Industry experts have shown significant caution regarding bullish predictions that US large firms will rapidly commit billions of dollars to fix Venezuela's crumbling energy sector.
Requirement of Iron-Clad Assurances
Absent an “iron-clad guarantee” of complete repayment from the Washington, analysts expect multinational oil companies to act with extreme caution.
“It seems too early to discuss any future business activities,” a representative said in response.
The ambitious timeline of under a year and a half has been publicly suggested. Nevertheless, industry projections indicate a longer timeline.
A Likely Timeline
“It’s probably going to take 36 months for any meaningful output increase,” said one industry expert.
He suggested oil companies would likely spend:
- Initial phase: Securing new government and security contracts.
- Year two: Investing in reconstruction of equipment.
- The third year: Starting to boost production.
This suggests an increase of around 500,000 bpd possibly by the end of the decade.
Interest vs. Willingness for Investment
Analysts draw a important separation between companies' curiosity and their readiness to commit heavily.
“I believe their curiosity is an high score, on a scale of ten. But their appetite is a mid-range score, because there is significant uncertainty yet.”
Seasoned diplomats in the sector echo this sentiment. They believe that majors will publicly call it fantastic while privately proceeding with great care.
The Colossal Investment Required
The financial outlay would be vast. Independent analysis suggest that increasing production by between half a million and a million barrels per day would require in excess of $10 billion in funding over two to three years.
However, rebuilding production to previous levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over six or seven years.
The Pending Issue of Federal Guarantees
The prospect of firms being reimbursed by the government has been often raised. However, formal assurances on such a mechanism have not yet been announced.
The absence of clarity is the key factor for the industry's caution. Companies seek protection against nationalization and the chance that a future government could renege on any deal.
“You need to be shielded from nationalization, that we’ve experienced in Venezuela before.”
Therefore, while rhetorical promises runs strong, the financial realities suggest a road of slow deliberation for any major financial commitment in the Venezuelan oil sector.
