Market specialists have voiced considerable skepticism regarding bullish predictions that US energy majors will quickly invest vast sums of dollars to rebuild the country's broken production facilities.
Requirement of Absolute Guarantees
Without an “iron-clad guarantee” of financial backing from the US federal government, experts believe international firms to move with great care.
“It would be too early to discuss any upcoming plans,” a spokesperson said in response.
The optimistic timeframe of under a year and a half was boldly proposed. Nevertheless, industry projections indicate a more cautious outlook.
A Likely Schedule
“It’s probably going to take multiple years for any significant output increase,” said one chief investment officer.
He suggested operators would likely spend:
- Year one: Navigating new operating agreements.
- The second year: Commencing overhaul of equipment.
- The third year: Being able to meaningfully increase output.
This would lead to an rise of around 500,000 barrels per day possibly by 2029.
Interest vs. Appetite for Risk
There is a important separation between firms' attention and their appetite to invest heavily.
“I think their interest is an eight, on a scale of one to 10. But their willingness is a much lower, because there is no clarity yet.”
Veteran operators in the region echo this sentiment. The expectation is that companies will politically talk up the opportunity while in practice proceeding with great care.
The Colossal Price Tag
The required outlay would be vast. University estimates suggest that adding between half a million and a million bpd would require in excess of $10 billion in funding over two to three years.
But, returning output to previous levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over many more years.
The Outstanding Issue of Taxpayer Funding
The idea of energy companies being compensated by the government has been repeatedly mentioned. Nevertheless, formal assurances on this proposal have so far not been forthcoming.
This lack of certainty is the key reason for the sector's reluctance. Firms seek protection against sovereign risk and the risk that a future administration could cancel any agreement.
“You need to be insured against political change, that we’ve seen in Venezuela previously.”
In summary, while political optimism runs strong, the financial realities suggest a journey of measured steps for any large-scale financial commitment in the country's oil sector.
