By Randy Woods
Cuba's Oil: So Close and Yet So Far
Last month's conference call held by Sherritt, the Canadian natural
resources company, was remarkable for what wasn't said. Yes, there was a
discussion of the company's 2007 financial results. But there wasn't a
word about the power transition in Cuba, where the Toronto-based company
is the leading foreign investor in upstream oil ventures. Some reporters
left the call wondering why there had been no mention of the fact that
Fidel Castro had voluntarily stepped down in February 2008 after
dominating his country's economy for nearly 50 years.
But the answer is quite clear: there will be no major political change
in Cuba anytime soon. Under the new leadership, conditions are not
likely to change for oil companies already operating in Cuba, while U.S.
investors will remain on the sidelines.
The status quo is not all bad for companies like Sherritt that operate
under better contracting conditions than they would in Mexico, or
arguably even Argentina or Venezuela. In February, Mexican energy
minister Georgina Kessel held up Cuba's E&P contracts as a possible
model for her country, which is debating how to attract investment to
deepwater exploration. Cuba's government offers foreign companies the
chance to explore blocks on their own before entering into a
production-sharing deal with the government.
The model has succeeded in increasing Cuba's output, which grew to
76,000 barrels per day in 2006 from 16,000 bbl/d in 1984. Production is
still disappointing, considering the island country consumed 209,000
bbl/d in 2006 and has vast potential in offshore basins, which hold an
estimated 1.6 billion barrels of oil reserves. But the weak production
figures are likely more a reflection of the high-risk nature of
exploration in Cuba's relatively unexplored basins, not fears of
government interference.
But don't tell that to U.S. companies that are blocked from investing
there. Cuba has tried to open its oilfields to U.S. investors, but
Washington has stood in the way. And Washington views Fidel's successor,
his younger brother Raúl, as a cautious successor who is a far cry from
what many political analysts call "an agent of change."
And as long as Fidel Castro remains alive, the former president will
attempt to scuttle any efforts toward reform. Prior to Fidel's decision
to step down, Raúl ruled Cuba in an interim capacity with limited power.
Even Raúl's move last year to promote biofuels production was shot down
by his older brother, who spoke out against the renewable fuel in
newspaper interviews.
As a result, Washington will be in no mood to open investment barriers
to the Communist island. U.S. oil companies, then, will have to witness
from afar the evolution of Cuba's oil industry.
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