Cuba may drill for oil using U.S. equipment

Cuba may drill for oil using U.S. equipment
Published: July 22, 2015 | Updated: July 23, 2015 at 07:55 AM

TAMPA — The U.S. embargo has stymied Cuba's search for oil off its shores.

And so it should, say critics of the ruling communist regime. An oil
windfall would boost Cuba's economy and provide energy self-sufficiency,
strengthening one-party rule there.

But new policies announced in January by President Barack Obama may
quietly pave the way for change, raising the prospect of offshore
drilling near Florida waters even as state leaders work to prohibit
drilling here.

At issue is whether Cuba gets access to U.S. drilling equipment,
regarded as the best and safest in the world — and if so, how much and
which parts.

Answers to those questions take on greater urgency with Cuba's
announcement that it intends to resume exploring for oil by 2016.

Under the current embargo, equipment made with only a small percentage
of U.S. content cannot be sold to Cuba or used to benefit its economy.
Oil drilling rigs fall under the rule. Other countries honor the embargo
by refraining from selling Cuba any parts made in the U.S. to avoid
falling from favor with a major trading partner.

But one new Obama policy calls for the U.S. Department of Commerce to
license for export to Cuba any items deemed necessary for protection of
U.S. coastal environments.

Some leaders in environmental protection and the petroleum industry read
this to include those portions of oil drilling rigs that prevent spills.

"It can and should be done," said Robert Muse, a Washington, D.C.-based
attorney who specializes in legal issues brought on by the Cuban embargo.

These parts would be exempt from the embargo, not counted in the
percentage, giving Cuba more options. Still others read this Obama
policy to mean that an entire rig could be exempt.

The Commerce Department did not respond to a request for comment.

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Only one modern drilling rig is known to be available to the island
nation under embargo rules. It is called the Scarabeo 9 — Norwegian
engineered, Italian owned and now under contract in Angola.

If the Scarabeo 9 is not available by 2016, Cuba could put its drilling
aspirations on hold — or cobble together a rig without modern technology
and raise the risk of an environmental disaster that might reach Florida
shores in under a week.

The best way to prevent this, says Lee Hunt, a Houston-based drilling
expert, is by providing Cuba with U.S. oil drilling equipment and
technology meant to prevent spills and pollution.

"It is in our benefit to want every drilling operation in Cuba to have
the same standard as is mandatory in the U.S. for the prevention of
pollution," said Hunt, former president of the International Association
of Drilling Contractors, an industry leader in training engineers around
the world on oil rig safety.

Hunt is helping organize an invitation-only symposium in Cuba this
October called "Safe Seas, Clean Seas."

Guests will include up to 50 representatives from the U.S. oil and
environmental industries, 25 from Cuba and another 25 from throughout
the Caribbean.

The itinerary includes oil spill response, what areas of Cuba should be
off limits to drilling, and which parts of the oil drilling rigs are
necessary for environmental protection. If the work can be completed
during the symposium, Hunt will provide the Department of Commerce
recommendations in these areas.

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Hunt favors allowing Cuba to import environmental technology from the
U.S. that's not available there now, including containment booms that
prevent a spill from spreading and skimmers to remove petroleum floating
on the water.

But just as important to the environment, Hunt said, is making sure the
rig is safe.

A blowout prevention device, for example, stops petroleum from spilling
into the ocean if anything fails. Hunt calls it "the first line of
prevention and the last line of defense."

He cited the 2010 Deepwater Horizon disaster in the Gulf of Mexico to
show the U.S. needs to update its policy.

A report by the U.S. Chemical Safety and Hazard Investigation Board
blamed the spill on a faulty blowout preventer.

What's more, the Deepwater Horizon spill occurred on a rig owned by an
industry leader, the U.S. subsidiary of BP, using top-of-the-line
technology. And it happened in U.S. waters, subjecting the company to
U.S. jurisdiction.

The U.S. forbids oil drilling within 125 miles along much of Florida's
Gulf Coast, as far as 235 miles at some points.

Florida leaders are resisting efforts to relax those restrictions.

The U.S. House of Representatives has approved an amendment to the
Interior Appropriations bill keeping the restrictions in place through
2022 but a U.S. Senate bill has been introduced that would allow
drilling as close as 50 miles off Florida's Gulf Coast.

Cuban oil is believed to lie just 60 miles from Florida's southern border.

Hunt said a few companies from outside the U.S. that specialize in oil
drilling equipment have expressed interest in doing business with Cuba
if doing so would not violate the U.S. embargo.

Obama has said he wants a vote in Congress to lift the embargo.
Meantime, the new policies he set forth in January were meant to strip
it down, Muse said.

"The president has not said lift some aspects of the embargo but not
others," attorney Muse said. "He has said lift it all. So if commerce
does what he suggests, Obama wants commerce to license the needed
equipment to the oil industry."

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This sentiment is echoed by Dan Whittle, who directs marine and coastal
conservation projects in Cuba with the New York-based environmental
advocacy group the Environmental Defense Fund.

"The new rules give favorable review to certain kinds of exports
including those in the environmental sector that benefit the U.S.,"
Whittle said. "This would certainly be in the spirit of that. If not
this, then my question would be what?"

Taking this view of the new Cuba policy might indeed exempt an entire
oil rig from the embargo, said Jorge Piñon, director of the Latin
America and Caribbean Energy Program at the University of Texas.

"An argument can made that you need every piece of its equipment to be
top notch because if any one fails during drilling, there can be an
accident," Piñon said. "So make the whole rig exempt from the 10 percent
rule." Following the Deepwater Horizon disaster, Hunt helped spearhead a
Caribbean wide agreement on dealing with oil spills, known as the
Multi-Lateral Technical Operating Procedure.

Five nations with Caribbean shorelines — Mexico, the Bahamas, Jamaica,
Cuba and the U.S. — spelled out how they'll react when a spill extends
beyond one nation's territorial waters. This includes specific
responsibilities, who will be contacted in each nation, and how visas
will be cleared for vessels and personnel.

This procedure deals with reaction. The new "Safe Seas, Clean Seas"
initiative aims to get ahead of any potential disaster.

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The Cuban government informed Hunt, he said, that it plans to drill two
deep water wells by the fourth quarter of 2016 and already has two oil
companies interested in leading the effort — Angola's Sonangol and
Venezuela's PDVSA.

Galp Energia of Portugal also is considering drilling in Cuba, Hunt said.

Scarabeo 9 is under contract through July 2016 so it may be available
for lease. Its Italian owner, Sapiem, could not be reached for comment.

Still, Piñon with the University of Texas said he doubts that Cuba would
use an unsafe rig if Scarabeo 9 is unavailable.

"The Cuban tourism industry earns over $2 billion a year," Piñon said.
"Are they going to put that at risk to drill for oil that has yet to be
found?"

By some estimates, 5 billion to 20 billion barrels of oil and 8 billion
cubic feet of natural gas lie beneath Cuban waters. Yet four past
explorations have come up dry.

"So that is your big question: Will someone want to risk the over $200
million it will cost to for an exploratory rig?" Piñon said. "I'm not
sure someone will drill in Cuba in the next year considering there are
better options right now."
Mexico is one example, he said. He predicts
drilling in Cuba is two to three years off.

Still, Piñon said, he favors environmental exemptions to the U.S. embargo.

Better to have the mechanism in place now, he said, than to scramble at
the last moment.

"We don't build fire stations expecting a fire to break out tomorrow,"
he said.

Muse has been lobbying the Obama administration for years to pass an
executive order on licensing oil drilling equipment for export to Cuba.

Former Florida Sen. Bob Graham, co-chairman of the National Commission
on the BP Deepwater Horizon Oil Spill, told the Tribune last year he was
pushing the president on the issue, as well.

The commission was charged with providing recommendations on how the
U.S. can prevent and mitigate future oil disasters.

"You don't want to be doing all of this," Muse said, "when you already
have oil gushing into the ocean."

pguzzo@tampatrib.com

Source: Cuba may drill for oil using U.S. equipment | TBO.com and The
Tampa Tribune -
http://tbo.com/news/cuba/cuba-embargos-end-could-lead-to-drilling-in-gulf-20150722/