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Posted November 02, 2008 by publisher in Cuba-World Trade

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By Wilfredo Cancio Isla | The Miami Herald

The $392.8 million owed by the Cuban government to Sherritt International could jeopardize petroleum drilling operations conducted by the Canadian company in Cuba, as soon as next year.

According to the company’s third trimester report (July-September) for 2008, pending accounts with the Cuban government represent an ‘‘exposed credit risk’’ and compromise agreed plans for expanding operations in 2009.

Though the report acknowledges that the Cuban government has expressed intentions to meet its financial obligations to the company ‘‘despite the negative impact of two hurricanes and the deplorable conditions of the global economy,’’ Sherritt executives warned that they will take a closer look at future drilling projects with Cuba.

According to the report, made public on Wednesday, the company expects to establish a framework for payment and will restructure investments before initiating drilling operations scheduled for 2009 in Cuba.

The Toronto-based company also indicated that it would hold off on plans to build a refinery in Canada that was conceived as a partnership with the Cuban government.

In July, Sherritt announced it would abandon plans to drill in the deep waters of Cuba’s so-called Economic Exclusion Zone in the Gulf of Mexico, restructuring petroleum operations toward land-based operations. Sherritt operates two rigs on land in conjunction with Canadian oil-company Pebercan and has acquired an additional area in the southern region of Havana province.

According to the bilateral agreement, petroleum extracted by Sherritt is purchased by the state oil company Cuba Petroleo (CUPET), though on occasions it has served to compensate payments by the Cuban government due to Sherritt’s share of nickel and cobalt mining operations on the island.

The company report notes, however, that recent drops in the price of nickel and cobalt have negatively impacted the amount of available Cuban funds, preventing Sherritt from negotiating debt under previous market prices.

The dilemma faced by Sherritt (a pioneer of foreign investments in the island) is now shared by Pebercan, as the Cuban government has failed to make payments to that company since April. By the end of this year, CUPET will owe $118.9 million to Pebercan, having only paid $2 million thus far, according to a recent report by the Montreal-based oil company.

The company reports coincide with the announcement of agreements between the Cuban government and Brazil’s state-run oil company Petrobras, a main topic during Brazilian President Luiz Inácio Lula da Silva’s recent visit to Cuba.

Earlier this month, CUPET stated that deep water petroleum reserves could reach 20 billion barrels. But analysts warn that the Sherritt report spells bad news for investors.

“Just as Cuba is trying to attract foreign investment for drilling, the revelations of nonpayment to one of its main petroleum partners doesn’t sound encouraging,’’ said former petroleum executive Jorge R. Piñón, currently a researcher with the University of Miami.

—————————————————Havana Journal Comments————————————————

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  1. Follow up post #1 added on November 02, 2008 by publisher with 3905 total posts

    You only have to search the Havana Journal to find <a href=“http://havanajournal.com/search/results/0c483a5d4d3e85fe2959e627122c5f65/”> all the stories about Cuba’s deadbeat business practices.

    And I don’t want to hear anything about the Embargo or the hurricanes. This is PURE Castro and communism sucking the money out of ALL companies and nations stupid enough to “invest” in Cuba. Simple as that.

    Comments such as “failed to make payments to that company since April.” and “CUPET will owe $118.9 million to Pebercan, having only paid $2 million thus far” is just further proof in a long line of deadbeat deals from Cuba.

    This is really a shame. Cuba can not only be a self sustaining country economically but would be an exporter.

    They even have to import sugar now. Sugar!

    I’m surprised they don’t have to import tobacco leaves to make Cuban cigars.

    Cuba consulting services

  2. Follow up post #2 added on November 02, 2008 by publisher with 3905 total posts

    And here comes the next sucker investor…

    By Rosa Tania Valdes | Reuters

    Brazil’s state-owned oil company Petrobras signed an agreement on Friday to explore for oil in Cuba’s untapped offshore fields, which Cuban energy officials say may hold over 20 billion barrels of reserves.

    Brazilian President Luiz Inacio Lula da Silva and Cuban President Raul Castro attended the signing ceremony and both expressed confidence that plenty of oil will be found.

    “God can’t be so unjust that we won’t find anything,” Castro said.

    “Don’t worry, Raul,” Lula told him. “We’re going to find it here and we’re going to transform it into energy.” Petrobras is one of the world’s top offshore oil producers.

    The signing ceremony was part of a quick visit by Lula, who also met ailing former Cuban leader Fidel Castro and told reporters that, at his invitation, Raul Castro will attend a Latin American summit in Brazil in December.

    President Castro said Lula, making his second trip to Cuba this year, was only supposed to chat with Fidel Castro for 15 minutes but they ended up meeting for almost two hours.

    Fidel, 82, has not been seen in public since undergoing surgery for an undisclosed intestinal ailment in July 2006.

    A big oil find could bring new prosperity to Cuba, which currently produces 60,000 barrels per day from offshore wells, but imports 90,000 bpd from Venezuela.

    State-owned Cubapetroleo, or Cupet, surprised the oil world two weeks ago when it said it believes it has at least 20 billion barrels of oil offshore—more than the generally accepted top estimate.

    Cupet said the figure was based on comparisons with similar geological structures in nearby U.S. and Mexican waters.

    Outside experts say such numbers are not impossible but no one can know until drilling takes place.

    Only one test well has been drilled off Cuba’s coast, by a consortium led by Spanish oil company Repsol-YPF, which is expected to drill a second well next year.

    “I have full confidence that we’re going to find oil for various reasons—because the others, U.S. and Mexico, have oil, because we are already extracting some and due to the capacity of the Brazilian company,” said Raul Castro, who formally replaced his brother as president last February.

    Cuba has divided its offshore area in the Gulf of Mexico into into 59 blocks, 29 of which have been leased for exploration to companies from around the world, but not the United States which maintains a trade embargo against Cuba.

    The fields include onshore wells that use horizontal drilling to draw oil from reservoirs several miles offshore.

    Petrobras’ block off Cuba’s northern coast east of Havana covers 600 square miles (1,600 square km) and includes waters 1,640 feet (500 metres) to 5,250 feet (1,600 metres) deep.

    Petrobras will make an initial investment of $8 million to begin analysis of its block. The contract gives the Brazilians seven years to explore and 25 years to produce oil and gas in a production-sharing contract with Cuba.

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  3. Follow up post #3 added on November 02, 2008 by nacho with 111 total posts

    Blog Penultimos Dias  had some comments about the matter in August quoting El Nuevo Herald and a Forbes article I cannot find anymore.
    Agreed with the Publisher, I consider the Cuban goverment not a reliable business partner and not even the prospect of the oil allegedly found  recently will encourage foreign investors

  4. Follow up post #4 added on November 03, 2008 by publisher with 3905 total posts

    I can only imagine the hype, propaganda, lies and exaggerations that must go on when Cuba meets with potential business partners.

    Probably even a wink and a nod that Fidel has approved the business deal etc etc so long as the business partner “invests” a substantial amount of money in the joint venture.

    Who knows too who is being promised what with regards to getting an estate in Miramar or Cubanacan to use for business and all kinds of other sweetheart deals that we’ll never read about.

    There must be some reason why country after country after country “invests” in Cuba yet NOTHING really ever changes in Cuba other than some hotels get built.

    Cuba consulting services

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