Last Cuban offshore oil project ending for now

This is the Songa Mercur, the oil rig the Russians used to drill near the Bahamas. (Wikimedia photo)

This is the Songa Mercur, the oil rig the Russians used to drill near the Bahamas. (Wikimedia photo)


A Russian oil company using a Norwegian-owned drilling rig is temporarily pulling out of Cuban waters without finding any significant sources of crude, but industry watchers say it is too soon to dismiss Cuba’s offshore energy potential.


The Songa Mercur was searching for oil in at least two prospects near the Bahamas’ exclusive economic zone with Cuba — located fewer than 200 miles from the South Florida coast. The Cuban government announced in late May the state-run Russian company operating the rig, Zarubezhneft, was leaving the area but would return to the same spot in 2014.


The announcement has major implications for Cuba’s energy future. The communist island nation is heavily dependent on imports from ally nations like Venezuela for its oil needs.


Cuba suffered a major disappointment when several countries were unsuccessful in finding oil in the deep waters of the Florida Straits last year. The area — about 70 miles from Key West — might contain large amounts of oil, but it is in very deep water, the crude is difficult to find and working in the area is highly expensive.


Operations in the Straits cost companies about $100 million each in exploratory missions alone, said Jorge Piñon, associate director of the Latin America and Caribbean Energy Program at the University of Texas at Austin.


“I have been told that the oil is there, but the traps/structures are very difficult. So oil companies are probably likely to spend their limited capital dollars in other more promising, less risky areas (not only technical but also politically) than Cuba,” Piñon said in an e-mail. “They would rather go to Brazil, Angola, Alaska, U.S. Gulf of Mexico or the new growing market of shale in Argentina.”


The Straits exploration — conducted by four international companies on a giant Chinese-built, Italian-owned semi-submersible oil rig — worried both environmentalists and critics of Cuba’s Castro regime. But the operation was largely a bust and only two of the participating companies are still in the region: Malaysia’s Petronas and Gazprom, from Russia. They’re operating in a partnership and are now only conducting “some seismic work,” Piñon said.


The first company to work on the rig, Spain’s Repsol, closed its Cuban offices. And Petroleos de Venezuela, or PDVSA, is going through too many financial difficulties to invest again in the risky Straits, according to Piñon. The area near the Bahamas where Zarubezhneft is exploring is much shallower — around 2,000 feet below the surface as opposed to 6,000 feet in the Straits. This makes it a more attractive place for companies like Zarubezhneft to search for offshore fossil fuels.


Valentina Matvienko, speaker of the Russian Federation Council — the country’s equivalent of the U.S. Senate — pledged in a May interview with Cuba’s state-run Granma newspaper continued investment and involvement in Cuba’s offshore energy projects.


“We are currently negotiating a broad range of projects relating to energy, and Russian companies such as Zarubezhneft are actively involved in oil prospecting in Cuban waters, and this work is going to continue,” Matvienko said.


But the company might not use the Songa Mercur when it returns, according to oil industry sources. One of the reasons Zarubezhneft is leaving Cuba is because the rig was having equipment difficulties. Instead, Zarubezhneft may come back in a drill ship, a traditional seagoing vessel with oil-drilling capabilities.


However, Lee Hunt, president emeritus of the International Association of Drilling Contractors, said finding a ship that complies with the 52-year-old U.S.-imposed trade embargo against Cuba could be difficult. Such a vessel must have fewer than 10 percent of its parts made in the United States. If the ship is not compliant with the embargo, companies using it could face U.S. sanctions.


Geir Karlsen, a Songa Offshore spokesman, told The Reporter his company has no agreement with Zarubezhneft to take the Mercur back to Cuba.


Russia and Cuba are not the only countries hoping the Cuba/Bahamas maritime border abounds with crude. The Bahamas Petroleum Co., based out of the Isle of Man, received permission to begin exploratory offshore drilling in the region ahead of a referendum that would give Bahamians a say in the future energy development of their country. This means drilling in the Old Bahamas Channel, south of the Andros Islands, could begin by 2014.


The BPC is looking to partner with another oil company in its search for oil. The company is also seeking European investors. Since the area is so close to the Zarubezhneft site, Russia’s success there could reap BPC a financial windfall.


“Good news in Cuba would have helped in the search for much-needed capital and/or possible joint venture partners,” Piñon said. “A discovery on the Cuban side would have certainly helped their development momentum.”


Natalia Erikssen, a BPC spokeswoman, said the company plans to begin drilling next year regardless of Zarubezhneft’s success or failure in the region.


“It won’t have anything to do with Zarubezhneft,” Erikssen said in an e-mail.


Hunt said just because no significant discoveries have been found off the Bahamas doesn’t mean the oil isn’t there. “More than one U.S. wildcatter made his fortune on the last roll of the dice,” he said.