Market specialists have voiced considerable skepticism regarding bullish claims that US oil giants will rapidly pump tens of billions of dollars to rebuild Venezuela's dilapidated production facilities.
The Need for Absolute Protections
Without an absolute assurance of full reimbursement from the US federal government, analysts expect international firms to act with significant hesitation.
“It would be hasty to discuss any future business activities,” an official said recently.
The ambitious timeframe of under a year and a half was boldly suggested. Nevertheless, realistic assessments suggest a different picture.
A More Realistic Outlook
“It’s probably going to take 36 months for any meaningful output increase,” commented one chief investment officer.
The analysis indicates oil companies would likely spend:
- The first year: Sorting through new government and security contracts.
- Year two: Beginning rebuilding of facilities.
- Final phase: Being able to boost production.
The result could be an boost of around half a million barrels per day maybe by the end of the decade.
Desire Versus Appetite for Investment
Experts make a key distinction between companies' curiosity and their appetite to invest substantially.
“In my view their interest is an eight, on a range of one to 10. But their readiness is a mid-range score, because there is a lack of certainty yet.”
Seasoned diplomats in the country reinforce this sentiment. They believe that firms will publicly call it fantastic while privately moving with deliberate slowness.
The Vast Price Tag
The financial bill would be vast. Independent projections suggest that adding between 500,000 and a million barrels per day would require over $10 billion in funding over two to three years.
But, rebuilding output to previous levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over many more years.
The Unanswered Issue of Federal Guarantees
The suggestion of energy companies being reimbursed by the federal government has been often raised. Nevertheless, formal assurances on such a mechanism have so far not been provided.
This lack of a solid plan is the key impediment for the industry's hesitation. Companies seek protection against political risk and the chance that a different government could renege on any deal.
“It is essential to be insured against sovereign risk, that we’ve seen in Venezuela already.”
Ultimately, while political promises runs strong, the financial realities suggest a path of slow deliberation for potential significant venture in the Venezuelan energy industry.
