Industry experts have shown deep caution regarding bullish statements that US energy majors will swiftly pump vast sums of dollars to rebuild the country's broken production facilities.
Requirement of Solid Assurances
Lacking an absolute assurance of full reimbursement from the Washington, specialists predict international firms to act with extreme caution.
“It seems hasty to comment on any future business activities,” a representative said recently.
The ambitious schedule of less than 18 months was boldly proposed. Nevertheless, realistic assessments suggest a longer timeline.
A More Realistic Schedule
“Chances are going to take 36 months for any significant recovery in production,” commented an energy analyst.
Experts believe oil companies would likely spend:
- The first year: Sorting through new government and security contracts.
- The second year: Beginning overhaul of infrastructure.
- Year three: Starting to significantly ramp up output.
The result could be an rise of around 500,000 barrels per day possibly by the end of the decade.
Interest vs. Appetite for Risk
There is a critical difference between firms' attention and their appetite to invest significantly.
“In my view their attention is an eight, on a range of ten. I think their appetite is a much lower, because there is a lack of certainty yet.”
Veteran diplomats in the sector echo this caution. They believe that companies will politically talk up the opportunity while in practice proceeding with great care.
The Colossal Price Tag
The monetary investment would be colossal. Independent estimates suggest that increasing production by between half a million and a million barrels per day would require over $10 billion in investment over two to three years.
Yet, rebuilding production to historical levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over many more years.
The Outstanding Question of Federal Guarantees
The prospect of energy companies being compensated by the federal government has been repeatedly mentioned. However, formal assurances on this proposal have not yet been forthcoming.
This lack of clarity is the main impediment behind the sector's hesitation. Firms seek guarantees against sovereign risk and the chance that a different president could cancel any agreement.
“They must be protected from nationalization, that we’ve seen in Venezuela already.”
In summary, while political confidence runs strong, the financial realities suggest a path of measured steps for any large-scale investment in the country's energy industry.
