Cuba would welcome U.S. oil companies if embargo ends

April 5, 2009

MEXICO CITY (Bloomberg) -- Cuba would welcome U.S. companies’ help developing its oil industry should the 47-year trade embargo on the communist island come to an end, said Manuel Marrero Faz, senior oil adviser at the Ministry of Basic Industries.

“We are open,” said Marrero Faz, noting that Chinese, Russian and Angolan companies are in talks to explore areas about 100 miles off the U.S. coast. “We’re very close to each other. We’re neighbors. Why not do business?”
Should nearby U.S. companies offer services and supplies, Cuba would be able to lower its costs and pick up the pace of development, said Marrero Faz, who learned geology as a student in the former Soviet Union. The difficulty of getting equipment from partners halfway around the world is a key reason only one offshore well has been drilled so far, he said.
Marrero Faz’s comments represent one of the strongest signals yet that Cuban President Raul Castro is ready for a new relationship with the U.S. under President Barack Obama. In Washington, Cuba’s incipient oil industry is helping fuel a growing campaign to ease the trade embargo that President John F. Kennedy imposed in 1962 to try to topple Fidel Castro’s Soviet-allied regime.
U.S. business interests -- watching from the sidelines as global competitors scoop up contracts -- as well as lawmakers and policy groups are becoming more vocal that the time for a change has come.
----------------’Taking the fields’
“It’s stupid that the U.S. prohibits its companies from coming here,” said Gustavo Echeverria, a researcher at Cuba’s Center for Petroleum Investigation, who spoke after giving a presentation at a Havana oil conference last month. “Everyone else is taking the fields on its doorstep.”
Obama may soon lift all restrictions on family travel to Cuba and allow unlimited remittances to relatives, the Wall Street Journal reported on Friday, citing an unidentified administration official. Vice President Joe Biden said March 28 that the U.S. has no plans to lift the trade embargo.
Any move to do so would be controversial in Congress. Easing the sanctions, without demanding concessions to lessen “the oppression of the people by the regime, will serve to strengthen the dictatorship and demoralize the Cuban people,” a group of congressmen including Florida Republicans Lincoln Diaz- Balart and Ileana Ros-Lehtinen said in a March 24 letter to Obama.
------------------Reserve estimates
Cuba says its offshore deposits hold 20 billion barrels of oil, enough to supply the U.S. for almost three years. The government hasn’t disclosed how it arrived at the figure, which is more than quadruple the almost 4.2 billion barrels estimated to lie beneath Alaska’s Arctic National Wildlife Refuge.
The U.S. Geological Survey estimates Cuba’s North Basin region, one of three offshore areas believed to hold oil, has 4.6 billion barrels.
Along Cuba’s north coast facing Florida, 19 miles from Havana, a Chinese flag whips in the Caribbean wind at the base of a drilling tower. The rig, brought to Cuba by a unit of China National Petroleum Corp., or CNPC, is being used by the island’s state-owned oil company, Cubapetroleo.
Russian companies including OAO Gazprom, Russia’s largest company, and OAO Rosneft, both based in Moscow, are in talks with the Cuban company, known as Cupet, and may sign contracts for as many as four exploration blocks by the end of the year, Marrero Faz said. CNPC, China’s biggest oil producer, may also reach an exploration deal by the end of 2009, he said.
--------------------Foreign companies
The Havana conference was attended by New Delhi-based Oil & Natural Gas Corp., and Rio de Janeiro-based Petroleo Brasileiro SA and Caracas-based Petroleos de Venezuela SA, which already have exploration agreements.
Madrid-based Repsol YPF SA, Hanoi-based Vietnam Oil & Gas Group and Kuala Lumpur-based Petroliam Nasional Bhd., which also have accords and attended the conference, have opened offices in Havana’s Miramar district.
“We would definitely like to continue here,” said Sushil Chandra, Cuba project coordinator at the Indian company, known as ONGC.
Toronto-based Sherritt International Corp., Cuba’s largest foreign-energy partner, has produced oil from Cuban wells since 1992. Its average output of 31,200 barrels a day in 2008 accounted for two-thirds of the country’s domestic production, according to the company’s Web site.
--------------------Oil services
Just as U.S. producers are blocked from projects only five days by tanker from Louisiana refineries, oil service companies such as Houston-based Halliburton Co., are also unable to take advantage of their proximity to undercut competitors on price, said Jorge Pinon, energy fellow at the University of Miami.
“We have a long-term relationship here, and clearly the Americans don’t,” said Peter Huff, president of Calgary-based Datalog Technology Inc., a company that helps detect oil for Cupet, Repsol and Sherritt in Cuba. “That’s a competitive advantage for us.”
U.S. oil companies including Texaco Inc., acquired by Chevron Corp. in 2001, and what’s now Irving, Texas-based Exxon Mobil Corp., last operated in Cuba in 1960, when their refineries were expropriated.
---------------------Confidential plans
Exxon Mobil spokesman Len D’Eramo said the company’s global exploration program is confidential. Chevron spokesman Justin Higgs didn’t respond to requests for comment.
Charlie Rowton, a ConocoPhillips spokesman, said the company doesn’t speculate about future activities.
Pressure in the U.S. is growing for Obama and Congress to open up to Cuba. Senator Richard Lugar of Indiana, the senior Republican on the Foreign Relations Committee, said in a report last month that U.S. policy toward Cuba has failed.
The Brookings Institution, a Washington-based research and policy organization, said in a report in February that the U.S. should license energy companies to work in Cuba as part of full restoration of trade and diplomatic relations. The National Foreign Trade Council, a Washington-based group of companies and trade associations, is also calling for U.S. firms to work on the island.
Still, investing in Cuba has risks. The offshore reserves are unproven by U.S. standards and drilling an exploratory well at 1,500 meters (4,921 feet) beneath the sea would cost about $100 million, Marrero Faz said. As oil hovers around $50 a barrel, it’s less attractive than when crude prices set a record above $140 a barrel in July 2008.
“There isn’t a sense of urgency,” said Pinon, who signed the Brookings report. “But in the long term, of course U.S. oil companies want to come.”