Market specialists have expressed deep doubt regarding bullish predictions that US large firms will quickly pump tens of billions of dollars to rebuild the country's dilapidated production facilities.
Demand for Iron-Clad Protections
Absent an “iron-clad guarantee” of full reimbursement from the American government, specialists predict international firms to act with extreme caution.
“It is too early to speculate on any future business activities,” a spokesperson said in response.
The ambitious schedule of less than a year and a half has been boldly proposed. However, expert analyses suggest a different picture.
A More Realistic Schedule
“It’s probably going to take three years for any meaningful production bounce,” commented one energy analyst.
The analysis indicates oil companies would likely spend:
- Year one: Sorting through new government and security contracts.
- Following phase: Investing in reconstruction of infrastructure.
- The third year: Being able to significantly ramp up production.
This suggests an increase of around 500,000 barrels per day perhaps by the end of the decade.
Interest vs. Willingness for Investment
Experts make a key distinction between firms' attention and their appetite to invest substantially.
“In my view their curiosity is an high score, on a range of ten. I think their willingness is a four or five, because there is significant uncertainty yet.”
Veteran operators in the country share this caution. The expectation is that firms will politically call it fantastic while actually acting with great care.
The Colossal Cost
The monetary investment would be vast. Independent estimates suggest that increasing production by between 500,000 and a million barrels per day would require in excess of $10 billion in capital spending over several years.
Yet, rebuilding production to peak levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over six or seven years.
The Outstanding Question of Taxpayer Funding
The prospect of firms being paid back by the federal government has been repeatedly floated. However, formal assurances on such a mechanism have not yet been announced.
The absence of certainty is the primary reason for the sector's reluctance. Firms seek guarantees against nationalization and the risk that a future government could refuse any deal.
“They must be protected from sovereign risk, that we’ve experienced in Venezuela previously.”
In summary, while political optimism runs high, the financial challenges suggest a road of slow deliberation for any major venture in the country's energy industry.
