Industry experts have shown significant doubt regarding optimistic statements that US oil giants will quickly commit tens of billions of dollars to revive Venezuela's dilapidated production facilities.
Demand for Absolute Guarantees
Absent an “iron-clad guarantee” of financial backing from the Washington, analysts expect multinational oil companies to act with extreme caution.
“It would be premature to speculate on any potential investments,” an official commented in response.
The aggressive timeline of less than 18 months has been boldly proposed. Yet, realistic assessments paint a longer timeline.
A Probable Timeline
“Chances are going to take multiple years for any significant production bounce,” commented an energy analyst.
He suggested oil companies would likely spend:
- The first year: Navigating new operating agreements.
- Following phase: Beginning reconstruction of facilities.
- Final phase: Starting to boost production.
The result could be an boost of around half a million barrels per day perhaps by the end of the decade.
Interest vs. Appetite for Risk
There is a critical difference between firms' attention and their willingness to spend substantially.
“I think their curiosity is an eight, on a range of ten. I think their willingness is a four or five, because there is significant uncertainty yet.”
Experienced operators in the sector share this view. The thinking is that majors will publicly talk up the opportunity while privately acting with deliberate slowness.
The Colossal Cost
The financial outlay would be enormous. Research projections suggest that increasing production by between 500,000 and a million barrels per day would require in excess of $10 billion in investment over several years.
Yet, rebuilding output to historical levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over many more years.
The Outstanding Issue of Taxpayer Funding
The suggestion of firms being paid back by the US taxpayer has been often raised. However, formal assurances on any guarantee have so far not been announced.
Without certainty is the primary impediment for the industry's caution. Firms seek guarantees against political risk and the risk that a future president could renege on any agreement.
“They must be insured against political change, that we’ve experienced in Venezuela previously.”
Ultimately, while rhetorical promises runs high, the financial risks suggest a road of slow deliberation for potential large-scale financial commitment in the Venezuelan oil sector.
