Industry experts have voiced considerable caution regarding bullish claims that American energy majors will swiftly commit vast sums of dollars to revive Venezuela's dilapidated production facilities.
The Need for Absolute Protections
Without an “iron-clad guarantee” of full reimbursement from the American government, analysts expect international firms to proceed with great care.
“It seems too early to comment on any potential investments,” an official stated this weekend.
The aggressive timeline of under a year and a half was boldly outlined. Yet, industry projections paint a longer timeline.
A Likely Timeline
“It is likely going to take multiple years for any meaningful output increase,” commented one energy analyst.
He suggested energy firms would likely spend:
- Initial phase: Securing new operating agreements.
- The second year: Commencing overhaul of facilities.
- The third year: Being able to boost output.
This would lead to an increase of around 500,000 bpd maybe by the end of the decade.
Appetite Compared to Willingness for Spending
Experts make a key distinction between companies' curiosity and their appetite to invest heavily.
“I think their curiosity is an eight, on a scale of ten. However, their readiness is a mid-range score, because there is no clarity yet.”
Veteran operators in the region echo this sentiment. The thinking is that firms will politically talk up the opportunity while in practice proceeding with deliberate slowness.
The Vast Price Tag
The required outlay would be vast. Research analysis suggest that increasing production by between 500,000 and a million barrels per day would require in excess of $10 billion in capital spending over two to three years.
But, rebuilding production to previous levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over six or seven years.
The Unanswered Issue of Federal Guarantees
The idea of firms being compensated by the federal government has been repeatedly raised. However, concrete details on such a mechanism have so far not been provided.
The absence of a solid plan is the main reason for the industry's reluctance. Companies seek protection against sovereign risk and the risk that a future government could renege on any agreement.
“You need to be protected from sovereign risk, that we’ve experienced in Venezuela before.”
Therefore, while rhetorical optimism runs strong, the operational challenges suggest a journey of measured steps for potential large-scale venture in the Venezuelan oil sector.
