Oil find opens door to a less dependent Cuba
HOUSTON -- On Christmas Day, President Fidel Castro said he had some information to lift the spirits of Cuba's 11 million people: two Canadian energy companies, Pebercan and Sherritt International, had discovered oil in the Gulf of Mexico in an area controlled by Cuba.
Castro disclosed that the Canadian companies had discovered estimated reserves of 100 million barrels.
The deposits, which are expected to produce oil as early as next year, might provide Cuba's government with some relief as it presses forward with efforts to use hard currency for purposes other than petroleum purchases from abroad. Shortly after Castro announced the discovery, the central bank said it was tightening measures intended to centralize the control of dollars circulating in the Cuban economy.
"Cuba simply needs the money," said John Kavulich, president of the U.S.-Cuba Trade and Economic Council in New York, which tracks Cuban trade activity.
The discovery might be something of a lifeline for a nation still recovering from the loss of Soviet-era subsidized oil imports more than a decade ago. But the prospective output by the Canadian companies is equivalent to only about three to four years of oil production by Cuba, which imports much of its oil from Venezuela on favorable terms.
The economic outlook for Cuba is not as dire as it was a decade ago, with economic growth reaching 5 percent in 2004, according to government estimates; at least a small part of that growth was spurred by investments by international energy companies searching for oil.
The discovery announced last month already has Cuba-watchers in America and officials in Havana pondering potential changes in relations with the United States. American companies are currently prohibited from drilling in waters about 100 miles, or 160 kilometers, from the coast of Florida.
American energy companies quietly chafe at restrictions that put Cuban territory off limits to them while Canadians, Spaniards and Brazilians search Cuban waters for offshore wildcatting possibilities. A significant oil discovery, one that could turn Cuba into an oil exporter from an importer, might prompt calls for reviewing policies that exclude the great majority of American companies from trading with Cuba.
"The Canadians aren't there because they like Castro's aunt or a good Cuban coffee," said Jorge Piñón Cervera, a Miami-based consultant who closely follows Cuba's energy industry and a former executive in Latin America for Amoco. "They're in Cuba because it's almost a virgin exploration province right in the backyard of the U.S."
Cuba, which introduced policies in the early 1990s aimed at encouraging investment by foreign energy companies, increased its oil production to more than 75,000 barrels a day in 2004 from 18,000 barrels a day in 1992. The discovery last month by Pebercan, of Montreal, and Sherritt, of Toronto, illustrates how companies from other countries stand to benefit from the American embargo on most dealings with Cuba.
Shares in Pebercan soared on the Toronto Stock Exchange after Castro's announcement, climbing nearly 50 percent in the two and a half weeks since.
Sherritt, a diversified minerals company, is a minority partner with Pebercan on the discovery and is already Cuba's largest oil producer through exploration ventures elsewhere on the island. Its stock also appreciated after the discovery was made public, rising more than 15 percent since Christmas.
Both companies declined to comment on the find.
Castro, however, pointed out in comments carried in official media that the deposits were lower in sulfur than those from Cuba's other oil fields.
Thus, the Canadians may have discovered lighter-grade, higher-quality oil than the mostly heavy oil now produced in Cuba. This in turn may enable Cubans to refine the oil for use in vehicles or export crude oil in exchange for hard currency.
Most oil now produced by Cuba is used largely for fueling power plants or producing cooking oil - 75,000 to 80,000 barrels a day, according to Cuban government estimates for the first half of 2004. It imports at least 53,000 barrels of oil a day from Venezuela, much of it already refined into gasoline, under an agreement that allows it to have the oil at below-market prices. Energy analysts say that Cuba separately imports as much as 25,000 barrels of oil a day to meet growing transportation demands; Venezuela is thought to supply much of this fuel.
In one of the most closely followed wildcatting efforts in the Gulf of Mexico last year, Repsol YPF of Spain spent more than $20 million to lease a Norwegian drilling rig to search for oil in Cuban waters. Ramón Blanco, the Repsol chief operating officer, told investors in July that the first well it had drilled had "met partially our initial expectations" but was not considered commercially viable.
Still, Blanco said the company had been able to prove the presence of "high-quality reservoirs," in comments he made on a conference call with investors. Analysts following Cuba's energy industry said they expected Repsol to continue drilling in Cuban waters this year or in early 2006, together with Unión Cubapetroleo, an energy concern controlled by the Havana government.
In the meantime, news of the find by the Canadian companies is fueling speculation about how the emergence of Cuba as a promising oil exploration area might affect relations with the United States.
"If Cuba is able to show that it has higher-quality crude at sufficient levels," Kavulich, of the U.S.-Cuba Trade and Economic Council, said, "the Bush administration would come under pressure to permit, at a minimum, purchases of Cuban-origin oil."
"Even if Cuba needed all the oil that was found, the government might sacrifice energy independence to sell oil to the U.S. and other countries," he added.
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