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Posted February 24, 2009 by publisher in Business In Cuba

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By Will Weissert | Associated Press

It has been four years since U.S. experts said the island may sit atop nearly 10 billion barrels of deep-sea oil, revealing for Cuba an enormous economic Catch-22.

Cuba needs the technical expertise of major western oil companies to get to any of the unexploited crude. Yet on Feb. 7 the U.S. 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, drawing the foreign currency it needs to finance imports of food and machinery to modernize its communist economy and to raise stubborn state wages that average less than a dollar a day.

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 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.

There has been talk of President Barack Obama easing U.S. sanctions, which could unleash a flood of energy investment. But for now, analysts say most companies remain on the sidelines.

“It’s not a pretty picture,” said Jorge Pinon, a former president at Amoco Oil Latin America.

The U.S. 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 percent below its July peak, Repsol may start drilling a second well this year, Tenreyro Perez said - though the company declined to confirm.

Cuba lacks the technology and training to certify its reserves and has sought foreign partners - offering better terms than those offered by state-owned companies like in Mexico, which restricts foreigners to fee-for-service deals.

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 percent of current production.

But the two companies said the island owed them a combined $501.3 million last year, so Cuba bought out their 25-year contract for $140 million.


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  1. Follow up post #1 added on February 24, 2009 by publisher with 3905 total posts

    I changed the title of this story because I think this is the real question… Is anyone making money from the oil in Cuba?

    Cuba consulting services

  2. Follow up post #2 added on February 25, 2009 by bernie

    Brazil has moved a off shore drilling rig into Cuban waters, and made a deal with the Cuban goverment to drill.  Brazilians are extremely adept and skillful at off shore drilling.  Eastern oil companies from Romania and Russia are no
    amateurs at deep hole drilling.  It was Russsia that recovered the Vietnam oil fields after the US tried to run them dry.  The Romanians went to Kuwait to
    put out the oil well fires after the first Gulf war, they only charged the Kuwait goverment apprx. $100,000 US to put out a flaming oil well.  American companies were charging apprx 1,000,000 US, the Kuwait’s only gave a contract for only a couple of wells to be put out, by them.  Romanians put out the majority of the oil well fires.

  3. Follow up post #3 added on February 25, 2009 by pipefitter

    Sherritt, according to their financial statements have been making money in Cuba. How could they not make money when they say their cost of extraction is about $6.00 per barrel and production was 20,000 barrels per day.

  4. Follow up post #4 added on February 25, 2009 by publisher with 3905 total posts


    Cuba will pay off the $162 million in past-due debt it owes Sherritt International over the next five years, the Canadian energy concern said Wednesday, and the company projected its Cuban oil production will fall by a quarter because the communist government bought out a production sharing agreement.

    Three hurricanes and the falling price of nickel, Cuba’s chief export, left the government short on cash, causing it to run up pending payments to the Toronto-based company totaling $392.8 million in oil and natural gas alone by the end of September.

    Cuba met some more-current payments, but finished 2008 carrying overdue debts worth $126 million for domestic oil and gas production and $36 million for electric power, Sherritt said.

    This month, it agreed to cover those over the next five years with certificates of deposit offering 5 percentage points over the London interbank offered rate, Sherritt said in its fourth-quarter earnings report.

    The certificates will be issued by Banco Internacional de Comerico SA, a government financial institution.

    Sherritt also said Cuba’s national bank has guaranteed it will not fall behind on payments in 2009 and has already made good on the $18.5 million it owed the company for oil, gas and power production in January.

    “We’ve dealt with our Cuba receivables rather neatly,” Sherritt chief executive Ian Delaney told a conference call, saying “We have reached a good, solid arrangement” with the Cuban government.

    Sherritt is Cuba’s largest foreign energy partner, with major stakes in Cuban nickel mining, as well production of heavy crude oil and electricity for domestic consumption.

    The government buys oil Sherritt extracts from Cuban fields under production-sharing agreements. In years past, Cuba counted the market value of that oil toward compensation for Sherritt’s share of nickel production on the island, but the falling price of the metal saw its debt to the company soar.

    Cuba also ran up a bit more than $100 million in debts to Montreal-based Pebercan Inc. by early November, according to that company’s third quarter report.

    Rather than pay off the Pebercan debt, however, in January the island’s oil monopoly, Cubapetroleo or Cupet, bought Pebercan out of a 25-year oil production sharing agreement 10 years early — paying $140 million and assuming control of crude fields in an area known as Block 7, between Havana and Matanzas province on the island’s northern coast.

    Sherritt, which also had been a partner in Block 7, received $60.2 million in the buyout, but Delaney said the company was “blind-sided..”

    “We kind of feel like we’re collateral damage there with a third party that surprised us,” he said of Pebercan.

    The loss of those fields means the company’s Cuban oil production will fall 25 percent to about 23,500 barrels per day for 2009.

    Last year, Sherritt produced about 31,200 barrels per day as part of seven production-sharing contracts. Most came from oil fields located at Yumuri, Varadero, Canasi and Puerto Escondido along the north coast.

    Cuba’s largest oil field, Varadero, was discovered by Russian scientists in 1971. But it is running out of oil, causing overall domestic crude output to sag in recent years.

    The repayment plan will allow Sherritt to proceed with a pilot project to inject carbon dioxide into the Varadero field, increasing production by making it easier to extract crude trapped deep below the surface.

    The company said it will spend $14 million on the project, which could be fully operational by the first quarter of 2010.

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  5. Follow up post #5 added on February 25, 2009 by pipefitter

    On their finacials, Sherritt did make a good profit on Cuban oil production, it’s big losses were at Ambatovy Madagascar. Now that Cuba has bought out their contract, including well, equipment and manpower, I guess they will be able to produce this oil at $6.00 per barrel for themselves and if they need help it seems that there are a lot of countries all too ready to step in and do so. Delaney did say that they have always had a good relationship with the Cuban gov. and believes they will continue to do so.

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