Cuba needs the technical expertise of major western oil companies to get to any of the unexploited crude. Yet on February 7 the US marked the 47th year of a trade embargo that has blocked producers with the technical ability to drill that deep, denying Cuba what could be a massive windfall.
A major discovery was supposed to transform Cuba into an oil exporter.
With public debts mounting, the government was forced to buy out its two main drilling partners from a 25-year deal, and even high-ranking officials say Cuba now imports about half the roughly 200,000 barrels of oil it consumes a day at a discount from leftist ally Venezuela.
The embargo and world economic crisis have undermined some of the appeal of costly deep-water drilling off the island, and Cuba's existing oil industry is floundering. Output is thought to have dropped by a quarter since 2003 as its top field, found by Russians in 1971, dries up.
Deep-sea test
The US Geological Survey in 2005 estimated that as much as 9.3 billion barrels of oil could lie off the island's north coast, while Cuban geologists put that number at 20 billion barrels in October, said Rafael Tenreyro Perez, production manager at state oil company Cubapetroleo, or Cupet.
Experts widely dismissed the Cuban estimate, noting the government failed to disclose the methodology and data that would back up such a claim.
Cuba's only deep-sea test well to date, drilled by Cupet and Spanish oil company Repsol YPF in 2004, found just small amounts of "high quality reserves," while the Ministry of Basic Resources postponed drilling projects in 2007 and 2008, saying that unprecedented oil prices had made rig rental costs too much to bear.
With oil now 75 per cent below its July peak, Repsol may start drilling a second well this year, Tenreyro Perez said - though the company declined to confirm.
Cuba is offering foreign companies the chance to recover capital investments in the event of a discovery, and to split the spoils with the government.
Yet rights to just 21 of Cuba's 59 offshore blocks have been purchased since bidding began in 1999, and buyers from Vietnam and Venezuela to Madrid and Moscow have been slow to drill.
The island's top partners have been Canadian, with Toronto-based Sherritt International Corp and Montreal's Pebercan Inc accounting for about 60 per cent of current production.
Big find
But the two companies said the island owed them a combined US$501.3 million last year, so Cuba bought out their 25-year contract for US$140 million.
Even with a big find, it could take five years and US$3 billion to develop the 59 deep-sea blocks, which sit an average 6,550 feet (2,000 meters) below sea-level, said Pinon.
They would need to yield about 10,000 barrels a day at more than $60 a barrel to be profitable, he added.
"That's pretty pricey if you're not sure of your financing or the longevity of the current government," said Eric Smith, of the Entergy-Tulane Energy Institute at Tulane University in New Orleans.
What's more, falling prices for nickel, Cuba's top export, have widened its budget deficit. The island badly needs cash to buy the food it distributes as part of monthly rations, and to import scarce construction materials to combat a housing crisis exacerbated by last year's storms.
- AP
Taken from the Financial Gleaner, Friday February 27, 2009.