Market specialists have expressed considerable skepticism regarding bullish statements that US large firms will swiftly pump billions of dollars to rebuild the country's dilapidated production facilities.
Requirement of Solid Guarantees
Absent an solid promise of financial backing from the Washington, specialists predict international firms to act with significant hesitation.
“It is too early to comment on any potential investments,” a spokesperson said this weekend.
The ambitious timeframe of less than a year and a half was publicly suggested. Yet, realistic assessments suggest a different picture.
A Likely Schedule
“Chances are going to take multiple years for any significant output increase,” noted one chief investment officer.
He suggested oil companies would likely spend:
- The first year: Navigating new operating agreements.
- Following phase: Commencing overhaul of equipment.
- Final phase: Being able to significantly ramp up production.
This suggests an increase of around 500,000 bpd possibly by the end of the decade.
Appetite Compared to Readiness for Investment
There is a key distinction between companies' curiosity and their willingness to spend significantly.
“I think their curiosity is an high score, on a range of ten. But their willingness is a mid-range score, because there is a lack of certainty yet.”
Experienced operators in the region reinforce this sentiment. The thinking is that firms will politically call it fantastic while in practice acting with deliberate slowness.
The Vast Investment Required
The required bill would be colossal. Independent projections suggest that adding between 500,000 and a million bpd would require in excess of $10 billion in investment over several years.
However, returning 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 Question of Taxpayer Funding
The suggestion of oil giants being reimbursed by the government has been often floated. However, concrete details on this proposal have so far not been provided.
Without certainty is the key reason for the industry's caution. Companies seek protection against sovereign risk and the chance that a subsequent government could renege on any promise.
“You need to be shielded from sovereign risk, that we’ve experienced in Venezuela already.”
In summary, while political promises runs high, the financial challenges suggest a journey of slow deliberation for potential significant venture in the Venezuelan energy industry.
