Market specialists have expressed deep caution regarding optimistic statements that US energy majors will rapidly commit vast sums of dollars to rebuild the country's broken production facilities.
Requirement of Absolute Protections
Without an solid promise of financial backing from the Washington, analysts expect global energy giants to move with significant hesitation.
“It seems too early to discuss any upcoming plans,” a representative commented recently.
The optimistic timeframe of under 18 months was publicly suggested. However, industry projections indicate a more cautious outlook.
A Probable Schedule
“It’s probably going to take multiple years for any significant output increase,” noted one chief investment officer.
He suggested operators would likely spend:
- Year one: Securing new operating agreements.
- The second year: Investing in reconstruction of facilities.
- Year three: Reaching a position to significantly ramp up yield.
The result could be an boost of around 500,000 barrels per day possibly by the end of the decade.
Desire Versus Appetite for Risk
Experts make a important separation between companies' curiosity and their appetite to invest substantially.
“I think their attention is an eight, on a range of one to 10. However, their appetite is a four or five, because there is no clarity yet.”
Veteran operators in the country share this view. The expectation is that companies will politically talk up the opportunity while in practice moving with extreme caution.
The Colossal Cost
The required outlay would be enormous. Independent analysis suggest that increasing production by between 500,000 and a million barrels per day would require more than $10 billion in capital spending over two to three years.
Yet, restoring production to previous levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Federal Guarantees
The prospect of energy companies being reimbursed by the federal government has been repeatedly mentioned. Nevertheless, concrete details on any guarantee have so far not been provided.
This lack of certainty is the primary reason behind the industry's hesitation. Companies seek guarantees against nationalization and the possibility that a future administration could renege on any promise.
“It is essential to be protected from sovereign risk, that we’ve witnessed in Venezuela before.”
In summary, while rhetorical confidence runs high, the practical realities suggest a road of measured steps for potential significant financial commitment in the country's oil sector.
