Industry experts have shown significant caution regarding recent statements that American oil giants will swiftly commit tens of billions of dollars to fix Venezuela's dilapidated production facilities.
The Need for Absolute Protections
Lacking an absolute assurance of financial backing from the Washington, specialists predict global energy giants to proceed with great care.
“It is premature to discuss any potential investments,” a representative said this weekend.
The ambitious timeline of less than a year and a half was boldly outlined. Nevertheless, industry projections suggest a longer timeline.
A Probable Schedule
“It’s probably going to take 36 months for any meaningful output increase,” said one chief investment officer.
He suggested operators would likely spend:
- The first year: Sorting through new operating agreements.
- Year two: Investing in rebuilding of infrastructure.
- Year three: Being able to boost yield.
The result could be an increase of around half a million barrels per day maybe by the end of the decade.
Interest vs. Appetite for Investment
There is a important separation between multinationals’ interest and their appetite to invest heavily.
“I believe their interest is an high score, on a scale of ten. I think their readiness is a much lower, because there is a lack of certainty yet.”
Seasoned operators in the region share this sentiment. The expectation is that companies will politically express enthusiasm while privately proceeding with great care.
The Enormous Price Tag
The required outlay would be enormous. University projections suggest that adding between 500,000 and a million barrels per day would require over $10 billion in capital spending over several years.
However, restoring production to previous levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over many more years.
The Pending Issue of Government Backing
The suggestion of oil giants being reimbursed by the government has been often floated. Nevertheless, specific plans on such a mechanism have not yet been announced.
Without certainty is the primary factor behind the industry's caution. Companies seek guarantees against sovereign risk and the possibility that a different government could renege on any agreement.
“They must be insured against nationalization, that we’ve witnessed in Venezuela before.”
Ultimately, while rhetorical optimism runs high, the operational challenges suggest a road of measured steps for any major investment in the country's energy industry.
