Venezuela's national oil company will join in exploratory drilling for crude in deep waters off Cuba, the company's president said Thursday.
State-run Petroleos de Venezuela SA, or PDVSA, is next in line to drill after Malaysia's Petronas completes its work, said Rafael Ramirez, Venezuela's oil minister and president of the company. He said Venezuela has budgeted an estimated $40 million for the project.
Spanish oil company Repsol said last month that it would stop searching for oil off Cuba after hitting a dry well drilled at a cost of more than $100 million.
None of this should be surprising, as it's part of a long and deliberate strategy, which we discussed in testimony before the U.S. House of Representative's Natural Resources Committee on November 2nd, 2011:
The Cuban regime first began using offshore-drilling rights to extract political concessions from various nations of the world soon after the 1991 collapse of the Soviet Union, which ended that country’s hefty subsidies to Cuba.
According to recently declassified documents by the Brazilian Foreign Ministry, in 1993 the Cuban regime first offered the government of then President Itamar Franco the "most promising" blocks for oil exploration to Brazil's national oil company, Petrobras, in exchange for their shunning of Cuban dissidents on the island and cancelling a meeting with Cuban exiles at the Brazilian Embassy in Washington, D.C. The Brazilian government complied with both, only to exit from Cuba empty-handed years later.
The Cuban regime found a new “partner” when Hugo Chavez rose to the presidency of oil-rich Venezuela in 1998. With the backing of Chavez and Venezuela’s state-oil company PdVSA, the Cuban regime resumed its diplomatic offensive signing highly publicized oil-leases with Spain's Repsol, Norway's Statoil, Russia's Gazprom, India's ONGC Videsh, Malaysia's Petronas, Canada's Sherritt, Angola's Sonangol, Vietnam's PetroVietnam and China's CNPC .
Only one company, however, has actually conducted any exploratory drilling -- Spain's Repsol in 2004. It found some oil, but not in any commercially viable quantities. It then pulled out of Cuba.
Similarly, after much initial fanfare, Canada's Sherritt and Brazil's Petrobras -- perhaps the most credible and respected of the region’s oil companies outside the United States -- publicly abandoned their efforts in 2008 and 2011, respectively, stating that Cuba offshore drilling was "not commercially viable" and citing "poor prospects."
Much of this can be attributed to U.S. sanctions, which dramatically drive up costs of production. The Cuban regime has itself admitted that U.S. sanctions make it commercially impractical to produce oil in its territorial waters. Keep in mind that even the largest neighboring foreign oil companies, Mexico's Pemex and Venezuela's PdVSA, refine the majority of their oil in the U.S. and then repatriate it, for they lack the domestic infrastructure to process their own heavy crude and the U.S.’s geographical proximity enhances profitability. As long as U.S. trade sanctions against Cuba’s regime are in place, producing and refining any oil found in Cuban waters in the United States isn’t an option.
That leads to a question: If off-shore drilling in Cuban waters is not commercially viable for the most respectable regional oil companies, which are located relatively close to Cuba and have the most experience in dealing with Cubans, is such drilling really viable for the Angolans, Malaysians or the Chinese? The answer is no.
Initially, we learned this in 2006, when the Cuban regime seemingly had convinced public policymakers in Washington -- including many here in Congress -- that the Chinese were ready to drill off Cuba's shores. The threat never materialized, but it served the Cuban regime’s political interests. As Reuters reported from Cuba at the time: “Havana is eager to see American oil companies join forces with the anti-embargo lobby led by U.S. farmers who have been selling food to Cuba for four years."
Last year's oil spill in the Gulf of Mexico by BP and the justifiable public outrage that ensued has given the Cuban regime a new and strategic opportunity to use the threat of offshore drilling as a means of forcing the U.S. to unilaterally ease sanctions. Cuban Foreign Minister Bruno Rodriguez has confirmed this on various occasions and relayed as much to former New Mexico Gov. Bill Richardson, who recently traveled to Havana in an unsuccessful effort to secure the release of American hostage Alan Gross; Gross has been held for nearly two years in a Cuban prison for helping the island’s Jewish community connect to the Internet.
In a flashback to 2004, Spain's Repsol is back in Cuba preparing to drill another exploratory well early next year. This time, the Cuban regime is “threatening” that if Repsol is pressured into abandoning drilling, India’s ONGC Videsh or Malaysia’s Petronas will step forward.
Curiously, this peculiar corporate trio was granted extensive oil-rights last year by Hugo Chavez to develop a block with 235 billion barrels of reserves in Venezuela’s oil-rich Orinoco belt. Reserves in that one Venezuelan block alone are believed to be 50 times greater than the best estimates in all of Cuba’s territorial waters. Some geo-political foul play can surely be deduced from the particularity and timing of this arrangement.
