Cuba's known for cigars now, but oil could change that - USATODAY.com Cuba's known for cigars now, but oil could change that 4J-Lynch, USA TODAY One day soon — possibly before the end of this year — an oil rig will maneuver into position in ‘waters less than 100 miles from the coast of Florida. A dil wil plunge into the inky sea and begin chewing its way into the acean floor, hunting for oil But the driling rig won't belong to an American company, and any petroleum it discovers wor't do a thing to curb the USA's addiction to foreign oll Instead, any new sub-sea gusher will belong to Cuba “That's right: Cuba. The island nation long has been known for its aromatic cigars and sweet rums. But after years of limited oil production on lands around Havana and in neighboring Matanzas province, Cuba is poised for a significant expansion ofits ol program into the waters that separate it from the United States. And thanks to U.S. law, Cuba's dling partners will be ‘working closer to Florida beaches than any American company ever could “Our studies ... have shown there is @ great potential, especially offshore,” says Dagoberto Rodriguez, the senior Cuban diplomat in the USA. “Basically, we know that there is ol. The problem is just where its.” ‘The U.S. Geological Survey (USGS) agrees, Two years ago, after reviewing available data on the subterranean structures in the region, the agency estimated Cuba can lay claim to 4.6 billn barrels of oil and 9.8 trilion cubic feet of natural gas, With ol prices hovering around $60 a barrel and global supplies persistently tight, any new supply source could benefit the USA, the world's top oil consumer. Likewise, Cuba, which rolios on Venezuela for more than half of its daily oll consumption, craves self-sufficiency. “In feconomic terms, it could be a win-win," says Daniel Erikson, an analyst atthe Inter-American Dialogue, a Washington, D.C., think tank, “There's just one problem: polities. Since 1962, the U.S. has maintained an economic embargo ‘of Cuba, aimed at toppling the communist government of Fidet Castro. The ailing dictator, who thas outlasted nine U.S. presidents, last summer handed power temporafly to his brother, Raul, while he recovers from abdominal surgery. Companies such as ExxonMobil (KOM), Chevron (CVX) and Halliburton (HAL), however, remain barred from the Cuban market, which {2 2001 Rice University study said could be worth up to $3 billion annually P Powered by ( -sverisement VOYAGER®).: “The embargo also will increase the time and cost of the Cuban program by denying Havana access to the closest source of hitp://usatoday. printthis.clickability.com/pt/ept?action=cptétitleCuba%27s+known+for+... 6/18/2008Cuba's known for cigars now, but oil could change that - USATODAY.com Page 2 of 4 cil industry technology, spare parts and expertise. Likewise, U.S.-owned refineries in Aruba and St. Croix are off-limits for any of the heavy, sulfur-ich Cuban crude. “The U.S. (embargo) presents them with significant bartiers and obstacles,” says Jonathan Benjamin-Alvarado, a political sciontst at the University of Nebraska who studies Cuban energy issues. Replacing the Soviets Cuba is modemizing a dilapidated Soviet-era refinery at Cienfuegos with help from Venezuela's state-owned oll company, PDVSA, and refurbishing three other facilities, Rodriguez said. Within 18 months, Cuba will be able to satisty all ofits refining ‘demand, he said. Independent analysts are less optimistic. ‘The Cuban ol fields were formed more than 50 million years ago in a slow-motion colision between Earth's tectonic plates, which entombed pulverized rocks, animals and plants. Over subsequent millennia, the resulting stew cooked into buried petroleum deposits, says Christopher Shenk, a geologist at the USGS in Denver Before Castro's 1959 revolution, U.S. oll companies such as Esso and Amoco carried out preliminary explorations. The following year, Cuba nationalized refineries belonging to Exxon, Texaco and Shell ( (RDSA,RDSB), and U.S. industry hasn't bboen back since. Inthe modem era, Cuba's frst significant oll find came in 1971 when Soviet engineers discovered the Varadero field, east of Havana. After the Soviet Union collapsed, Cuba opened its oll program to foreign investment in 1993. Today, companies from Spain, Norway, india, Malaysia and China are involved, either driling wells onshore or using horizontal driling to reach reservoirs in shallow coastal waters. Canada's Sherritt is the most active foreign company with nine fields operating onshore and five exploration or appraisal blocs being driled, says Michael Minnes, a company spokesman. Daily output from the company’s wells averages a modest 30,000 barrels a day, down from about 43,000 in 2004. 's ke any other foreign jurisdiction or developing nation. There are challenges, and there are opportunities,” Minnis said, “We see Cuba as a great environment to do business in.” ‘So far, only one offshore well has been driled, in July 2004 by Spanish oil company Repsol. The company said it found oll at the site 95 miles southwest of Key West, though not in commercially viable deposits. Since then, the Spanish company has teamed with Norway's Norsk Hydro, one of a select number of global oil companies with expertise in deepwater exploration, ‘according to Jorge Pinon, the former president of Amoco's Latin American operations. Offshore drilling this year In an interview this week, Rodriguez, the chief of the Cuban interests section in Washington, said widespread offshore driling ‘could start by the end of this year. Cuban exploration, like driling ventures elsewhere, has been slowed by a worldwide ‘shortage of drilling rigs that has increased daily lease rates by more than 60% since fall 2005. COffshore wells arent cheap: Those envisioned in Cuban waters will cost $40 milion to $60 million, says Pinon, the former oit ‘executive now affiliated with the University of Miami's Insitute for Cuban and Cuban-American Studies. “This is @ very high- fisk, high-reward area," R.S. Butola, managing director of India's ONGC, said on the company's website. ‘Since 1961, the U.S. has observed a moratorium on coastal driling, except for a portion of the Gulf of Mexico ang limited ‘areas off of Alaska. The driling ban was enacted after a series of high-profile oll industry environmental disasters. Perhaps the most notorious: the 1969 Santa Barbara spill that released 3 milion gallons of cl in waters off of Califomia, coating 35 res of coastline with oll up to 6 inches thick Last year, the House voted to relax the prohibition on offshore driling, but the measure died in the Senate, There may be ‘lose to 95 billon barrels of oil affected by the ban, according to the Interior Department “The House-passed bill sil would have allowed individual states to ban drilling up to 100 miles from their shores. But Cuba's http://usatoday.printthis.clickability.com/ptept?actior pt&title=Cuba%27stknown+for+... 6/18/2008Cuba's known for cigars now, but oil could change that - USATODAY.com Page 3 of 4 ‘wells could eventually be as close to the USA as 60 miles from Key West. The two countries agreed in 1977 to a maritime boundary that evenly divides the waters between them. Capito! Hill takes notice “The prospect of foreign oil companies ding Cuban wells so close to American shores has unnerved some on Capitol Hil. ‘Sen. Bill Nelson, D-Fla, last year introduced legisalion to deny U.S. visas to executives employed by oil companies involved in the Cuban program. Dan ML aughiin, a spokesman for Nelson, says the senator plans to reintroduce the measure this ‘year. Nelson also wants the United States to renegotiate the 1977 trealy that defines the U.S.-Cuban maritime boundary, a proposal Cuba's Rodriguez called “sil.” Others see the prospect of Cuban offshore oll rigs as a reason to relax the U.S. embargo. Rep. Jeff Flake, R-Ariz. O- ‘authored legislation last year that would have permitted U.S. fitms to sell their services to companies driling for Cuba or to dil themselves. “U.S. companies should be able to bid on these oil leases. ... If there are going to be oil rigs within 50 miles of Florida, .. I'd rather see U.S. oil igs than Chinese oll igs, given technological and safety considerations,” Flake said ina telephone interview. For now, Big itis staying out ofthe political fray. But, ata time when unexplored terrain is rapidly shrinking, the ol Industry ‘would eagerly jump into Cuban waters if given the chance. (One year ago, a U.S -Cuba Energy Summit atracted representatives from Exxon and a handful of smaller oll service ‘companies to three days of meetings in Mexico City. Attendees viewed PowerPoint presentations from Cuban government ‘ministias including state-owned cil company Cupet that invited American companies to help exploit “several giant ol and gas fields." Events since July, when Castro's illness forced him to step aside, have rekindled industry interest in Cuba's future. "U.S. oil ‘companies would love to do business there as soon as this thing opens up,” says Ron Harper, an analyst at IHS Energy in Houston. "They're looking at t quietly. They'd be short-sighted not to.” Earlier this woek, Rodriguez reiterated that Cuba remains open to the U.S. industry's involvement and may hold a second ‘summit this year, either in Mexico or Canada. But he said time may be running out forthe U.S. to change course. "In my ‘pinion, if the American companies are not able to get something, some changes before no more than one year, after that it vill be too late,” he said. For now, any U.S. involvement remains only hypothetical. Houston oilman Antonio Szabo, president of Stone Sond ‘Technologies, says U.S. companies likely would require greater transparency, a commitment to the rule of law and market ‘economies in Cuba before investing significant money there. ‘Some in the ol industry also have long memories when it comes to Cuba. Al the 1997 World Petroleum Congress in Beijing, ‘3 Cuban official approached Lee Raymond, then Exxon's chief executive, and asked in a jocular tone when the U.S. ol giant ‘might retun to Cuba. "When you give us back our (expletive) refinery,” Raymond growled ‘Cuban officials note they already have willing partners from Canada, Spain, Norway, Brazil, India, Malaysia, Venezuela and ‘China. Rodriguez made clear that the United States has no veto over Cuba's ol plans. Everyone knows how advanced is American technology,” the Cuban diplomat said. “But we are going to continue with our programs — with American companies or without American companies." Find this article a hpslWwiew.usatoday.comimoney/werld/2007-02-22-cuba-usat x him http://usatoday.printthis.clickability.com/pUept?action=ept&title~Cuba%27s+known+ fort... 6/18/2008