Industry experts have expressed considerable caution regarding bullish predictions that American large firms will swiftly pump billions of dollars to fix Venezuela's dilapidated production facilities.
Demand for Solid Guarantees
Without an absolute assurance of complete repayment from the Washington, analysts expect international firms to act with extreme caution.
“It is premature to speculate on any future business activities,” an official said recently.
The aggressive timeframe of less than 18 months was publicly outlined. Yet, expert analyses indicate a more cautious outlook.
A Likely Schedule
“It’s probably going to take three years for any kind of recovery in production,” commented an energy analyst.
Experts believe oil companies would likely spend:
- Year one: Sorting through new government and security contracts.
- Following phase: Beginning overhaul of infrastructure.
- Year three: Reaching a position to boost output.
This would lead to an rise of around half a million barrels per day perhaps by the end of the decade.
Appetite Compared to Willingness for Investment
Analysts draw a key distinction between firms' attention and their willingness to spend heavily.
“In my view their attention is an eight, on a scale of ten. But their readiness is a four or five, because there is no clarity yet.”
Experienced observers in the country share this view. The thinking is that firms will publicly express enthusiasm while in practice moving with deliberate slowness.
The Colossal Cost
The financial bill would be colossal. Independent analysis suggest that increasing production by between half a million and a million bpd would require over $10 billion in funding over two to three years.
However, returning output to historical levels of around 2.5 million bpd could require a massive $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Federal Guarantees
The prospect of firms being reimbursed by the government has been often raised. However, specific plans on such a mechanism have not yet been provided.
This lack of clarity is the main impediment behind the sector's hesitation. Operators seek safeguards against political risk and the risk that a different president could renege on any agreement.
“You need to be shielded from sovereign risk, that we’ve experienced in Venezuela before.”
In summary, while rhetorical confidence runs high, the practical risks suggest a journey of slow deliberation for any significant investment in the Venezuelan oil sector.
