Industry experts have shown considerable doubt regarding recent statements that US oil giants will rapidly invest vast sums of dollars to revive the country's broken energy sector.
Requirement of Absolute Assurances
Absent an “iron-clad guarantee” of financial backing from the Washington, analysts expect global energy giants to move with significant hesitation.
“It is premature to comment on any future business activities,” an official said recently.
The ambitious timeline of under a year and a half has been publicly suggested. However, realistic assessments paint a longer timeline.
A More Realistic Timeline
“It is likely going to take 36 months for any kind of production bounce,” said an chief investment officer.
He suggested operators would likely spend:
- Year one: Navigating new operating agreements.
- Year two: Investing in overhaul of infrastructure.
- Final phase: Reaching a position to meaningfully increase production.
This would lead to an increase of around 500,000 bpd maybe by the end of the decade.
Desire Versus Willingness for Investment
Experts make a critical difference between firms' attention and their appetite to invest substantially.
“I think their curiosity is an eight, on a range of one to 10. But their readiness is a four or five, because there is a lack of certainty yet.”
Seasoned diplomats in the country echo this caution. The expectation is that majors will politically call it fantastic while in practice acting with extreme caution.
The Enormous Cost
The monetary investment would be colossal. Research projections suggest that increasing production by between 500,000 and a million barrels per day would require more than $10 billion in funding over several years.
But, returning production to historical levels of around 2.5 million bpd could require a staggering $80 billion to $90 billion over many more years.
The Unanswered Issue of Federal Guarantees
The suggestion of energy companies being reimbursed by the government has been repeatedly floated. Nevertheless, formal assurances on such a mechanism have so far not been announced.
Without certainty is the key factor behind the industry's hesitation. Operators seek protection against nationalization and the risk that a subsequent administration could cancel any agreement.
“You need to be protected from sovereign risk, that we’ve witnessed in Venezuela previously.”
Ultimately, while political promises runs high, the operational realities suggest a path of extreme caution for any large-scale venture in the country's energy industry.
