Market specialists have voiced deep caution regarding optimistic statements that US large firms will quickly pump vast sums of dollars to fix Venezuela's crumbling energy sector.
The Need for Solid Assurances
Absent an solid promise of complete repayment from the US federal government, experts believe international firms to act with extreme caution.
“It would be too early to comment on any potential investments,” a representative said this weekend.
The aggressive timeframe of under 18 months has been boldly suggested. Yet, expert analyses paint a longer timeline.
A Likely Outlook
“It’s probably going to take 36 months for any significant production bounce,” commented one energy analyst.
Experts believe operators would likely spend:
- Year one: Navigating new operating agreements.
- The second year: Beginning rebuilding of infrastructure.
- Final phase: Starting to significantly ramp up production.
This would lead to an boost of around half a million bpd perhaps by 2029.
Desire Versus Appetite for Risk
Experts make a critical difference between firms' attention and their appetite to invest heavily.
“In my view their interest is an eight, on a range of ten. But their readiness is a much lower, because there is a lack of certainty yet.”
Veteran observers in the country share this view. The thinking is that companies will publicly talk up the opportunity while privately proceeding with extreme caution.
The Enormous Price Tag
The required bill would be vast. Research analysis suggest that increasing production by between half a million and a million bpd would require more than $10 billion in capital spending over several years.
Yet, restoring production to peak levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over six or seven years.
The Pending Question of Taxpayer Funding
The suggestion of firms being paid back by the federal government has been often floated. But, specific plans on this proposal have not yet been provided.
Without a solid plan is the primary reason for the industry's caution. Firms seek guarantees against sovereign risk and the possibility that a different government could renege on any promise.
“You need to be insured against sovereign risk, that we’ve experienced in Venezuela already.”
In summary, while political promises runs high, the practical challenges suggest a road of extreme caution for any large-scale investment in the Venezuelan oil sector.
