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It has been four years since U.S. experts said the island is potentially sitting on nearly 10 billion barrels of deep-sea oil, revealing for Cuba an enormous economic Catch-22.
Cuba needs the technical expertise of major Western oil companies to get to any of the crude. Yet on Feb. 7 the U.S. marked the 47th year of trade restrictions that block producers with the technical ability to drill that deep, denying Cuba what could be a massive windfall. A major discovery was supposed to transform Cuba into an oil exporter, drawing the foreign currency it needs to finance imports of food and machinery to modernize its communist economy and to raise stubborn state wages that average less than a dollar a day. With public debts mounting, the government was forced to buy out its two main drilling partners from a 25-year deal. High-ranking officials say Cuba, which uses about 200,000 barrels of oil a day, imports about half of it at a discount from leftist ally Venezuela. The embargo and world economic crisis have undermined some of the appeal of costly deep-water drilling off the island, and Cuba's oil industry is foundering. Output is thought to have dropped by a quarter since 2003 as its top field, found by Russians in 1971, dries up. There has been talk of President Barack Obama easing U.S. sanctions, which could unleash a flood of energy investment. But for now, analysts say, most companies remain on the sidelines. "It's not a pretty picture," said Jorge Pinon, a former president at Amoco Oil Latin America. The U.S. Geological Survey in 2005 estimated that as much as 9.3 billion barrels of oil could lie off the island's north coast, while Cuban geologists put that number at 20 billion barrels in October, said Rafael Tenreyro Perez, production manager at state oil company Cubapetroleo, or Cupet. The Cuban estimate is the equivalent of a thousand days of U.S. oil consumption. Experts widely dismissed the Cuban estimate, noting the government failed to disclose the methodology and data that would back up such a claim. Cuba's only deep-sea test well to date, drilled by Cupet and Spanish oil company Repsol YPF in 2004, found only small amounts of "high quality reserves," while the Ministry of Basic Resources postponed drilling projects in 2007 and 2008, saying that record high oil prices had made rig rental costs too much to bear. With oil now 75 percent below its July peak, Repsol may start drilling a second well this year, Tenreyro Perez said, though the company declined to confirm. Cuba lacks the technology and training to certify its reserves and has sought foreign partners, offering better terms than those offered by stateowned companies like in Mexico, which restricts foreigners to fee-for-service deals. Cuba is offering foreign companies the chance to recover capital investments in the event of a discovery, and to split the spoils with the government. Yet rights to just 21 of Cuba's 59 offshore blocks have been purchased since bidding began in 1999, and buyers from Vietnam and Venezuela to Madrid and Moscow have been slow to drill. The island's top partners have been Canadian, with Torontobased Sherritt International Corp. and Montreal's Pebercan Inc. accounting for about 60 percent of current production. But the two companies said the island owed them a combined $501.3 million last year, so Cuba bought out their 25-year contract for $140 million. Even with a big find, it could take five years and $3 billion to develop the 59 deep-sea blocks, which sit an average 6,550 feet below sea-level, Pinon said. They would need to yield about 10,000 barrels a day at more than $60 a barrel to be profitable, he added. "That's pretty pricey if you're not sure of your financing or the longevity of the current government," said Eric Smith, of the Entergy-Tulane Energy Institute at Tulane University in New Orleans. That's especially true since oil frequently has been dipping below $40 per barrel in recent months. What's more, falling prices for nickel, Cuba's top export, have widened its budget deficit. The island badly needs cash to buy the food it distributes as part of monthly rations, and to import scarce construction materials to combat a housing crisis exacerbated by last year's hurricanes. In a country plagued by shortages, petrodollars could mean more steak, shoes and soap, as well as medical supplies and heavy machinery needed to replace Soviet-era equipment the island traded Moscow for sugar. Further taxing Cuba's oil industry is the fact that the U.S. embargo not only prohibits American oil companies from investing, but bans the sale of the latest drilling equipment, forcing Cupet to use less efficient technology, said Jonathan Benjamin-Alvarado, a Cuban oil expert at the University of Nebraska at Omaha.
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