Industry experts have expressed deep skepticism regarding recent predictions that US energy majors will rapidly pump tens of billions of dollars to fix the country's dilapidated production facilities.
The Need for Iron-Clad Guarantees
Absent an solid promise of financial backing from the Washington, experts believe multinational oil companies to proceed with extreme caution.
“It seems premature to speculate on any upcoming plans,” a representative said this weekend.
The aggressive schedule of under 18 months has been publicly suggested. Yet, industry projections indicate a different picture.
A More Realistic Timeline
“Chances are going to take multiple years for any significant output increase,” said one industry expert.
He suggested energy firms would likely spend:
- Year one: Sorting through new operating agreements.
- The second year: Investing in overhaul of facilities.
- Final phase: Starting to meaningfully increase yield.
This suggests an increase of around 500,000 bpd possibly by the end of the decade.
Interest vs. Readiness for Investment
There is a critical difference between firms' attention and their appetite to invest significantly.
“In my view their interest is an eight, on a range of one to 10. I think their appetite is a four or five, because there is a lack of certainty yet.”
Experienced diplomats in the region echo this caution. The thinking is that majors will publicly express enthusiasm while privately acting with deliberate slowness.
The Colossal Investment Required
The financial investment would be colossal. University projections 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, rebuilding output to historical levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over many more years.
The Pending Issue of Federal Guarantees
The prospect of firms being reimbursed by the US taxpayer has been often floated. But, specific plans on this proposal have so far not been forthcoming.
Without clarity is the main impediment behind the industry's hesitation. Companies seek protection against nationalization and the possibility that a future president could cancel any promise.
“They must be insured against sovereign risk, that we’ve experienced in Venezuela already.”
In summary, while political optimism runs high, the operational realities suggest a journey of extreme caution for any significant venture in the Venezuelan oil sector.
