Possible Pemex participation in Cuba challenges U.S. blockade

By Gerardo Arreola

Correspondent

La Jornada

Monday 9 April 2012.

HAVANA – Mexico’s Petróleos Mexicanos (Pemex) could be operating directly for the first time in Cuba by the hiring of lots to search for crude oil in the deep waters of the Gulf of Mexico if an agreement, as expected, is signed here during President Calderón’s visit this week. The Mexican enterprise already has interests in the island through its 9.49 percent participation in the Spanish-Argentinean Repsol-YPF, but this new option would give it direct access to Cuba’s exclusive economic zone (EEZ) in the Gulf, according to sources acquainted with the negotiations.

Calderón Hinojosa is expected to arrive here on Wednesday (April 11) for a 24 hour visit to meet with President Raúl Castro. Were the contract to be signed with Cupet (Cuba Petróleo), the state monopoly in the sector, months or even years could pass before an eventual exploitation, but Pemex would insert itself in an operation which openly challenges the U.S. blockade.

Some sectors of the oil industry in the United States have asked for legal exceptions to the blockade in order to sell supplies to the island once Repsol starts drilling in the area. Furthermore: a viable exploitation finding would change the island’s financial capacity as well as its economic future.

In case of drilling, Pemex would have its rearguard in the Mariel harbor – now undergoing an enlargement and modernization project – ultimately making it a commercial hot spot in the region.

Emissaries from Pemex, the foreign affairs office and the Mexican Energy Department have traveled to Havana, since at least last November, in order to explore the case. The Cuban offer would be identical to the one presented to the other nine foreign companies which have already hired lots.

The attempt to exploit the potential Cuban oil wealth in the Gulf of Mexico started in the last decade and the first to show interest managed to obtain lots closer to the coast. The areas available for Pemex are in a triangle near to sea zones under U.S. and Mexican jurisdiction.

The Cuban offer to Pemex is old, dating back from the beginning of Vicente Fox’s government a decade ago, but that option was closed due to a bilateral relations crisis. A previous attempt to have Pemex work on the island also failed in 1994 when both governments agreed to the modernization of the Soviet-technology refinery in Cienfuegos. Works were never started and the agreement dissolved two years later when both parts considered it “unviable”.

The Venezuelan Pdvsa finally modernized the refinery, which is now undergoing enlargement to augment its 65,000 barrels a day capacity to 150,000 in 2014.

If the business were to succeed this time, Pemex would become the tenth foreign enterprise which hires lots in the Cuban EEZ, after Sonangop (Angola), China´s National Petroleum Company, ONGC Videsh (India), Petronas (Malaysia), Statoil (Norway), Gazprom (Russia), Pdvsa (Venezuela) and Petrovietnam, besides Repsol-YPF.

Of all these enterprises, Pdvsa is has the nearest lots to Mexican waters, a square area a mere 100 kilometers from Cancun.

Two other companies withdrew without drilling in the Cuban EEZ: Sherritt from Canada and the Brazilian Petrobras.

With an earth and low water production stagnant of approximately 60,000 barrels a day of oil, which together with gas covers half of its national consumption, Cuba looks at the Gulf of Mexico as its only alternative to radically raise the extraction of crude. The island imports from Venezuela the other half of what it needs – plus an amount to refine and sell – for a 113,000 barrels a day total.

Repsol- YPF drilled the first well in deep Cuban waters in 2004 and found quality crude, though without options of commercial exploitation. The same enterprise resumed the search last January, this time in association with Statoil and ONGC Videsh. So as to play by the rules of the U.S blockade, the enterprise is forced to hire the Scarabeo-9 platform, built in China and Singapore for the Italian Eni Spa’s, with less than 10 percent of American-made components. So far there are no reports of that drilling’s results, but the platform is visible from the Havana coast and one can see that it has already moved from its western position to a more central one in front of the capital.

Calculated production

Leasing of the Scarabeo-9 is currently $511,000 a day, more than the commercial average of a platform of its kind, due to its “calculated production,” according to Texas University researcher Jorge Piñón, a former executive from oil enterprise Amoco. Piñón calculated that in eight years foreign investments in the Cuban EEZ will reach $500 million.

The Cuban EEZ comprises 112,000 square kilometers and was delimited in 1977, as sea frontiers with the U. S and Mexico were settled. There is no calculation of reserves yet but Cupet has an estimate of at least 20,000 million crude barrels in retrievable resources.

In this case, Cupet applies the “shared production” formula. There is no bidding but a direct designation of the contractor. The contract has a 30 year validity in the case of oil and 35 for gas. It is executed in two phases: prospecting and exploitation. The first one is divided into sub-periods and the foreign enterprise can decide in each whether or not to continue.

The way to share production and percentage destined for the retrieval of investments is agreed upon according to each case. According to this plan, Cuba would have the priority to buy the oil that is produced.