ENERGY-CUBA: Offshore Oil Reserves Found, but Deemed Commercially Unviable

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Jul 29 2004 (IPS) - Economists in Cuba reacted cautiously but without losing their sense of optimism Thursday to the first news from a Spanish company drilling in Cuba’s jurisdictional waters in the Gulf of Mexico, which reported that the oil found is of ”high quality”, although the first well is not considered commercially viable.

”The news is encouraging anyway,” Santiago Rodríguez, a researcher and expert on oil affairs at the Centre for Studies on the Cuban Economy, at the University of Havana, told IPS.

He said it must be taken into account that this is the first time drilling has been carried out in that untested area and that ”perhaps the conditions” for beginning to commercially exploit the area are not yet in place.

Ramón Blanco, chief operating officer of the Spanish firm Repsol-YPF, which has been drilling off of Cuba’s northern coast since June, said during a conference call with analysts in Europe Thursday that ”The first well drilled in Cuba has partially met our initial expectations.”

He added that the company had confirmed the existence of ”a petroleum system” in that area, and had detected reserves of high-quality crude oil, according to press reports from Madrid.

Blanco said, however, that the first well is considered ”noncommercial,” and that ”at this stage the group is defining future exploration activities in the area.”

Rodríguez and other economists consulted by IPS, who preferred not to be identified, said more information is needed before they can provide a more thorough evaluation of what the findings could mean for this socialist island nation.

Last June, Repsol-YPF, which has invested heavily in Latin America, began drilling in Yamagua-1, one of the four blocks identified for prospecting under risk contracts with Cuba.

The company was granted mining rights on six of the 59 exploration blocks opened to tender in mid-1999 by the government of Fidel Castro, in an area of 112,000 sq km within the country’s exclusive economic zone on the Gulf of Mexico.

Seismic tests previously carried out indicate that Yamagua-1 has a potential capacity of 1.63 billion barrels of crude. It is located around 30 km off the northern coast of Cuba.

The other possible drilling areas identified by Repsol-YPF are Ocuje, with an estimated capacity of 435 million barrels, Obatalá with 1.24 billion, and Caraguito with 2.82 billion barrels.

The UBS Investment Bank of Switzerland had estimated that the Spanish firm could take in earnings of 1.7 billion dollars if the initial results of its deep-water drilling were positive.

UBS analysts estimated the likelihood of success in unexplored areas at one in ten. Any underwater well discovered at a depth of 1,600 metres would have to be developed by a system of floating production platforms, which significantly drives up production costs, they pointed out.

It cost Repsol 195,000 dollars a day just to lease a Norwegian semi-submersible platform. The drilling operation lasted under two months.

The Cuban government has so far maintained a discreet silence on the oil prospecting in the Gulf of Mexico, although last December it stated that it was not basing its socioeconomic development plans on the possibility that oil would be found.

But it did give special importance to the ”steady growth” of Cuba’s ”onshore” oil and gas output, adding that the island has reserves that will last ”dozens of years.”

Domestic oil production is concentrated in a band 200 km long and between 10 and 20 km wide on the northern coast of the provinces of Havana and Matanzas, located some 100 km from the capital.

According to official estimates, proven reserves in that area, where firms from Spain, Canada, France, Sweden and other countries are operating under exploration risk contracts, surpass 100 million tons, although only low-quality heavy crude with a high sulphur content has been found.

That crude is basically used by the cement and nickel industries and to generate electricity.

Cuba’s energy supplies depend heavily on oil, of which it imports around 100,000 barrels a day, while producing some 75,000 barrels a day of natural gas and oil.

An official statement published last December by the daily newspaper Granma, the mouthpiece of the ruling Communist Party, said the Cuban government had ”no objection” to the idea of U.S. oil companies participating in prospecting and drilling in its exclusive economic zone ”on terms that would be mutually beneficial.”

The communique came in response to reported pressure from U.S. oil firms that want the four-decade U.S. economic and trade embargo against Cuba to be lifted, in order to do business with this Caribbean island nation of 11.2 million.