Market specialists have voiced deep caution regarding bullish statements that American energy majors will rapidly commit vast sums of dollars to revive Venezuela's dilapidated production facilities.
Demand for Absolute Assurances
Without an solid promise of complete repayment from the US federal government, analysts expect international firms to proceed with great care.
“It seems hasty to comment on any future business activities,” an official stated in response.
The ambitious timeframe of under a year and a half was publicly outlined. Yet, industry projections suggest a longer timeline.
A More Realistic Timeline
“It’s probably going to take 36 months for any significant recovery in production,” said one chief investment officer.
He suggested energy firms would likely spend:
- Initial phase: Securing new operating agreements.
- The second year: Commencing reconstruction of facilities.
- Year three: Starting to boost yield.
This would lead to an rise of around half a million barrels per day perhaps by the end of the decade.
Interest vs. Willingness for Investment
There is a important separation between companies' curiosity and their willingness to spend substantially.
“I think their attention is an eight, on a scale of ten. But their willingness is a four or five, because there is significant uncertainty yet.”
Experienced diplomats in the country reinforce this caution. The expectation is that companies will politically talk up the opportunity while actually acting with great care.
The Vast Price Tag
The financial investment would be vast. Research estimates suggest that adding between 500,000 and a million bpd would require over $10 billion in funding over two to three years.
But, restoring output to historical levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over many more years.
The Outstanding Question of Government Backing
The idea of energy companies being compensated by the federal government has been repeatedly floated. But, formal assurances on such a mechanism have not yet been provided.
Without certainty is the primary factor for the sector's reluctance. Firms seek safeguards against sovereign risk and the chance that a future administration could cancel any deal.
“You need to be insured against sovereign risk, that we’ve experienced in Venezuela already.”
Therefore, while political promises runs high, the financial realities suggest a road of slow deliberation for potential major venture in the country's energy industry.
