President Donald Trump has spoken in unequivocal terms: US oil companies are headed back to Venezuela, they’ll spend the tens of billions of dollars required to restore the country’s energy infrastructure, and they’ll reap the potentially enormous rewards.

“We’re going to keep the oil,” Trump said in an extraordinary statement to MS NOW’s Joe Scarborough Tuesday.

But for Trump to get his wish, Venezuela and the United States need to sharply reduce the substantial risk for US oil companies in a market with a tortured past, a tumultuous present and a deeply uncertain future.

Rule of law

Venezuela’s military has taken an active role in state-run oil company Petróleos de Venezuela, SA, better known as PDVSA. The country’s energy infrastructure has been subject to rampant theft.

If US oil companies are going to return they need to know they’re going to be safe.

“As a first step, US oil companies would need some type of security guarantees and reassurances and be confident that their personnel and equipment would be safe on the ground,” said Tai Liu, BloombergNEF’s upstream oil analyst.

That responsibility could initially fall to the US military, which may need to secure the infrastructure. Long-term, Venezuela would need to ensure security.

“It’s hard to produce oil when pipelines blow up,” said Dan Pickering, founder and chief investment officer at Pickering Energy Partners. “Oil companies aren’t going to be bullied into spending money in a risky country or with risky terms.”

Political stability

To fully restore Venezuela’s crumbled infrastructure and return its production to pre-socialism levels, the oil industry would need to lay pipelines, set up drilling rigs, build port infrastructure and install reliable electricity, among other projects. That would cost more than $10 billion a year and take more than a decade to pay off, according to a consensus from industry experts.

The United States could be on its 49th president by then, and Venezuela would need to remake its government as a democracy and resist potential uprisings.

Oil companies will want to ensure the new Venezuelan and US governments don’t change the rules on them years down the line.

“The word of this administration is nowhere near enough. This takes a very strong political consensus, and we’re very far from that,” said Ryan Kellogg, deputy dean of the University of Chicago’s Harris School of Public Policy.

Repeal of sanctions and oil laws

The United States is attempting to maintain an oil embargo in Venezuela and has sanctioned the country’s oil industry. Meanwhile, Venezuela has strict laws governing foreign oil companies, requiring businesses to enter into public-private joint ventures that pay 30% royalty fees and a 60% income tax.

Those would all need to evaporate for oil companies to consider investing in Venezuela.

“Venezuela has a very unfavorable fiscal regime – why would you go to a place like that?” said Luisa Palacios, managing director of Columbia University’s Center on Global Energy Policy.

Other countries can afford to offer tough terms because they know they’ll still attract business. But it’s a very different oil market from when foreign companies last sought to invest in Venezuela – the United States is the world’s largest oil producer, and Guyana and Argentina have become significant players.

“Venezuela will have to offer more attractive contracts to get the best companies with the most advanced technology interested,” said Homayoun Falakshahi, lead crude research analyst at Kpler.

Debt repayments

Many foreign energy companies, including Eni, Repsol, ConocoPhillips and ExxonMobil, had their assets seized by Venezuela in 2007 and were booted out of the country. They’re collectively seeking tens of billons of dollars in compensation from PDVSA.

“Exxon is going to remember what happened to it there,” said Kellogg. “At least some of that would need to be repaid – but the money isn’t there to pay them back.”

Venezuela would need to regain access to global capital markets that have shunned the country since its slide into autocracy and fiscal insolvency. With a change in government, the country probably could attract some investment – but not likely enough to ramp up oil production, Palacios said.

Financial guarantees

With only moderate investment and a working relationship with the US government, Venezuela could probably get its existing oil fields back to their operating capacity from a decade or so ago, before US sanctions fully kicked in, according to Palacios. Anything more than that would require serious money – and time.

That’s why financial guarantees, low-cost financing, reimbursements or other incentives may prove crucial to attracting oil companies to Venezuela. Trump has hinted at some form of taxpayer-funded reimbursement or reclamation of oil and infrastructure.

“Fiscal terms, backstops and guarantees will all matter very much,” said Pickering. “US government backstops could speed things up, but it’s very unclear if these will be offered.”

But industry experts agreed: Under the right conditions, Venezuela will attract significant long-term interest from oil companies. There’s a massive amount of oil there. That’s what made Iraq too big for foreign companies to ignore two decades ago, despite an unstable political environment.

“This is a very difficult company to operate in – not even the Chinese can operate in this country,” said Palacios. “But I don’t think it’s too much to believe oil production will increase in Venezuela if there’s a working relationship with the US government.”

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