Energy analysts have shown deep skepticism regarding bullish claims that American oil giants will quickly commit billions of dollars to rebuild the country's dilapidated production facilities.
The Need for Solid Protections
Without an absolute assurance of full reimbursement from the Washington, experts believe multinational oil companies to proceed with extreme caution.
“It seems hasty to discuss any upcoming plans,” a representative said in response.
The optimistic schedule of less than 18 months was publicly proposed. Yet, industry projections indicate a different picture.
A More Realistic Outlook
“It’s probably going to take three years for any kind of production bounce,” commented one industry expert.
Experts believe oil companies would likely spend:
- The first year: Securing new government and security contracts.
- The second year: Investing in overhaul of equipment.
- Year three: Reaching a position to boost production.
This suggests an increase of around half a million bpd possibly by the end of the decade.
Interest vs. Willingness for Risk
There is a critical difference between firms' attention and their appetite to invest heavily.
“I believe their interest is an eight, on a scale of one to 10. However, their appetite is a mid-range score, because there is no clarity yet.”
Seasoned diplomats in the region reinforce this caution. They believe that firms will politically talk up the opportunity while actually moving with great care.
The Enormous Investment Required
The monetary outlay would be vast. Research estimates suggest that adding between half a million and a million barrels per day would require more than $10 billion in funding over two to three years.
Yet, returning output to previous levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over many more years.
The Pending Question of Federal Guarantees
The suggestion of firms being compensated by the federal government has been often floated. Nevertheless, concrete details on such a mechanism have not yet been announced.
This lack of certainty is the main impediment behind the sector's reluctance. Firms seek safeguards against nationalization and the possibility that a subsequent president could cancel any deal.
“It is essential to be protected from sovereign risk, that we’ve witnessed in Venezuela already.”
Ultimately, while rhetorical confidence runs high, the financial challenges suggest a road of extreme caution for any major investment in the Venezuelan oil sector.
