By Anthony Boadle | Reuters
HAVANA - When one of the world’s largest deep-sea drilling rigs parks off Cuba next March, the island’s Communist government will be betting on an oil bonanza to shore up its cash-strapped revolution.
Oil experts say it’s a long shot and Cuba would have to discover a major deposit of light crude to make it commercially viable to tap a deep water field in the Gulf of Mexico at a cost of more than $1 billion.
But multinational oil corporations, eager for virgin fields to exploit, will be watching closely as Spain’s Repsol-YPF SA puts the Norwegian-owned Eirik Raude rig to work at $195,000 a day drilling for oil in water more than a mile deep. Cuba’s current small oil output is drilled from onshore rigs in coastal deposits to the east of Havana.
“Deep-water Cuba is an exploration frontier. It is fair to characterize it as very high risk,’’ said Michael Rodgers, senior director of PFC Energy, a Washington-based consultancy.
While the risk is being born by Repsol, which contracted six blocks for exploration off Cuba’s north-west coast, the stakes are high for President Fidel Castro’s government.
An oil find would allow Cuba to pull up an economy crippled by the collapse of the Soviet Union and the loss of billions of dollars in subsidies by way of shipments of cheap oil.
Cuba now depends on Venezuela for oil imports with generous financing terms, but opponents of Venezuelan populist president Hugo Chavez have threatened to cancel the deal outright if they manage to oust him in a recall referendum. Cuba produces about 56,000 barrels a day, less than half its total oil needs. So far it has only found heavy oil laden with sulfur and gas that are used to generate 90 percent of its electrical power.
Its oilmen hope there is lighter oil further out to sea that could be potentially used for lucrative exports or refined products like gasoline now in short supply.
Havana opened up 43,250 square miles of its Gulf waters in 1999 to foreign exploration and development, dividing the area into 51 blocks. Canada’s Sherritt International, already involved in Cuban oil and gas production, signed rights for four blocks last year.
Brazil’s Petrobras is conducting a feasibility study to decide whether to return to exploration in Cuba. In 2001, Petrobras and Sherritt sank $16 million into a wildcat hole further east that proved dry. Brazil’s new leftist government is keen on the state-run giant having another go.
“It has to be light oil or nothing. If it’s the heavy stuff found so far, that’s not viable,’’ said one oilman, who rate the odds of finding commercial deposits of good-quality oil at one in 25.
Experts said only 10 percent of unexplored new areas actually work out. Seismic information on Cuba’s deep waters is scant, and until companies drill a few wells it is very hard to speculate on what they may or may not find, said Rodgers.
The Eirik Raude is the world’s largest semisubmersible rig, a floating platform designed for ultra deep water. When partially submerged, it provides stability in rough seas and is held in place above the drill site by huge anchors.
Its owner, Norway’s Ocean Rig ASA, announced in October it had a letter of intent from Repsol to drill a well in 5,400 feet of water, with an option for a second. The agreed rate was $195,000 a day, it said.
For the experts, that means Repsol has assessed its seismic data and identified a possible reservoir of oil as a drilling target. Additional appraisal wells will be needed to prove the reserves before a development plan can be designed.
“If they go out there next year and make a discovery, it is likely going to be five years before they produce something,’’ Rodgers said.
To develop a single oilfield at that depth would cost more than $1 billion and maybe as much as $3 billion, he said. Costly or not, the oil industry is interested, and a major American oil services company recently advocated lifting U.S. trade sanctions against Libya, Iran and Cuba.
The president of Halliburton Co.‘s energy services unit, John Gibson, said two weeks ago in an address to employees the future of oil exploration lay in developing countries, and in those three competitors had a jump start over U.S companies.