Market specialists have shown considerable skepticism regarding bullish predictions that US oil giants will quickly invest billions of dollars to fix the country's dilapidated oil infrastructure.
Demand for Absolute Guarantees
Without an “iron-clad guarantee” of financial backing from the American government, analysts expect international firms to move with extreme caution.
“It seems too early to comment on any upcoming plans,” a spokesperson commented this weekend.
The optimistic timeframe of under a year and a half has been publicly suggested. However, expert analyses suggest a more cautious outlook.
A More Realistic Outlook
“It’s probably going to take three years for any meaningful production bounce,” commented an chief investment officer.
The analysis indicates operators would likely spend:
- Year one: Sorting through new regulatory frameworks.
- Following phase: Commencing rebuilding of equipment.
- Final phase: Reaching a position to meaningfully increase yield.
The result could be an increase of around 500,000 bpd possibly by the end of the decade.
Appetite Compared to Appetite for Risk
Experts make a important separation between firms' attention and their appetite to invest substantially.
“I think their curiosity is an high score, on a scale of one to 10. But their appetite is a mid-range score, because there is no clarity yet.”
Seasoned diplomats in the sector reinforce this sentiment. The thinking is that companies will politically express enthusiasm while actually proceeding with great care.
The Enormous Investment Required
The monetary outlay would be colossal. Research estimates suggest that adding between half a million and a million barrels per day would require in excess of $10 billion in capital spending over several years.
However, rebuilding production to previous levels of around 2.5 million barrels per day could require a massive $80 billion to $90 billion over six or seven years.
The Pending Issue of Government Backing
The idea of energy companies being paid back by the federal government has been often raised. However, formal assurances on such a mechanism have so far not been forthcoming.
The absence of clarity is the key impediment for the industry's caution. Operators seek guarantees against political risk and the chance that a different administration could cancel any agreement.
“It is essential to be insured against nationalization, that we’ve seen in Venezuela already.”
In summary, while rhetorical confidence runs strong, the financial risks suggest a journey of measured steps for potential significant financial commitment in the country's energy industry.
