OIL-CUBA: Bad News from Brazil

By Patricia Grogg Reprint | | Print |

Patricia Grogg

HAVANA, Apr 9 2001 (IPS) - The announcement by Brazil’s oil company Petrobras that it would “review” its prospecting plans in Cuba, after its failure to find oil in the island’s northern region, could frustrate the government’s dream of self-sufficiency in energy.

Petrobras called a halt late last month to its operations in the province of Ciego de Avila, 461 kms from Havana, after drilling to a depth of 4,198 metres without finding oil.

The pilot well is located on Cayo Felipe, a key located 30 kms from that province, where experts had projected a daily yield of 100,000 to 150,000 barrels.

Furthermore, supposed oil reserves in that area were estimated at 25 degrees API, characteristic of light crude oil, a far cry from the sulphurous, heavy oil found in Cuba up to now.

However, executives of Brazil’s state-run oil company had warned that there was just a 12 percent chance of finding oil in that region, where three wells were drilled.

Brasoil, a Cuban subsidiary of Petrobras, reported in a communique that it had found quality reserves during the drilling, but that further tests would not be carried out at this time.

The information obtained from the well will be incorporated into a re-evaluation of the structure, in order to decide on the best plan, added the brief communique released early this month.

The agreement, which included the drilling of three exploratory wells, will apparently be submitted to review.

In the late 1990s, the Brazilian firm joined companies from Canada, France, Britain and Sweden that had signed exploration and production agreements with Cuba. By 1999, foreign investment in Cuba’s oil industry totalled around 600 million dollars.

Local authorities have set their hopes on the area of the Gulf of Mexico. Cuba’s share of the gulf is divided into 59 concession blocks that have been offered to foreign investors for joint exploration activities.

Minister of Economy and Planning José Luis Rodríguez told IPS that the Spanish-Argentine oil company Repsol-YPF would be the first to begin operations in that area of 112,000 kms.

The Gulf of Mexico, recognised as the world’s largest oil reserve, is shared by Mexico, Cuba and the United States, and has been exploited since the 1930s.

“Our part of the Gulf of Mexico has a geological structure similar to that of the Mexican and U.S. portions, which are located on each side of it, and there is good-quality oil in both of those portions,” Rodríguez pointed out.

Investment in the zone is protected by the international convention on the law of the sea that established the exclusive economic zones of each country, and by Cuban “Law 77” which opened this socialist nation up to foreign capital and regulates foreign investment.

According to the model in place since 1990, oil exploration operations in Cuba are based on 30-year risk contracts with an initial prospecting period of no less than six years.

The government of Fidel Castro also offers “a clear and simple fiscal regime – only one tax to be paid to the central government – and the freedom to dispose of the oil and gas obtained by the foreign partner,” authorities announced when the area was opened to bidding by potential international investors.

Cuban specialists project the existence of major reserves in the Gulf of Mexico, based on preliminary studies carried out by U.S. experts who, with authorisation by the Cuban government, drilled eight wells and found signs of live hydrocarbons.

In statements to the foreign press, Minister Rodríguez projected that oil production would amount to around six million tonnes by 2005, based on the existence of “proven reserves.”

That would enable Cuba to cover approximately two-thirds of its internal energy needs, which currently stand at around nine million tonnes thanks to a programme of saving energy and boosting efficiency in sectors that consume large amounts of oil like the nickel and cement industries and electricity plants.

Last year, Cuba produced 2.6 tonnes of crude. Added to the processing of 522,000 tonnes of raw gas that exist in the heavy oil deposits, a resource that was simply lost and ended up polluting the environment in the past, that meant Cuba was able to generate just over 50 percent of its electricity needs.

“We believe that over the next two years, our national production could cover nearly 100 percent of electricity generation,” said Rodríguez.

However, the dream of self-sufficiency in oil will depend to a large extent on the success of the risk contracts with foreign firms, including the operations Cuba hopes will begin in the near future in the Gulf of Mexico.

Through the Caracas Accord that Havana signed late last year with Venezuela, Cuba now purchases 53,000 barrels a day of crude from that country, 80 percent of which is paid for at market price up to 90 days after delivery.

According to off-the-record Cuban sources, the remaining 20 percent will fall due sometime between five and 20 years, depending on the average annual price of oil.

In 1989, before the start of the economic crisis unleashed by the break-up of the Soviet Union and east European socialist bloc, Cuba consumed 13 million tonnes of oil, supplied by Moscow at subsidised prices.