Market specialists have voiced considerable caution regarding optimistic claims that American energy majors will quickly invest vast sums of dollars to rebuild the country's dilapidated energy sector.
The Need for Iron-Clad Assurances
Absent an “iron-clad guarantee” of financial backing from the US federal government, analysts expect multinational oil companies to move with extreme caution.
“It would be premature to speculate on any potential investments,” a representative said recently.
The optimistic timeline of less than a year and a half has been publicly suggested. Yet, realistic assessments paint a different picture.
A More Realistic Schedule
“Chances are going to take three years for any meaningful production bounce,” commented one chief investment officer.
The analysis indicates energy firms would likely spend:
- The first year: Sorting through new government and security contracts.
- The second year: Investing in overhaul of facilities.
- Year three: Starting to meaningfully increase output.
This would lead to an rise of around 500,000 bpd perhaps by 2029.
Desire Versus Appetite for Risk
Experts make a important separation between companies' curiosity and their appetite to invest heavily.
“In my view their interest is an high score, on a scale of ten. But their willingness is a much lower, because there is significant uncertainty yet.”
Veteran operators in the region reinforce this sentiment. The expectation is that firms will politically talk up the opportunity while actually proceeding with extreme caution.
The Colossal Cost
The required investment would be colossal. Independent projections suggest that increasing production by between half a million and a million bpd would require in excess of $10 billion in capital spending over two to three years.
However, rebuilding production to previous levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over many more years.
The Unanswered Issue of Federal Guarantees
The suggestion of oil giants being reimbursed by the US taxpayer has been often raised. However, formal assurances on any guarantee have not yet been forthcoming.
Without certainty is the primary reason for the sector's hesitation. Operators seek guarantees against political risk and the possibility that a future president could renege on any agreement.
“You need to be protected from sovereign risk, that we’ve seen in Venezuela previously.”
Therefore, while political optimism runs high, the financial realities suggest a journey of extreme caution for any major venture in the country's oil sector.
