Russian oil company suspends exploration in Cuba

A Russian state oil company drilling off Cuba’s northern shores has reportedly confirmed that it is temporarily halting its exploration — the fourth disappointment for Cuba’s dreams of energy self-sufficiency in less than two years.

The announcement by Zarubezhneft signaled an end to the only active exploration program on the island, which now relies on highly subsidized oil from the beleaguered Venezuelan government of President Nicolas Maduro.

Zarubezhneft confirmed this week that it was halting work due to “geological” problems but added that it will resume its exploration next year, the Reuters news agency reported Thursday in a dispatch from Havana.

The Russians withdrawal had been expected because the Norwegian company that owns the drilling platform they have been leasing, the Songa Mercur, already had announced that it would be leaving Cuban waters in July for another contract.

Zarubezhneft’s confirmation, nevertheless, signals “another disappointment” for Cuba’s dreams of finding oil in its waters, said Jorge Pinon, a Cuba energy expert at the University of Texas in Austin.

The U.S. Geological Survey has estimated that Cuba’s offshore waters have “significant undiscovered conventional oil potential” — between 4.6 billion and 9.3 billion barrels. Cuban officials estimate the potential reserves at 20 billion.

“This is the second geological area in Cuba that … seemed to be promising,” Pinon said of Zarubezhneft’s exploration block. But finding the oil means “you have to go into your pocket to drill exploratory wells.”

Spain’s Repsol oil company spent $100 million in the early part of 2012 unsuccessfully exploring with the Scarabeo 9 drilling platform, especially built in China to avoid the restrictions of the U.S. embargo, in deep waters northwest of Havana.

Petronas of Malaysia, Russia’s Gazprom and Petroleos de Venezuela SA (PDVSA) later leased the Scarabeo platform but also struck out, and the rig left Cuban waters at the end of last year.

Zarubezhneft then gave it a try, leasing the Songa Mercur to explore waters not as deep and east of Havana starting late last year. Neighboring Bahamas also has expressed interest in that area, but the Russians also drilled a dry hole.

The Russians are considered likely to meet their promise to return next year because President Vladimir Putin’s government has been pushing hard to warm up political and commercial ties with Moscow’s one-time allies in Havana.

Cuba’s oil explorations have caused concern among U.S. environmentalists and tourism officials that any spills would impact the entire Eastern Seaboard, from the Florida Keys to Cape Cod in Massachusetts.

Supporters of improving U.S. relations with Cuba argued that Washington should allow American oil firms to get a piece of the potential profits. The U.S. embargo adds about 20 percent to that island’s exploration costs, according to Cuban officials

Repsol publicly allowed U.S. officials to inspect the Scarabeo rig before it reached Cuban waters. Zarubezhneft privately allowed the U.S. inspectors to examine the Songa Mercur, according to some reports.

Zarubezhneft’s announcement means that for at least the next couple of years Cuba will have to continue relying on the estimated 96,000 barrels of oil it receives each day from Venezuela – about two thirds of its consumption.

Under highly advantageous deals signed by the late President Hugo Chávez, Cuba pays for part of the already subsidized oil with the vastly overpriced salaries that Venezuela pays for the 45,000 medical and other personnel working in the South American country.

Maduro has promised Cuba that he will continue the subsidies, but Venezuela’s oil production has been shrinking, its economy is in turmoil and the president’s political rivals are pushing for his removal.

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