By Marc Frank | Reuters

Russian state oil company Zarubezhneft signed contracts with Cuba on Tuesday to search for oil along Cuba’s northern coast and said it was looking at procuring more areas for exploration in a step forward for the island’s oil hopes.

Zarubezhneft signed up with state-owned Cuba Petroleos for four almost contiguous blocks, two onshore and two offshore in the Gulf of Mexico just east of Cuba’s most prolific oil field in Varadero.

The deal was the latest sign of warming relations between the Cold War allies, who had a falling out after the Soviet Union, Cuba’s biggest benefactor for 30 years, collapsed in 1991.

They have signed accords in recent months for a series of business deals and Russia has said it will refurbish the Cuban military, which is still using Soviet-era equipment.

Cuba senior oil adviser Manuel Marrero Faz said it would take a while for the Russians to get up and running in the gulf, where Cuba says it may have 20 billion barrels of oil reserves.

He said the deepest water in the offshore blocks was 3,300 feet (1,000 meters).

The Communist-led island currently produces about 60,000 barrels per day of oil and is a net importer, including about 115,000 bpd from Venezuela on favorable terms, but could become a possible oil exporter, if big reserves are found in the gulf.

Mexico and the United States, which share the gulf with Cuba, have been producing oil and natural gas from under its waters for decades.

Zarubezhneft General Director Nikolay Brunich said the company had signed four contracts, all for terms of 25 years.

“We think they have very good prospects,” he said of the blocks.

The Russians said they were looking at possibly signing up for three more offshore blocks, two near Havana and one farther out in deeper waters.

The Russian concessions are near a block that Brazil’s state-owned Petrobras was granted in October 2008 and has said it is still evaluating its oil prospects.

Cuba has divided its offshore region into 59 blocks and has now granted leases on more than 20 of them to nine companies. Only one exploratory well has been drilled so far, that by operator Spain’s Repsol-YPF in 2004.

The well was said to show traces of oil, but a long-promised second well has not been drilled yet.

The U.S. Geological Survey has estimated that Cuba has about 5 billion barrels of oil and 10 trillion cubic feet of natural gas offshore. (Editing by Jeff Franks and Walter Bagley)