Market specialists have expressed deep caution regarding recent statements that American oil giants will rapidly invest vast sums of dollars to fix Venezuela's dilapidated oil infrastructure.
Demand for Solid Protections
Absent an absolute assurance of financial backing from the US federal government, analysts expect multinational oil companies to act with extreme caution.
“It seems premature to speculate on any potential investments,” an official said this weekend.
The aggressive schedule of under a year and a half has been boldly suggested. Yet, industry projections paint a different picture.
A More Realistic Schedule
“It is likely going to take 36 months for any kind of recovery in production,” commented an energy analyst.
He suggested operators would likely spend:
- The first year: Sorting through new operating agreements.
- Year two: Investing in rebuilding of equipment.
- The third year: Starting to boost production.
This suggests an rise of around 500,000 barrels per day perhaps by the end of the decade.
Interest vs. Willingness for Spending
Analysts draw a important separation between companies' curiosity and their appetite to invest significantly.
“I believe their attention is an high score, on a scale of ten. I think their readiness is a much lower, because there is significant uncertainty yet.”
Veteran operators in the sector echo this caution. The thinking is that companies will publicly express enthusiasm while in practice moving with extreme caution.
The Enormous Cost
The monetary outlay would be enormous. University projections suggest that adding between 500,000 and a million bpd would require more than $10 billion in funding over two to three years.
But, rebuilding output to peak 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 Issue of Government Backing
The suggestion of firms being compensated by the US taxpayer has been often raised. But, formal assurances on this proposal have so far not been announced.
The absence of certainty is the key factor behind the industry's caution. Companies seek protection against political risk and the possibility that a future administration could cancel any promise.
“It is essential to be protected from sovereign risk, that we’ve witnessed in Venezuela previously.”
In summary, while rhetorical optimism runs high, the financial challenges suggest a path of extreme caution for potential major venture in the country's oil sector.
