Market specialists have voiced considerable caution regarding optimistic predictions that American large firms will swiftly invest tens of billions of dollars to revive the country's broken oil infrastructure.
The Need for Absolute Guarantees
Absent an “iron-clad guarantee” of complete repayment from the US federal government, analysts expect international firms to proceed with extreme caution.
“It would be hasty to comment on any upcoming plans,” an official commented this weekend.
The optimistic schedule of under a year and a half was boldly outlined. Nevertheless, realistic assessments paint a more cautious outlook.
A More Realistic Outlook
“Chances are going to take three years for any meaningful production bounce,” commented one chief investment officer.
Experts believe energy firms would likely spend:
- The first year: Securing new operating agreements.
- The second year: Beginning reconstruction of equipment.
- The third year: Reaching a position to significantly ramp up production.
This would lead to an boost of around 500,000 barrels per day possibly by the end of the decade.
Desire Versus Readiness for Investment
There is a key distinction between companies' curiosity and their appetite to invest heavily.
“In my view their curiosity is an eight, on a scale of one to 10. But their appetite is a four or five, because there is no clarity yet.”
Seasoned operators in the region echo this sentiment. The expectation is that majors will politically call it fantastic while actually proceeding with extreme caution.
The Colossal Price Tag
The financial outlay would be colossal. Research estimates suggest that increasing production by between 500,000 and a million barrels per day would require over $10 billion in funding over two to three years.
Yet, returning output to historical levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over six or seven years.
The Outstanding Issue of Government Backing
The prospect of firms being paid back by the US taxpayer has been often floated. But, concrete details on any guarantee have not yet been announced.
The absence of certainty is the main impediment for the industry's hesitation. Companies seek guarantees against sovereign risk and the chance that a different government could renege on any deal.
“You need to be insured against political change, that we’ve witnessed in Venezuela previously.”
Therefore, while rhetorical promises runs strong, the financial challenges suggest a journey of extreme caution for any major investment in the country's oil sector.
