?A relic of the Cold War is keeping U.S. companies from taking part in a drive by Cuba to develop offshore fields that the Caribbean country’s officials say could hold more than 20 billion barrels of reserves. The Cuban economic development zone encompasses 43,243 square miles in the southeastern Gulf of Mexico involving 59 blocks—with about half now held by non-U.S. E&P companies.


Passed in the 1960s by a Congress wanting to punish Cuba for being a proxy of the former Soviet Union, the law prohibits U.S. companies from doing business with the communist government. Other nations, though, have no such prohibition.


On Halloween, Petrobras signed an agreement with Cupet, Cuba’s state-owned energy company, to begin E&P operations in the Deep Cuban Basin. For its part, Petrobras will make an initial investment of $8 million to begin exploration of its leasehold, which is just off Cuba’s northern coast east of Havana. Cupet reports it could begin exporting oil and gas by 2011.


If Cuba’s estimates of its reserves are correct, or even close, this could place the nation among the top 20 oil-producing countries. Cupet reports its estimates are based on comparisons to known reserves found in similar geological formations explored in Gulf waters offshore the U.S. and Mexico, especially the Cantarell and Poza Rica oil fields in the Bay of Campeche.


The U.S. Geological Survey has estimated that the fields in the Deep Cuban Basin may contain 9 billion barrels of oil and 21 trillion cubic feet of gas. Cuban officials say that, because they have more up-to-date information than the USGS, their estimates are more than double and more accurate.


While estimates are based on oil and gas reserves found in the Gulf offshore the U.S. and Mexico, what is not clear is whether the trend does indeed fully continue around and under Cuba.


Under the terms of the Petrobras-Cupet production-sharing agreement, the Brazilian company has seven years to explore Block 37 and 25 years to develop it. The Brazilian company’s lease is near Cuba’s only onshore field.


The Varadero oil field was discovered with the help of the former Soviet Union in 1971. This reservoir, about five miles off Cuba’s northern coast, currently yields about 75,000 barrels per day of poor-quality, heavy, sour crude that is used domestically.


The Brazilian lease covers about 994 square miles in 1,640 to 5,250 feet of water.


While Cuba was celebrating that agreement, Toronto-based Sherritt International Corp. cancelled a separate one, reporting that “it wasn’t worth continuing” operations in the area. The Canadian had an option in the contract to withdraw.


Sherritt had contracts to develop four blocks off the northwestern coast, where Spain’s Repsol-YPF, Norway’s?StatoilHydro, India’s Oil and Natural Gas Corp., Malaysia’s Petronas, Venezuela’s PDVSA and Vietnam’s PetroVietnam continue to explore. A consortium led by Repsol-YPF has drilled the only test well so far, with a second scheduled to spud in early 2009.


One member of Congress wants the U.S. to withdraw from a 1977 treaty with Cuba that defined the Gulf economic development zones that belong to the U.S., Cuba and Mexico.


In January, U.S. Sen. Bill Nelson (D-Fla.) asked the Bush administration to withdraw. The White House has not responded. It is unclear if he will continue his crusade with the new administration.


Nelson told Bush, “Soon there will be drilling rigs within 50 miles off the Florida Keys and the Florida Keys National Marine Sanctuary. And, as the Gulf Stream flows, an oil spill or other drilling accident could desecrate part of Florida’s unique environment and devastate its $50-billion, tourism-driven industry.”


Marine scientists who have studied the Gulf and its unique currents doubt this, however. First, any drilling offshore Cuba would be 40 to 50 miles from the U.S. coast. The normal current would carry any spills not to Florida’s beaches, but more likely to Alabama or Mississippi.


The Washington-based U.S.-Cuba Trade Association has said that lifting the current ban on U.S. companies doing business with Cuba could mean U.S. E&P and service companies could gain exposure to any exploration-success upside. Also, success would result in a new Western Hemisphere source of oil and gas, the association adds.

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