Energy analysts have expressed deep caution regarding recent statements that US energy majors will quickly pump billions of dollars to revive the country's broken production facilities.
The Need for Iron-Clad Guarantees
Absent an solid promise of financial backing from the American government, experts believe global energy giants to proceed with great care.
“It would be premature to comment on any potential investments,” a spokesperson said in response.
The aggressive schedule of less than 18 months has been publicly outlined. However, expert analyses indicate a different picture.
A More Realistic Outlook
“It’s probably going to take three years for any kind of recovery in production,” said an energy analyst.
The analysis indicates operators would likely spend:
- Initial phase: Sorting through new government and security contracts.
- Following phase: Commencing reconstruction of equipment.
- Final phase: Reaching a position to meaningfully increase yield.
This suggests an increase of around 500,000 bpd perhaps by the end of the decade.
Desire Versus Appetite for Risk
Experts make a key distinction between firms' attention and their appetite to invest substantially.
“In my view their curiosity is an eight, on a range of ten. I think their readiness is a much lower, because there is significant uncertainty yet.”
Experienced operators in the country share this caution. They believe that companies will politically express enthusiasm while in practice moving with great care.
The Colossal Cost
The required investment would be vast. University projections suggest that increasing production by between 500,000 and a million bpd would require more than $10 billion in capital spending over two to three years.
Yet, rebuilding output to previous levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over many more years.
The Outstanding Issue of Government Backing
The idea of oil giants being paid back by the government has been often floated. Nevertheless, specific plans on such a mechanism have not yet been provided.
The absence of certainty is the key factor for the industry's hesitation. Companies seek guarantees against sovereign risk and the risk that a different government could renege on any deal.
“They must be protected from sovereign risk, that we’ve seen in Venezuela before.”
Therefore, while political promises runs strong, the operational challenges suggest a path of extreme caution for potential major venture in the country's oil sector.
