Rig’s Departure to Hamper Cuba’s Oil Prospects

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.

Article source: http://www.nytimes.com/2012/11/10/world/americas/rigs-departure-to-hamper-cubas-oil-prospects.html?partner=rss&emc=rss