Prospects for Black Gold Putting Cuba in Suitors' Sights

Prospects for Black Gold Putting Cuba in Suitors' Sights
Chicago Tribune Tuesday, September 26, 2006

HAVANA, Cuba - Known more for cigars and rum than oil rigs, this
socialist nation has become the latest country drawn into the frenzied
hunt for oil, hoping that a gusher in its Caribbean fields will ease its
energy dependence and kick-start its economy.

After years of boasting about its energy potential but seeing few
results, Cuban authorities received good news last year when the U.S.
Geological Survey estimated Cuba's northern offshore basin contains 4.6
billion barrels of oil and 9.8 trillion cubic feet of natural gas.

The amount of oil is roughly half the estimated reserves in the Arctic
National Wildlife Refuge, which President Bush wants to open for
drilling, and could provide Cuba daily production of about 300,000 barrels.

"Cuba is not Saudi Arabia or Venezuela, but it could become a major oil
and gas player in the region," said Jorge Pinon, former president of
Amoco Oil in Latin America and now a senior research associate at the
University of Miami.

Already, oil companies from Canada, Spain, Norway, Malaysia and India
have signed agreements with Cuba's state-owned company, CUPET, to begin
exploring in Cuban waters more than 6,000 feet deep.

Earlier this month, India's state-run petroleum company raised its stake
in Cuba's oil sweepstakes by signing a deal to join CUPET in exploring a
1,660-square-mile area off Cuba's northwestern coast.

R.S. Butola, a top Indian oil executive, said geological studies of the
area are promising. The initial exploration is expected to last several
years and cost tens of millions of dollars.

Bringing a deep-water oil well on line would take many more years and
cost $1 billion or more.

"It's a question of prospecting and doing a lot of work," said Butola,
managing director of ONGC Videsh, the overseas arm of India's
state-owned oil company.

Venezuela's state-run oil giant, Petroleos de Venezuela, along with
Brazilian and Chinese companies, also are interested in exploring for
high-quality crude in Cuba's 43,250-square-mile offshore zone.

American oil corporations are barred from participating because of U.S.
trade sanctions against the island. The sanctions also would prohibit
the United States from importing Cuban oil.

Embargo opponents and oil industry insiders argue that the United States
should grant an exemption to American petroleum companies, much like the
law already allows for U.S. agricultural and medical exports to Cuba.

"We need all of the increased crude oil and natural gas that we can get
our hands on," said Charles Drevna, executive vice president of the
Washington-based National Petrochemical & Refiners Association.

"It makes both economic and national security sense to develop those
resources either in our own waters or as close to our own waters as
possible," Drevna said.

The hope of a major strike in Cuban waters was buttressed this month by
the announcement that as much as 15 billion barrels of oil was
discovered in ultra-deep waters northwest of Cuba in the Gulf of Mexico.
It could be the largest U.S. oil discovery in decades.

"There has to be oil," Jose Luis Rodriguez, Cuba's minister of economy
and planning, said last week. "The form of the structures in the
Caribbean basin, in Cuba's waters, have the same structure as the oil
fields in the Gulf of Mexico, as much for the Mexican part" as the U.S.
part.

In February, executives from ExxonMobil Corp. and other American
corporations met with Cuban officials in Mexico City to discuss oil
exploration in Cuba's gulf waters, which extend to within 50 miles of
the Florida coast.

But the meeting was disrupted after an American-owned hotel expelled the
Cuban officials under pressure from the U.S. Treasury Department, which
argued that housing the Cubans violated the U.S. trade embargo against
the island.

Cuban and Mexican authorities reacted with anger to the expulsions and
accused Washington of interfering in other countries' internal affairs.

One Cuban official who took part in the meeting was Manuel Marrero,
senior petroleum adviser at Cuba's Ministry of Basic Industry. He said
that only 16 of Cuba's 59 offshore oil blocks have been auctioned,
leaving plenty of opportunity for U.S. companies.

"We have 43 more blocks available for negotiation," Marrero said. "We
know U.S. companies are considering it. The ball is in the U.S. court."

So far, American multinationals haven't thrown their weight behind the
Cuba effort because the potential amount of oil at stake, while
impressive, is not yet worth the political battle and financial risk,
experts say.

Instead, American executives are focused on getting legislation passed
that would open millions of acres to oil and gas drilling in U.S.
territorial waters.

The U.S. House and Senate recently approved separate bills to ease
drilling restrictions in the Gulf of Mexico and other offshore areas
despite opposition from environmental groups. It is uncertain whether a
compromise can be reached before the end of the legislative session.

President Bush and influential Cuban-American legislators oppose U.S.
participation in oil exploration in Cuban waters, because, they argue,
it would strengthen the island's authoritarian government.

Rep. Jeff Flake, an Arizona Republican who introduced a bill in May
allowing U.S. companies to bid on oil exploration leases in Cuban
waters, said the political climate in Washington could change if
Democrats score big gains in upcoming congressional elections.

A strong opponent of the embargo, Flake said Democrats generally have
been more supportive than Republicans toward easing U.S. travel and
trade restrictions to Cuba.

Analysts say a major discovery that turns Cuba into an oil exporter also
could spur American business groups to lobby for a change in policy.

"Most U.S. companies don't care about Cuba because it doesn't have money
to buy American products," said one Havana-based diplomat who asked not
to be identified. "If they could buy the products, the pressure (that)
industry would exert would be far more than the pressure in Miami to
keep the embargo. The U.S. embargo would go away very quickly."

Energy has long been an Achilles' heel for Cuba.

After the 1959 Cuban Revolution, the Soviet Union provided discounted
oil to the island nation as part of a huge assistance program. The
Soviet Union's collapse in 1991 ended the fuel shipments and sent the
Cuban economy into a tailspin as bicycles replaced cars and blackouts
plagued the nation.

To ease the crisis, Cuba opened the oil sector to foreign investment in
1999. Since then, Sherritt International Corp. and a second Canadian
company have helped the island's oil production increase to about 70,000
barrels a day.

But that amount covers less than half of Cuba's daily consumption, and
the poor quality oil retrieved beneath shallow waters is expensive and
difficult to refine, diplomats and analysts say.

Cuba gets about 98,000 barrels of high-quality discounted crude a day
from Venezuela. Cuban authorities believe even a modest strike could
ease the island's energy dependence and chronic economic woes.

"I am 100 percent convinced that in the next five or six years, Cuba
will be developing its deep-water sector," Marrero said. "We can expect
big results."

The efforts up to now have been inconclusive.

In 2004, the Spanish company Repsol YPF spent an estimated $50 million
drilling a test well 18 miles off Cuba's northern coast. Company
officials said they discovered high-quality oil but not in an amount
that was commercially viable.

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