Energy analysts have expressed deep caution regarding optimistic predictions that US energy majors will rapidly pump tens of billions of dollars to rebuild the country's broken production facilities.
The Need for Iron-Clad Guarantees
Absent an “iron-clad guarantee” of financial backing from the Washington, analysts expect international firms to move with great care.
“It seems premature to comment on any future business activities,” a representative said recently.
The aggressive schedule of less than a year and a half has been boldly proposed. However, realistic assessments paint a different picture.
A Likely Outlook
“It is likely going to take 36 months for any kind of production bounce,” noted one industry expert.
Experts believe oil companies would likely spend:
- The first year: Securing new government and security contracts.
- Following phase: Beginning reconstruction of facilities.
- Year three: Reaching a position to meaningfully increase yield.
This would lead to an increase of around half a million barrels per day possibly by the end of the decade.
Desire Versus Appetite for Investment
There is a important separation between multinationals’ interest and their appetite to invest substantially.
“In my view their interest is an high score, on a scale of one to 10. But their appetite is a mid-range score, because there is a lack of certainty yet.”
Veteran operators in the sector share this caution. The expectation is that majors will publicly talk up the opportunity while actually acting with great care.
The Colossal Cost
The required outlay would be colossal. Research analysis suggest that increasing production by between half a million and a million bpd would require in excess of $10 billion in investment over two to three years.
But, restoring output to historical levels of around 2.5 million bpd could require a monumental $80 billion to $90 billion over many more years.
The Outstanding Question of Government Backing
The prospect of oil giants being compensated by the government has been often raised. However, formal assurances on this proposal have so far not been provided.
The absence of a solid plan is the key impediment for the industry's reluctance. Companies seek safeguards against nationalization and the chance that a subsequent administration could renege on any promise.
“You need to be insured against political change, that we’ve witnessed in Venezuela before.”
Therefore, while political confidence runs strong, the practical realities suggest a journey of measured steps for any major financial commitment in the country's oil sector.
