Spanish oil company’s decision to withdraw from Cuba raises questions about future exploration

Posted on Tuesday, 05.29.12

DRILLING

Spanish oil company's decision to withdraw from Cuba raises questions
about future exploration

Repsol's decision raises questions about continued oil exploration in
Cuba's offshore waters.
By Juan O. Tamayo
jtamayo@ElNuevoHerald.com

Spain's Repsol oil company announced Tuesday it was "almost certain" to
withdraw from exploration in Cuba, after spending an estimated $150
million on a dry well and seeing far more profitable prospects in other
countries such as Brazil and Angola.

The announcement was a blow to Cuba's hopes to strike it rich quickly,
jump-start its stagnant economy and trim its dependence on Venezuelan
subsidies, although another foreign company is currently drilling a
separate test well and others have options to follow.

"We won't do another well" in Cuba, Repsol Chairman Antonio Brufau said
in presenting the company's 2012-16 business strategy at a news
conference in Madrid on Tuesday. "The well we drilled turned out dry and
it's almost certain that we won't do any more activity there."

Repsol spent about $150 million since 2000 exploring off Cuba's northern
coast near Havana, with one well in 2004 that did not find oil "in
commercial quantities" and one this year that was dry, said Jorge Piñón,
a longtime Cuba oil analyst with the University of Texas.

Its combine with Statoil of Norway and ONGC of India also has an option
to drill a third well later this year but clearly felt its money would
be better spent in other countries with more profitable opportunities,
Piñón told El Nuevo Herald.

"If you had $100 in your pocket, and I offer you Cuba, Brazil or Angola,
which one would you take?" he said. "There are many other places around
the world much more attractive to exploration."

Piñón said the two bad wells are not realistic indications of whether
Cuba in fact has crude deposits off its northern coast. The U.S.
Geological Service has estimated the area has five billion barrels of
crude, while Cuban officials have put the figure at 20 billion barrels.

But Repsol's withdrawal raised the critical question of how offshore
exploration in Cuba can continue when only one platform in the world,
Scarabeo-9, can operate there. The platform was built in Asia with less
than 10 percent of U.S. equipment to sidestep Washington's embargo on
the communist government.

"As someone once said, Cuba's problem is that Scarabeo-9 is the only
shovel with which Cuba can dig for its possible oil treasures," Piñón said.

Repsol confirmed earlier this month that it hit a dry hole with its
first use of the semi-submersible Scarabeo-9 platform. Just days later,
it took two more blows when the Argentine government seized its YPF
branch — and Cuba applauded the nationalization.

Cuba did not receive any of the money spent by Repsol on exploration for
its two wells, other than perhaps some Havana office costs, Piñón noted.
Companies that carry out such explorations bear the costs, in hopes of
making their back if they hit oil and develop production fields.

Scarabeo-9 started drilling a new well about 110 miles to the west of
Repsol's under contract to a combine made up of Petronas of Malaysia and
Gazprom-Neft of Russia. That well is expected to take four to five
months and if it hits oil it could quickly brighten Cuba's oil future.

If not, Piñón added, further exploration in Cuban waters could suffer
some significant delays.

Repsol has an option to use Scarabeo-9 to drill another well after the
Petronas-Gazprom exploration. Its decision to leave Cuba means it will
drop that option, and raises the question of which company would then
lease the platform, at a cost of about $150,000 a day.

There have been unconfirmed reports that Venezuela's PDVSA and Angol of
Angola have options to hire the platform after Repsol to drill in Cuban
waters, Piñón noted. Any other company also can step in, or the
platform's Italian owners could drill in Cuba for themselves.

But a Petronas-Gazprom failure to find oil now could mean a long delay
in future explorations because Scarabeo-9 could be leased to drill in
more profitable areas like Brazil or the Gulf of Mexico, Piñón added.
Brazil's Petrobras oil company surrendered its contract to explore in
Cuba last year after massive reserves were found off its own Atlantic coast.

For now, Cuba will have to continue hoping for an oil strike while
depending on the estimated $3 billion in oil subsidies from leftist
Venezuelan President Hugo Chávez, who suffers from cancer and faces an
election in October.

Venezuela now sends an estimated 110,000 barrels a day to Cuba, in part
for use on the domestic market and in part for refining in the
south-central city of Cienfuegos and later export to several nations in
the Caribbean.

Any delays in finding oil in Cuban waters, however, will likely ease, at
least for a time, fears that a spill could send plumes of crude riding
north on the Gulf current to foul the Florida Straits, the Florida Keys
and the East Coast of the United States.

Repsol's dry well was in water deeper than BP's Deepwater Horizon, the
source of the catastrophic spill in the Gulf of Mexico two years ago.
The well being drilled now has been reported to be in even deeper water.

http://www.miamiherald.com/2012/05/29/v-fullstory/2823239/spanish-oil-companys-decision.html