Last Cuban offshore oil project ending for now

ENERGY AND ENVIRONMENT

Last Cuban offshore oil project ending for now
But Russians pledge continued 'prospecting' in Cuban waters
By DAVID GOODHUE
dgoodhue@keysreporter.com
Posted - Thursday, June 06, 2013 07:01 PM EDT

A Russian oil company using a Norwegian-owned drilling rig is
temporarily pulling out of Cuban waters without finding any significant
sources of crude, but industry watchers say it is too soon to dismiss
Cuba's offshore energy potential.

The Songa Mercur was searching for oil in at least two prospects near
the Bahamas' exclusive economic zone with Cuba — located fewer than 200
miles from the South Florida coast. The Cuban government announced in
late May the state-run Russian company operating the rig, Zarubezhneft,
was leaving the area but would return to the same spot in 2014.

The announcement has major implications for Cuba's energy future. The
communist island nation is heavily dependent on imports from ally
nations like Venezuela for its oil needs.

Cuba suffered a major disappointment when several countries were
unsuccessful in finding oil in the deep waters of the Florida Straits
last year. The area — about 70 miles from Key West — might contain large
amounts of oil, but it is in very deep water, the crude is difficult to
find and working in the area is highly expensive.

Operations in the Straits cost companies about $100 million each in
exploratory missions alone, said Jorge Piñon, associate director of the
Latin America and Caribbean Energy Program at the University of Texas at
Austin.

"I have been told that the oil is there, but the traps/structures are
very difficult. So oil companies are probably likely to spend their
limited capital dollars in other more promising, less risky areas (not
only technical but also politically) than Cuba," Piñon said in an
e-mail. "They would rather go to Brazil, Angola, Alaska, U.S. Gulf of
Mexico or the new growing market of shale in Argentina."

The Straits exploration — conducted by four international companies on a
giant Chinese-built, Italian-owned semi-submersible oil rig — worried
both environmentalists and critics of Cuba's Castro regime. But the
operation was largely a bust and only two of the participating companies
are still in the region: Malaysia's Petronas and Gazprom, from Russia.
They're operating in a partnership and are now only conducting "some
seismic work," Piñon said.

The first company to work on the rig, Spain's Repsol, closed its Cuban
offices. And Petroleos de Venezuela, or PDVSA, is going through too many
financial difficulties to invest again in the risky Straits, according
to Piñon. The area near the Bahamas where Zarubezhneft is exploring is
much shallower — around 2,000 feet below the surface as opposed to 6,000
feet in the Straits. This makes it a more attractive place for companies
like Zarubezhneft to search for offshore fossil fuels.

Valentina Matvienko, speaker of the Russian Federation Council — the
country's equivalent of the U.S. Senate — pledged in a May interview
with Cuba's state-run Granma newspaper continued investment and
involvement in Cuba's offshore energy projects.

"We are currently negotiating a broad range of projects relating to
energy, and Russian companies such as Zarubezhneft are actively involved
in oil prospecting in Cuban waters, and this work is going to continue,"
Matvienko said.

But the company might not use the Songa Mercur when it returns,
according to oil industry sources. One of the reasons Zarubezhneft is
leaving Cuba is because the rig was having equipment difficulties.
Instead, Zarubezhneft may come back in a drill ship, a traditional
seagoing vessel with oil-drilling capabilities.

However, Lee Hunt, president emeritus of the International Association
of Drilling Contractors, said finding a ship that complies with the
52-year-old U.S.-imposed trade embargo against Cuba could be difficult.
Such a vessel must have fewer than 10 percent of its parts made in the
United States. If the ship is not compliant with the embargo, companies
using it could face U.S. sanctions.

Geir Karlsen, a Songa Offshore spokesman, told The Reporter his company
has no agreement with Zarubezhneft to take the Mercur back to Cuba.

Russia and Cuba are not the only countries hoping the Cuba/Bahamas
maritime border abounds with crude. The Bahamas Petroleum Co., based out
of the Isle of Man, received permission to begin exploratory offshore
drilling in the region ahead of a referendum that would give Bahamians a
say in the future energy development of their country. This means
drilling in the Old Bahamas Channel, south of the Andros Islands, could
begin by 2014.

The BPC is looking to partner with another oil company in its search for
oil. The company is also seeking European investors. Since the area is
so close to the Zarubezhneft site, Russia's success there could reap BPC
a financial windfall.

"Good news in Cuba would have helped in the search for much-needed
capital and/or possible joint venture partners," Piñon said. "A
discovery on the Cuban side would have certainly helped their
development momentum."

Natalia Erikssen, a BPC spokeswoman, said the company plans to begin
drilling next year regardless of Zarubezhneft's success or failure in
the region.

"It won't have anything to do with Zarubezhneft," Erikssen said in an
e-mail.

Hunt said just because no significant discoveries have been found off
the Bahamas doesn't mean the oil isn't there. "More than one U.S.
wildcatter made his fortune on the last roll of the dice," he said.

http://www.keysnet.com/2013/06/06/487368/last-cuban-offshore-oil-project.html