Energy analysts have voiced considerable caution regarding bullish claims that American energy majors will quickly pump tens of billions of dollars to revive the country's broken oil infrastructure.
The Need for Absolute Assurances
Absent an absolute assurance of complete repayment from the American government, analysts expect global energy giants to act with extreme caution.
“It seems hasty to speculate on any upcoming plans,” an official commented this weekend.
The ambitious timeline of under a year and a half has been publicly outlined. Yet, expert analyses paint a more cautious outlook.
A Probable Outlook
“Chances are going to take multiple years for any meaningful production bounce,” noted one energy analyst.
He suggested energy firms would likely spend:
- Initial phase: Sorting through new government and security contracts.
- Following phase: Beginning overhaul of equipment.
- Year three: Reaching a position to significantly ramp up yield.
The result could be an boost of around 500,000 bpd maybe by the end of the decade.
Desire Versus Appetite for Risk
There is a critical difference between firms' attention and their appetite to invest significantly.
“In my view their curiosity is an high score, on a range of one to 10. But their readiness is a mid-range score, because there is significant uncertainty yet.”
Experienced operators in the sector share this caution. They believe that companies will politically express enthusiasm while actually proceeding with great care.
The Enormous Cost
The financial bill would be colossal. University projections suggest that adding between half a million and a million barrels per day would require over $10 billion in funding over two to three years.
But, rebuilding output to peak levels of around 2.5 million barrels per day could require a staggering $80 billion to $90 billion over six or seven years.
The Pending Question of Government Backing
The suggestion of energy companies being reimbursed by the federal government has been repeatedly floated. But, formal assurances on this proposal have so far not been announced.
This lack of certainty is the primary impediment behind the sector's hesitation. Companies seek guarantees against sovereign risk and the risk that a subsequent president could renege on any agreement.
“They must be shielded from sovereign risk, that we’ve experienced in Venezuela previously.”
Ultimately, while rhetorical promises runs high, the financial risks suggest a road of extreme caution for potential major financial commitment in the country's energy industry.
