Bomba!!! Havana looking to develop oil reserves

news.ft.com By Patrick Michael Rucker Published: January 14 2003 18:20 | Last Updated: January 14 2003 18:20

With the sugar industry in decline and tourism running flat, Cuban leaders hope that the island's oil reserves will pull it from its economic crisis while helping to thaw relations with their estranged American neighbour.

Onshore wells already cover nearly half of Cuba's domestic fuel needs. Officials predict that next year's combined oil and natural gas production will jump 17 per cent to a record fuel output equalling 34.1m barrels, equivalent to 93,400 barrels a day.

That production is due largely to foreign partnerships that help convert the heavy, sulphur-laden crude of Cuba's onshore wells into useable fuel. Cupet, Cuba's state petroleum agency, is now encouraging those same partners to search for lighter, more valuable petroleum thought to be lying offshore and in deep onshore wells.

Three years ago, Cuban officials parcelled the island's 112,000 sq km exclusive economic area in the Gulf of Mexico into 59 leaseable blocks to attract foreign investment.

Repsol-YPF, the Spanish company, optioned the first six offshore blocks between Havana and the resort city of Veradero, 100 km to the east. Last autumn, Sherritt International, the Canadian group, won rights to explore four adjacent blocks in what is becoming the centre of offshore attention. Exploratory drilling is to begin late this year.

Pebercan, a third, French-Canadian concern developing Cuba's onshore reserves, has pinned its hopes on a 4,500 metre well in central Cuba that the group thinks may hold over 600m barrels of light crude.

Geological experts agree that the hard, limestone sea terrain off Cuba's north coast could potentially hold oil. "There are promising faults and structures that could be holding oil," says Evan Richardson of Texas-based IHS Energy consulting group. "They are deep, over 1,000 metres, but the technology exists to extract oil from those depths."

However, although the geological conditions are favourable, Mr Richardson points out they also suggest light crude could be found in small, scattered pockets. "When a number of companies are bidding for drilling rights, it can build a gold rush mood," he says. "But the firms exploring offshore Cuba are small. Big companies hunt for big deposits - the last few 'elephants'. There is no evidence yet that is what exists in Cuban fields."

Cuba's foreign explorers remain quietly optimistic, but they remain tight-lipped about prospects for what is an inherently risky venture.

In the early nineties, Total, the French company, plumbed two dry offshore wells before abandoning Cuban exploration. Two years ago, Brazil's state oil company, Petrobras, sunk $16m into a highly-publicised but finally unsuccessful search for oil on Cuba's northeast coast.

Cubans would rejoice in the discovery of light crude but exploiting the product would be a much more sophisticated and expensive task that might not be profitable for many years.

"For Cuba, discovering [light] oil would be like winning the lottery," says Oscar Espinosa Chepe, an independent economist in Havana. "The news alone would improve Cuban's credit rating and bring fresh cash into the economy. If the wells are productive, Cuba could become energy independent which would certainly please the ruling regime."

Beyond the immediate windfall for the Cuban economy, some predict a Cuban oil haul would transform US-Cuban relations. Under the 43-year-old trade embargo meant to punish Cuban dictator Fidel Castro, US companies are prohibited from doing business on the island - a restriction that gives smaller oil groups crucial breathing room.

"The embargo keeps American oil firms from investing in Cuba," notes a Havana diplomat who follows the Cuban economy. "Right now, they are not making much noise but if the Cubans strike oil it will be hard for companies drilling in Florida and Texas to keep quiet."

If Cuba discovers light oil in its latest explorations, it will not be a moment too soon. Havana's transportation system is creaking for a want of fuel and rolling blackouts have swept across the city for months.

Discovering oil reserves would shield Cuba from uncertainty in the Middle East, but supplies are more closely tied to the fortunes of Hugo Chávez, the Venezuelan president.

An admirer of President Fidel Castro, Mr Chávez had been providing a third of Cuba's oil needs on generous payment terms with a daily, 53,000-barrel petroleum shipment.

Those shipments have become more erratic since Venezuela's general strike began in December. Two Venezuelan oil tankers reached Cuban ports last week but future oil supplies would certainly be in jeopardy if current unrest in Venezuela leads to the ousting of Mr Chávez.