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Drilling for black gold: Spain's Repsol-YPF helps Cuba search for oil
The Miami Herald / June 28, 2004

By Larry Luxner

HAVANA — The Spanish oil company Repsol-YPF S.A. has begun drilling for oil in waters 18 miles off Cuba's northwestern coast in an effort to reduce Havana's dependence on imports.

“We are open to U.S. oil companies interested in exploration, production and services,” Juan Fleites Melo, vice-president of state oil entity Cubapetroleo, told American executives attending an April food conference in Havana. “There is no reason U.S. companies shouldn’t take advantage and compete so close to home.”

Cuba clearly does not have the capacity to explore and develop its 112,000-sq-km exclusive economic zone in the Gulf of Mexico; that’s why it’s so desperate for foreign partners. According to Fleites, 16 overseas oil majors, mostly from Canada, France and Spain, have already signed contracts to prospect and drill to a depth of between 1,000 and 3,000 meters.

“We have leased 10 of our 59 blocks in the Gulf of Mexico, but we expect many more companies to sign if Repsol finds oil,” Fleites said.

That’s a mighty big if.

Experts say Cuba must discover a major deposit of light crude that would make it commercially feasible to tap a deep-water field in the Gulf at a cost of more than $1 billion. Last month, Reuters quoted an oil industry executive as saying the odds of Repsol finding commercial deposits of good-quality crude at only one in 25.

Repsol-YPF, which has six concession blocks along Cuba’s northwestern coast from Pinar del Río to Matanzas, has agreed to lease the Norwegian-owned Eirik Raude rig at $195,000 a day to drill for oil in water more than a mile deep. The Eirik Raude is the world’s largest semi-submersible rig, a floating platform designed for very deep water.

“If they find oil, we will share the production as well as the profits,” Fleites said. “This is a risk you take whenever there is confidence in the country. Companies know we will live up to our commitments.”

Fleites, who’s been vice-president of Cubapetroleo since 1991, said foreign investment in Cuba’s oil sector is around $1.2 billion.

Canada’s Sherritt International, which signed rights to four blocks last year, is already a large investor in Cuba’s nickel and power generation sectors. In 2001, it and Brazil’s Petrobras sank $16 million into a wild-cat hole that proved dry, though Petrobras — which is owned by the Brazilian government — hasn’t yet given up on Cuba.

Repsol-YPF, based in Madrid, is a $44 billion conglomerate with operations in Europe, the Middle East, Africa and Latin America.

The company owns 99% of YPF, Argentina’s No. 1 oil company, and has 10 refineries in Spain and Latin America. During the first quarter of 2004, Repsol’s total output rose by 12.2% to 1.12 million barrels a day, thanks largely to a jump in gas production in Argentina, Bolivia and Trinidad & Tobago. Last month, Repsol signed a 30-year oil exploration and production sharing accord with the government of Suriname.

Yet Cuba is clearly a topic the Spanish company doesn’t want to discuss.

Valentín Alvarez, general director of Repsol’s Caribbean business unit in Venezuela, declined comment for this story, referring calls to José Conesa Martínez, general manager of Repsol-YPF Cuba S.A.

In an e-mail, Conesa’s secretary said her boss wouldn’t be available for an interview “given the situation existing between both countries, which could prejudice the work our company is doing in Cuba.”

During the first two months of 2004, oil production along the north coast of Matanzas and La Habana provinces — accounting for 95% of the total — was reported to be on target to lift national output by 4.4%. This translates into annual production of 4.5 million tons of oil equivalent, or 78,000 barrels per day.

At present, foreign companies led by Sherritt and another Canadian company, Pebercan Inc., have joint ventures and production deals with Cubapetroleo, accounting for 60% of the island’s oil and gas output. The rest must be imported from Venezuela and elsewhere.

“Thanks to the participation of foreign companies, we have had the possibility of introdu-cing new techniques such as horizontal drilling,” said Fleites. “This technique is quite new, and we haven’t used it before. We also have multitube wells, and have introduced new pumping systems that are much more modern than what we had before. At present, our industry holds up to any other petroleum industry in the world.”

Fleites said Cuba has more than 500 kilometers of pipelines, and that the Matanzas oil terminal is now capable of receiving 150,000-ton supertankers.

In 1999, said the Cubapetroleo executive, about 50% of Cuba’s electricity was generated by oil and gas; today it’s nearly 100%.

“For this, we had to upgrade our power plants to burn domestic crude. These investments took place over four years,” he said. “At present, all our power stations use crude oil, except for a few small hydroelectric stations. We do not have nuclear or geothermal plants. All our electricity is based on oil or gas.”

Two ventures are now underway for the sale of LPG: one in Havana, with Puma Gas of Argentina, the other in Santiago de Cuba, with Total of France. Combined investment in the two projects is around $50 million.

“Most of our people still use kerosene, which is not the best domestic fuel. Little by little, we are replacing kerosene with LPG,” he said. “By the end of this year, Santiago de Cuba will have full coverage. We intend to expand this system to the rest of Cuba.”

In addition, Cubapetroleo has a smaller venture with Castrol S.A., a subsidiary of British Petroleum, to produce lubricants for the agriculture, automotive and maritime industries; last year, that venture reported $12 million in sales.

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