Industry experts have expressed considerable caution regarding bullish statements that American oil giants will swiftly commit tens of billions of dollars to revive the country's dilapidated energy sector.
Requirement of Absolute Guarantees
Without an absolute assurance of full reimbursement from the US federal government, specialists predict multinational oil companies to move with significant hesitation.
“It is premature to comment on any future business activities,” a representative said recently.
The ambitious timeline of under 18 months has been boldly outlined. Yet, industry projections suggest a different picture.
A Likely Schedule
“It is likely going to take 36 months for any significant output increase,” said an chief investment officer.
The analysis indicates oil companies would likely spend:
- Year one: Navigating new government and security contracts.
- Year two: Investing in reconstruction of equipment.
- Year three: Reaching a position to significantly ramp up output.
This would lead to an rise of around half a million bpd perhaps by the end of the decade.
Interest vs. Willingness for Risk
Experts make a critical difference between companies' curiosity and their appetite to invest substantially.
“I think their curiosity is an high score, on a scale of one to 10. I think their willingness is a four or five, because there is no clarity yet.”
Seasoned operators in the country reinforce this caution. The expectation is that majors will publicly express enthusiasm while in practice proceeding with extreme caution.
The Colossal Cost
The required bill would be vast. University analysis suggest that increasing production by between 500,000 and a million bpd would require over $10 billion in funding over two to three years.
But, returning production to historical levels of around 2.5 million barrels per day could require a monumental $80 billion to $90 billion over six or seven years.
The Outstanding Question of Government Backing
The idea of energy companies being reimbursed by the federal government has been often floated. However, concrete details on this proposal have not yet been announced.
Without certainty is the key reason for the sector's reluctance. Operators seek protection against sovereign risk and the risk that a different president could renege on any deal.
“It is essential to be protected from political change, that we’ve seen in Venezuela previously.”
In summary, while political optimism runs strong, the operational risks suggest a road of extreme caution for any major investment in the country's oil sector.
