Market specialists have shown considerable caution regarding bullish statements that American large firms will swiftly invest tens of billions of dollars to revive the country's crumbling oil infrastructure.
Demand for Absolute Assurances
Absent an absolute assurance of complete repayment from the American government, experts believe global energy giants to move with significant hesitation.
“It would be too early to comment on any future business activities,” a representative said in response.
The aggressive schedule of less than 18 months was boldly proposed. Yet, realistic assessments suggest a longer timeline.
A Probable Schedule
“Chances are going to take three years for any meaningful output increase,” said an chief investment officer.
He suggested oil companies would likely spend:
- The first year: Sorting through new operating agreements.
- Year two: Beginning rebuilding of facilities.
- Final phase: Being able to meaningfully increase output.
The result could be an increase of around 500,000 bpd possibly by the end of the decade.
Interest vs. Readiness for Spending
There is a important separation between firms' attention and their willingness to spend heavily.
“I believe their curiosity is an eight, on a range of ten. But their readiness is a mid-range score, because there is a lack of certainty yet.”
Experienced operators in the country echo this caution. The expectation is that firms will publicly talk up the opportunity while privately moving with great care.
The Enormous Price Tag
The financial bill would be enormous. University analysis 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.
However, returning production to historical levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over many more years.
The Unanswered Question of Government Backing
The suggestion of oil giants being reimbursed by the federal government has been repeatedly mentioned. However, specific plans on this proposal have not yet been forthcoming.
Without certainty is the key factor for the industry's caution. Companies seek guarantees against nationalization and the possibility that a future government could renege on any promise.
“They must be insured against sovereign risk, that we’ve witnessed in Venezuela already.”
In summary, while rhetorical confidence runs strong, the operational challenges suggest a road of extreme caution for potential major venture in the country's oil sector.
