International Herald Tribune
Wednesday, July 07, 2004

Spanish company gambles on search for oil in Cuban waters

Simon Romero NYT
HOUSTON Recent announcements from Repsol, the Spanish oil and natural gas company, reveal an ambitious expansion program, with projects scheduled for places like Libya and Equatorial Guinea that are not for the risk-averse. But none have attracted as much attention as its gamble on Cuba.

Last month, Repsol hired a Norwegian drilling platform called the Eirik Raude at a cost of about $200,000 a day to search for oil in Cuban waters, in a narrow sector of the Gulf of Mexico off the island's northwestern coast. The venture, established with Cubapetroleo, a company owned by the Cuban government, is being watched about as closely in Houston's executive suites as any in the energy industry.

A significant find by Repsol would be a boon for Cuba, which imports most of its fuel, mainly from Venezuela, and often struggles to find the hard currency to pay the bill.

More broadly, it could shake up the dynamics of oil production in the Gulf of Mexico, dominated for decades by the United States and Mexico.

And in doing so, a big oil find could upend the political debate in the United States over the decades-old sanctions against Communist Cuba that now prohibit most commerce with the country.

The last thing American energy companies want is to be trapped on the sidelines by sanctions while European, Canadian and Latin American rivals are free to develop new oil resources on the United States' doorstep.

Halliburton, the largest U.S. oil-services company, is among the wary watchers. John Gibson, the president of Halliburton's energy services group, recently said in a speech to employees that he favored lifting economic sanctions against Cuba, as well as Libya and Iran.

"Sanctions are a very U.S.-centric thing, and I believe that free enterprise will establish better relationships," Gibson said, according to The Associated Press. "There are foreign companies making money in those countries, and I think American companies should have a shot at those markets as well."

That sentiment runs counter to the Bush administration's Cuba policy, which has been to maintain and even strengthen sanctions in hopes of isolating and weakening Cuba's economy.

Cuba's former lifeline of oil from Russia collapsed when the Soviet Union did, and the severe fuel shortages that the country has suffered since have prompted the Cuban government to allow foreign companies to explore for oil in its waters starting in the mid-1990s. Meanwhile, new technology to squeeze more oil from the small existing fields on Cuba's north shore has raised the country's output to about 75,000 barrels a day from about 10,000 in the early 1990s.

More than half of the country's oil is now produced by a Canadian company, Sherritt International, which has been active in Cuba for a decade. A spokesman said that Sherritt was considering an exploration project similar to Repsol's in Cuba's portion of the Gulf of Mexico, which covers about 111,000 square kilometers, or 43,000 square miles.

Other foreign energy companies that have ventured into Cuba lately have not been as lucky as Sherritt. Petróleo Brasileiro, Brazil's national oil company and one of the most experienced offshore producers, came up empty-handed after spending $17 million drilling in Cuban waters in 2001.

Senior executives at Repsol acknowledge that their Cuba venture is far from a sure thing. "These are high-risk areas, but we are optimistic," Alfonso Cortina, Repsol's chief executive, said this year.

Cuba still depends on imports for about half its oil, nearly all bought on preferential terms under an agreement with the left-leaning Venezuelan administration of President Hugo Chávez. Even so, the cost strains Cuba's limited hard-currency earnings.

Matthew Pickles, a senior manager in the Barbados office of Ernst Young, recently told energy executives at a conference that an oil discovery in Cuba could also lead to the building of new refineries or the expansion of existing ones in Cuba, potentially making it a refining center for the eastern Caribbean, Mexico and Venezuela.

The New York Times