Industry experts have voiced deep caution regarding bullish claims that American large firms will rapidly commit tens of billions of dollars to fix Venezuela's crumbling production facilities.
Demand for Iron-Clad Guarantees
Without an solid promise of financial backing from the US federal government, experts believe international firms to act with significant hesitation.
“It is hasty to speculate on any upcoming plans,” an official commented this weekend.
The optimistic timeline of under a year and a half was publicly outlined. However, expert analyses suggest a more cautious outlook.
A Probable Timeline
“It is likely going to take three years for any kind of recovery in production,” commented one industry expert.
He suggested oil companies would likely spend:
- Initial phase: Sorting through new government and security contracts.
- The second year: Investing in overhaul of infrastructure.
- Year three: Starting to meaningfully increase yield.
This suggests an rise of around 500,000 barrels per day perhaps by the end of the decade.
Desire Versus Appetite for Risk
There is a critical difference between firms' attention and their appetite to invest significantly.
“I believe their interest is an eight, on a scale of ten. But their appetite is a much lower, because there is significant uncertainty yet.”
Experienced observers in the region reinforce this view. The expectation is that firms will publicly call it fantastic while in practice proceeding with deliberate slowness.
The Colossal Cost
The financial outlay would be colossal. Independent estimates suggest that adding between 500,000 and a million barrels per day would require over $10 billion in capital spending over several years.
But, rebuilding production to previous levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over six or seven years.
The Pending Question of Taxpayer Funding
The prospect of firms being paid back by the federal government has been repeatedly floated. However, concrete details on such a mechanism have so far not been forthcoming.
Without certainty is the main reason behind the sector's caution. Firms seek guarantees against sovereign risk and the risk that a subsequent administration could renege on any agreement.
“You need to be insured against political change, that we’ve witnessed in Venezuela already.”
Ultimately, while political promises runs strong, the financial risks suggest a road of extreme caution for any major investment in the country's energy industry.
