Industry experts have expressed significant doubt regarding optimistic statements that US oil giants will swiftly pump billions of dollars to fix Venezuela's crumbling energy sector.
The Need for Solid Guarantees
Lacking an absolute assurance of financial backing from the Washington, experts believe global energy giants to proceed with significant hesitation.
“It seems too early to discuss any future business activities,” a representative said recently.
The optimistic timeframe of less than a year and a half was publicly proposed. Nevertheless, expert analyses suggest a more cautious outlook.
A More Realistic Outlook
“It is likely going to take three years for any significant output increase,” commented one chief investment officer.
The analysis indicates energy firms would likely spend:
- The first year: Securing new government and security contracts.
- The second year: Investing in reconstruction of equipment.
- Final phase: Reaching a position to boost yield.
The result could be an increase of around half a million barrels per day maybe by the end of the decade.
Appetite Compared to Readiness for Investment
There is a important separation between firms' attention and their appetite to invest heavily.
“I think their curiosity is an high score, on a scale of ten. But their readiness is a four or five, because there is significant uncertainty yet.”
Experienced observers in the region echo this sentiment. The expectation is that majors will publicly talk up the opportunity while actually acting with deliberate slowness.
The Colossal Cost
The required investment would be vast. Independent projections suggest that adding between 500,000 and a million bpd would require more than $10 billion in investment over two to three years.
Yet, restoring output to peak 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 Government Backing
The prospect of energy companies being compensated by the federal government has been often floated. But, specific plans on such a mechanism have not yet been announced.
Without clarity is the main impediment for the sector's reluctance. Companies seek guarantees against nationalization and the risk that a subsequent president could refuse any agreement.
“It is essential to be protected from nationalization, that we’ve witnessed in Venezuela before.”
In summary, while political optimism runs strong, the operational risks suggest a road of extreme caution for potential large-scale investment in the Venezuelan oil sector.
