eight, on a scale of ten. But their willingness is a much lower, because there is a lack of certainty yet.”
Experienced diplomats in the sector reinforce this view. The thinking is that companies will publicly express enthusiasm while actually proceeding with extreme caution.
The Colossal Price Tag
The monetary bill would be enormous. Independent analysis suggest that increasing production by between half a million and a million barrels per day would require more than $10 billion in investment over several years.
However, returning 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 Question of Government Backing
The idea of firms being compensated by the government has been repeatedly floated. However, specific plans on any guarantee have so far not been provided.
The absence of a solid plan is the key impediment for the industry's caution. Firms seek guarantees against sovereign risk and the risk that a different president could refuse any agreement.
“They must be shielded from nationalization, that we’ve experienced in Venezuela before.”
Therefore, while political promises runs strong, the practical challenges suggest a journey of extreme caution for any major investment in the Venezuelan oil sector.
