Market specialists have expressed considerable caution regarding recent claims that American large firms will quickly pump vast sums of dollars to rebuild Venezuela's broken energy sector.
The Need for Absolute Protections
Without an “iron-clad guarantee” of financial backing from the Washington, specialists predict international firms to move with extreme caution.
“It is premature to discuss any upcoming plans,” an official said this weekend.
The optimistic schedule of under a year and a half has been boldly outlined. Yet, expert analyses paint a different picture.
A Probable Schedule
“It is likely going to take 36 months for any meaningful output increase,” commented one energy analyst.
He suggested operators would likely spend:
- Year one: Securing new operating agreements.
- Year two: Commencing overhaul of facilities.
- Final phase: Reaching a position to boost yield.
The result could be an increase of around half a million bpd maybe by the end of the decade.
Desire Versus Willingness for Risk
There is a important separation between companies' curiosity and their appetite to invest heavily.
“In my view their curiosity is an high score, on a range of ten. I think their appetite is a four or five, because there is significant uncertainty yet.”
Veteran operators in the country echo this sentiment. They believe that companies will politically call it fantastic while actually proceeding with extreme caution.
The Colossal Cost
The required investment would be vast. Research estimates suggest that adding between half a million and a million bpd would require in excess of $10 billion in capital spending over several years.
However, rebuilding production to previous levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over many more years.
The Outstanding Issue of Federal Guarantees
The idea of energy companies being compensated by the US taxpayer has been often mentioned. But, formal assurances on any guarantee have so far not been provided.
The absence of clarity is the primary impediment for the sector's hesitation. Companies seek guarantees against sovereign risk and the risk that a future president could refuse any promise.
“They must be shielded from sovereign risk, that we’ve experienced in Venezuela before.”
In summary, while rhetorical promises runs strong, the financial risks suggest a journey of slow deliberation for any major investment in the country's energy industry.
