Industry experts have shown significant doubt regarding recent claims that American energy majors will quickly invest vast sums of dollars to revive Venezuela's crumbling production facilities.
Requirement of Solid Guarantees
Absent an absolute assurance of financial backing from the American government, experts believe multinational oil companies to proceed with extreme caution.
“It seems hasty to comment on any future business activities,” an official commented recently.
The aggressive schedule of less than a year and a half was publicly proposed. Yet, realistic assessments paint a more cautious outlook.
A Probable Outlook
“It’s probably going to take 36 months for any kind of production bounce,” said an chief investment officer.
He suggested operators would likely spend:
- Year one: Securing new operating agreements.
- Following phase: Investing in rebuilding of equipment.
- Final phase: Starting to significantly ramp up output.
The result could be an increase of around 500,000 barrels per day possibly by 2029.
Desire Versus Appetite for Spending
Analysts draw a critical difference between multinationals’ interest and their willingness to spend heavily.
“I think their interest is an high score, on a range of ten. But their willingness is a much lower, because there is no clarity yet.”
Veteran observers in the region reinforce this caution. The expectation is that firms will publicly talk up the opportunity while in practice moving with great care.
The Enormous Cost
The financial investment would be enormous. University projections suggest that increasing production by between 500,000 and a million bpd would require over $10 billion in capital spending over several years.
Yet, rebuilding production to historical levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over six or seven years.
The Pending Issue of Government Backing
The prospect of energy companies being compensated by the US taxpayer has been often raised. However, formal assurances on this proposal have not yet been forthcoming.
This lack of a solid plan is the main factor behind the industry's hesitation. Companies seek guarantees against political risk and the risk that a subsequent government could renege on any promise.
“They must be shielded from political change, that we’ve witnessed in Venezuela before.”
Therefore, while rhetorical confidence runs strong, the financial risks suggest a path of extreme caution for potential significant venture in the Venezuelan energy industry.
