Repsol comes up dry in Cuba offshore well

By Jeff Franks and Marc Frank

HAVANA | Fri May 18, 2012 2:37pm EDT

(Reuters) - Spanish oil giant Repsol said Friday that the first of three planned wells in Cuban waters was unsuccessful, a blow to Cuba's hopes for energy independence.
"I can confirm that the Repsol well in Cuba has been reported to be unsuccessful and that we are proceeding to plug and abandon the well," a Repsol spokesman told Reuters.

Repsol operated the well in a consortium with Norway's Statoil (STL.OL) and a unit of India's ONGC (ONGC.NS), drilling 4,500 meters into the sea bed of the Gulf of Mexico.

The disappointing result was a blow to the communist island's hopes of weaning itself from Venezuelan oil, but not a fatal one because Malaysia's state-owned Petronas will soon begin a second exploration well in Cuban waters in partnership with Russian's Gazprom Neft SIBB.MM.

"“It's a bust. It doesn't mean there's not oil out there (in Cuba's offshore), but it looks like they missed the reservoir," one industry expert said of the well, drilled in 5,600 feet of water more than 20 miles off Cuba's northern coast.

Repsol began drilling at the end of January after the Scarabeo 9, a massive Chinese-built drilling rig owned by Italy's Saipem (SPMI.MI) arrived at the island following a trip half way around the world from Singapore.

The rig was scheduled to be handed over soon to Petronas, which will sink a second well about 100 miles to the west of the current drill site.

Venezuela's PDVSA is tentatively scheduled to then get the rig for a third well.

Repsol drilled the only previous Cuba offshore well in 2004 and said it found oil but that it was not “"commercial." Reportedly, it has said it is undecided about drilling another Cuban well.

HIGH STAKES

For Cuba, the offshore exploration project has high stakes because the finding of oil could make it energy independent and possibly an oil exporter, which would aid its chronically troubled economy.

Cuba has said it may have at least 20 billion barrels of oil in its part of the Gulf of Mexico, although the U.S. Geological Survey has estimated a more modest 5 billion.

The island receives about 115,000 barrels of oil daily from socialist ally Venezuela, most of which goes toward meeting its internal demand and the rest for refining into oil products for Caribbean and central American nations.

In exchange, Venezuela receives the services of thousands of Cuban medical personnel and other professionals. It also is a heavy investor in numerous joint projects with Cuba.

The Cuba-Venezuela alliance is a product of Venezuelan President Hugo Chavez' close relations with Cuban President Raul Castro and his older brother Fidel Castro, but Chavez is suffering from an undisclosed cancer that has required frequent treatment in Cuba and for which the prognosis is unknown.

He is standing for re-election in October, with his health problems looming as a major issue.

His defeat or death could put the government in the hands of an opposition party much less friendly to Cuba and the idea of giving it oil for services.

"“This dry hole is particularly a blow to Cuba, much more so than it is to the oil companies involved," said one diplomat who declined to be identified.

Dry holes in deep water generally cost at least $175 million, industry experts said, but Repsol will share that cost with its partners.

The company struggled for years to find a drilling rig that would not violate terms of the half-century old U.S. trade embargo against Cuba, which limits the use of U.S. technology.

It raised the ire of anti-Castro Cuban exiles for helping Cuba look for offshore oil and alarmed environmentalists for drilling a well in the straits of Florida, where a spill like BP's 2010 accident could cause massive oil damage to the state's coast and coral reefs.