Petrobras pullout not a final verdict on Cuba's oil
By Jorge Piñón
"…Petrobras has more to gain from organically growing its position in
Brazil than going abroad to expand production". Petrobras CFO Almhir
Guilherme Barbassa (Forbes magazine, February 28, 2011)
More than 80 percent of the world's crude oil production is in the hands
of national oil companies (NOCs), the majority with a good track record
of managing their national patrimony. But only a handful have been able
to keep an arms-length relationship from their country's politics du jour.
Many governments treat their NOCs' coffers as a petty cash box to
finance their political or social agendas, without taking into
consideration the huge amounts of capital that have to be reinvested, in
order to maximize the NOCs' return on assets and the life span of their
hydrocarbon resources.
A rare exception is Brazil's Petrobras, which has demonstrated an
envious independence from the central government's politics. This oil
company is marching to the beat of its own drummer.
In September of last year, Petrobras announced the sale of $67 billion
worth of shares to finance its ambitious $224 billion, five-year
investment plan, which is aimed at nearly doubling its current domestic
crude oil production to 3.9 million barrels a day by 2014.
The transaction generated $25.4 billion from the sale of preferred
shares, giving the Brazilian government 55.6 percent of the voting
shares; and another $39.2 billion from the sale of common shares, giving
the government 48 percent of the common shares of Petrobras.
The results of the sale demonstrated private investors' trust in
Petrobras future performance.
Projects by political allies Hugo Chávez of Venezuela and former
Brazilian President Inácio Lula da Silva such as the Gasoducto del Sur,
the Abreu e Lima refinery, and the Carabobo heavy oil project have
failed to materialize, because they were not able to meet Petrobras'
profitability and strategic thresholds.
In December of 2010, Petrobras executive Paulo Roberto Costa was quoted
in the Oil & Gas Journal as saying that "Petrobras was willing to build
the Abreu e Lima alone if Venezuelan state oil company PdVSA did not
meet its financial terms and conditions," thus underscoring the national
oil company's independence.
Now, to Cuba. In October 2008, Petrobras was awarded, under a two-year
exploration concession, the 1,600 km² Block 37, located in Cuba's Strait
of Florida just 12 miles north of the island's north coast between La
Habana and Matanzas.
After spending more than $8 million in seismic and geological work,
Petrobras last fall determined that the hydrocarbon potential of the
block did not warrant the additional expense of exploratory drilling and
did not seek an extension of the concession.
This was the second time that Petrobras attempts to develop Cuba's oil
and natural gas resources. In 1998, Braspetro, Petrobras' former
international subsidiary, drilled two dry holes in the area of Cayo Coco
and Cayo Guillermo at a cost of over $15 million. The Cuban government
awarded this area — today Block L — to Russia's Zarubezhneft oil company
last year; it is just south of The Bahamas' Andros Island, were British
and Norwegian oil companies are conducting seismic studies.
The recent departure by Petrobras from Cuba should not be taken as a
final verdict on Cuba's oil and gas potential, or as a signal on
possible strained political relations between the governments of Cuba
and Brazil.
It was simply an economic and strategic decision by Petrobras, following
their long term-vision of focusing resources on developing its recently
found 10 billion barrels of deepwater offshore oil and natural gas at
the Santos and Campos basins, along the Atlantic coast. As Petrobras CFO
Almhir Guilherme Barbassa recently stated in a Forbes interview:
"…Petrobras has more to gain from organically growing its position in
Brazil than going abroad to expand production."
Jorge R. Piñón was president of Amoco Corporate Development Company
Latin America from 1991 to 1994; in this role he was responsible for
managing the business relationship between Amoco Corp. and regional
state oil companies, energy ministries and energy regulatory agencies.
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