Cuba’s Prospects for an Oil-Fueled Economic Jolt Falter With Departure of Rig

Cuba's Prospects for an Oil-Fueled Economic Jolt Falter With Departure
of Rig
By CLIFFORD KRAUSS and DAMIEN CAVE
Published: November 9, 2012

HOUSTON — Cuba's hopes of reviving its economy with an oil boom have
produced little more than three dry holes, persuading foreign oil
companies to remove the one deepwater rig able to work in Cuban waters
so it could be used for more lucrative prospects elsewhere.

The rig, which was built in China to get around the United States trade
embargo, is expected to depart in the next few weeks. With no other rigs
available for deepwater exploration, that means Cuba must now postpone
what had become an abiding dream: a windfall that would save Cuba's
economy and lead to a uniquely Cuban utopia where the island's socialist
system was paid for by oil sales to its capitalist neighbors.

"The Cuban oil dream is over and done with, at least for the next five
years," said Jorge Piñon, a former BP and Amoco executive who fled Cuba
as a child but continues to brief foreign oil companies on Cuban oil
prospects. "The companies have better prospects by going to Brazil,
Angola and the U.S. Gulf."

The lack of a quick find comes at a difficult time for Cuba. The effects
of Hurricane Sandy, which destroyed more than 100,000 homes in eastern
Cuba, are weighing down an economy that remains moribund despite two
years of efforts by the Cuban government to cut state payrolls and
cautiously encourage free enterprise on a small scale.

Cuba had hoped to become energy independent, after relying first on
Russia and now on Venezuela for most of its oil. But with its drilling
prospects dimming, experts say, Cuban officials may be pushed to
accelerate the process of economic opening. At the very least, it may
embolden members of the bureaucracy looking for broader or faster
changes in the economy.

"This could represent a crucial setback for the Cuban regime," said
Blake Clayton, an energy fellow at the Council on Foreign Relations. In
the meantime, the government has mostly tried to put a positive spin on
the disappointing drilling results and the decision of the rig operator
to lease in other waters. Granma, the Communist Party newspaper,
reported last week that while Venezuela's state oil firm had plugged its
hole because "it did not offer possibilities of commercial
exploitation," the drilling had obtained valuable geological
information. The Venezuelan firm was the last of three foreign oil
companies to use the rig, after the Spanish company Repsol and the
Malaysian company Petronas.

The government said more exploration could be expected.

The potential for Cuba's oil reserves, like nearly everything involving
Cuba, has been a matter of dispute. Cuban officials had predicted that
oil companies would find 20 billion barrels of oil reserves off its
northern coast. The United States Geological Survey has estimated Cuban
oil reserves at 5 billion barrels, one quarter of the Cuban estimate.

The best-case scenario for production, according to some oil experts,
would be for Cuba to eventually become a medium-size producer like
Ecuador. But as the three dry holes showed, far more exploration effort
would be needed, and that presents a challenge for a country with
limited resources and the hurdle of American sanctions. There are many
offshore areas that are competing with Cuba for the attention of oil
companies, particularly off the coasts of South America and East and
West Africa.

In Cuba's case, the American embargo makes it far more difficult for
companies seeking to explore Cuban waters. The Scarabeo 9, the rig set
to depart, is the only one available that is capable of drilling in deep
waters and complies with the embargo. To get it built, Repsol, the
Spanish oil giant, was forced to contract an Italian operator to build a
rig in China to drill exploration wells.

Cuban officials have also run into environmental concerns in the United
States. The prospect of drilling only 50 miles from the Florida Keys had
worried ocean scientists, who warned that if the kind of blowout that
occurred on the BP rig in 2010 in the Gulf of Mexico was repeated in
Cuban waters, it could send oil spewing onto Florida coastlines in as
little as three days. If the oil reached the Gulf Stream, the powerful
current that passes through the area, oil could flow up the coast to
Miami and beyond.

Still, Cuba has been bullish about oil since plans for the rig's arrival
were first made several years ago. Cuba produces a small amount of oil
and relies on Venezuela to provide around 115,000 barrels a day at
highly subsidized rates, in exchange for the services of Cuban doctors
and other professionals. Venezuelan production has been sliding steeply
in recent years, and Cuban officials have been unnerved by the health
problems of Venezuela's president, Hugo Chávez, a crucial ally for the
island.

Lee Hunt, a former president of the International Association of
Drilling Contractors, said there were still potential opportunities off
the island. The first Repsol well, he said, was not productive, but a
subsequent study of the drilling results concluded that there could be
promising oil-producing rocks in nearby waters.

The second well drilled by Petronas found only heavy oil that was so
thick it could not be economically lifted out of the ground. And the
third attempt by the Venezuelan state company found rock that was so
hard and thick that it wore down drill bits before reaching oil.

Mr. Hunt said oil consultants continued to train Cuban drilling crews
for the Russian company Zarubezhneft, which plans to drill using a
Norwegian rig in shallow waters about 200 miles east of Havana. But that
area is not considered as promising as the deep waters.

So the next deepwater exploration effort, Mr. Hunt said, may have to
come from farther away: oil companies from Vietnam and Angola still have
active leases in Cuba for future drilling.

Clifford Krauss reported from Houston, and Damien Cave from Mexico City.

http://www.nytimes.com/2012/11/10/world/americas/rigs-departure-to-hamper-cubas-oil-prospects.html?_r=0