Cuba readies to dive into offshore oil exploration

Cuba readies to dive into offshore oil exploration
Sat Jul 31, 2010 5:24pm GMT

* Offshore drilling rig expected in Cuba in early 2011
* Oil companies preparing for full-scale exploration
* U.S. companies forbidden by U.S. trade embargo

By Jeff Franks

HAVANA, July 30 (Reuters) - A Chinese-built drilling rig is expected to
arrive in Cuban waters in early 2011, likely opening the way for
full-scale exploration of the island's untapped offshore fields.

Companies with contracts to search for oil and gas in Cuba's portion of
the Gulf of Mexico have already begun preparations to drill once the
Scarabeo 9 rig gets to the communist-led island.

An official with Saipem, a unit of Italian oil company Eni SpA ENI.M
told Reuters on Friday the massive semi-submersible rig should be
completed at the Yantai Raffles YRSL.NFF shipyard in Yantai, China by
the end of this year.

The journey to Cuba will take two months, and once it arrives it will be
put into operation almost immediately, said the official, who asked not
to be identified.

It will be used first as an exploratory well for a consortium led by
Spanish oil giant Repsol YPF (REP.MC: Quote) (REP.N: Quote), which
drilled the only offshore well in Cuba in 2004 and said at the time it
had found hydrocarbons.

Cuba has said it may have 20 billion barrels of oil in its offshore, but
the U.S. Geological Survey has estimated a more modest 4.6 billion
barrels and 10 trillion cubic feet of gas.

Repsol has been mostly silent on the long delay in drilling more wells,
but it is widely assumed in the oil industry it was due to the
longstanding U.S. trade embargo against Cuba.

The embargo limits the amount of U.S. technology that can be used, which
complicates finding equipment because U.S. companies have long dominated
the offshore oil business.

Construction of the Scarabeo 9 was begun by Norwegian firm Frigstad
Discoverer Invest Limited in 2006, but the company was purchased by
Saipem in 2007. The rig was due to be completed by September 2009, but
has been delayed because of modifications requested by Saipem, the
Saipem official said.

PREPARATIONS UNDERWAY

The official said it was also slowed because the shipyard "had taken on
too much work" with other projects.

Repsol is said to be planning at least one exploration well and possibly
another. The rig will then be passed to other companies with contracts
to drill in Cuban waters.

Cuba's portion of the Gulf of Mexico has been divided into 59 blocks, of
which 17 have been contracted to companies including Repsol, Malaysia's
Petronas PETR.UL, Brazil's Petrobras (PETR4.SA) (PBR.N), Venezuela's
PDVSA and PetroVietnam.

Repsol is partnering with Norway's Statoil STL.OL) (STO.N and ONGC
Videsh Limited, a unit of India's Oil and Natural Gas Corp (ONGC.BO: Quote).

Diplomats in Havana have said Malaysia's Petronas will get the rig next,
after Repsol completes its drilling.

Petronas, which has four exploration blocks, has conducted seismic work
and built offices for a battery of employees who will come to Cuba for
the project, sources said.

It also is talking to a possible partner in Gazprom Neft (SIBN.MM:
Quote), the oil arm of Russian energy company Gazprom (GAZP.MM: Quote),
whose chief told shareholders last month the company wants to join
Petronas in the Cuba project.

ONGC Videsh, which has two blocks of its own, separate from its
consortium with Repsol and Statoil, has already solicited bids for
equipment including sub-sea wellheads and casing pipes for its planned
exploration.

Russian oil firm Zarubezhneft has two nearshore blocks it said it plans
to drill next year, but also has an agreement with Petrovietnam to
participate in exploration of its three offshore blocks.

Zarubezhneft opened an office in Havana in June, according to Russian
state news agency Ria Novosti.

A number of international oil service companies have solicited
information about Cuban regulations on issues ranging from safety
equipment to finance and taxes, diplomats said.

OIL SPILL CONCERNS

Cuba's state-owned oil company Cupet has been silent about the offshore
activity and rejected requests for interviews. A government official
said the requests were denied because Cupet did not want to speak during
the BP oil spill in the Gulf.

The spill has never reached Cuba, but it has heightened safety concerns
both in the government and among oil companies with offshore blocks,
sources said.

The prospect of drilling in Cuban waters has also raised pollution fears
in Florida, which is just 50 miles (80 km) away from the island's
maritime boundary.

The Saipem official said the Scarabeo 9, which is capable of operating
in water depths up to 3,600 meters (11,811 feet), is built to Norwegian
standards, meaning it has extra equipment to shut off blown-out wells
not required in the United States.

Due to the U.S. trade embargo, U.S. oil companies are not allowed to
operate in Cuba.

Later this month a group from the Houston-based International
Association of Drilling Contractors is scheduled to visit Cuba. The
group has said it wants to discuss offshore safety issues with Cuban
officials and get an overview of deepwater prospects.

Despite five decades of hostile relations, Cuba has said it would
welcome the involvement of U.S. companies in developing its offshore fields.

Oil expert Jorge Pinon at Florida International University in Miami said
U.S. oil service companies would like to enter the Cuban market because
it is a new market close to home.

"For the U.S. offshore oil industry, Cuba is basically an extension of
the Gulf of Mexico. It's not like Angola -- they can provide service
from Houston or Freeport or Mobile." (Editing by Todd Eastham)

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