Energy analysts have expressed deep caution regarding bullish predictions that US energy majors will quickly invest vast sums of dollars to rebuild the country's broken energy sector.
Requirement of Solid Assurances
Lacking an solid promise of complete repayment from the Washington, analysts expect multinational oil companies to move with significant hesitation.
“It seems hasty to comment on any future business activities,” a representative said recently.
The aggressive timeline of less than a year and a half has been boldly outlined. However, realistic assessments indicate a more cautious outlook.
A More Realistic Outlook
“It is likely going to take 36 months for any kind of recovery in production,” said one chief investment officer.
The analysis indicates oil companies would likely spend:
- Year one: Securing new government and security contracts.
- Year two: Commencing overhaul of infrastructure.
- Final phase: Being able to boost yield.
This suggests an boost of around half a million bpd perhaps by 2029.
Appetite Compared to Appetite for Spending
Experts make a key distinction between firms' attention and their readiness to commit substantially.
“I think their curiosity is an eight, on a scale of one to 10. I think their appetite is a mid-range score, because there is a lack of certainty yet.”
Seasoned operators in the sector echo this sentiment. The expectation is that majors will publicly express enthusiasm while actually acting with great care.
The Vast Investment Required
The financial investment would be enormous. University estimates suggest that adding between half a million and a million bpd would require over $10 billion in capital spending over two to three years.
Yet, restoring output to previous levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over many more years.
The Unanswered Issue of Taxpayer Funding
The idea of energy companies being compensated by the government has been repeatedly raised. However, formal assurances on this proposal have so far not been forthcoming.
The absence of certainty is the key impediment for the industry's reluctance. Operators seek protection against sovereign risk and the risk that a different government could refuse any deal.
“You need to be insured against political change, that we’ve witnessed in Venezuela already.”
Therefore, while rhetorical optimism runs high, the financial challenges suggest a road of extreme caution for any major venture in the country's oil sector.
