Spains 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 Cubas 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 wont do another well in Cuba, Repsol Chairman Antonio Brufau said in presenting the companys 2012-16 business strategy at a news conference in Madrid on Tuesday. The well we drilled turned out dry and its almost certain that we wont do any more activity there.
Repsol spent about $150 million since 2000 exploring off Cubas 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 Repsols 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 Washingtons embargo on the communist government.
As someone once said, Cubas 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 Repsols 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 Cubas 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 Venezuelas 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 platforms 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. Brazils 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.
Repsols dry well was in water deeper than BPs 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.