Exclusive: Repsol comes up dry in Cuba offshore well

HAVANA (Reuters) - Spanish oil company Repsol said on Friday that the first well in an oil exploration project in Cuban waters has come up dry, delivering bad news to the communist island striving for economic strength and energy independence.

At least two more wells are expected to be drilled by other companies. Cuba hopes to wean itself off Venezuelan oil and become an oil exporter.

"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 (REP.MC) spokesman in Madrid 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 a mile deep in the Gulf of Mexico.

"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 about 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 after traveling half way around the world from Singapore.

When Repsol finishes plugging the well in the next few days, the rig will be handed over to Malaysia's state-owned Petronas, which in partnership with Russia's Gazprom Neft will sink a second well about 100 miles west of the current drill site.

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

Repsol drilled the only previous Cuba offshore well in 2004 and said that it had found oil but it was not “commercial.

It said it was “evaluating other well prospects in Cuba to decide whether it will drill again.

HIGH STAKES

For Cuba, the project has high stakes because finding oil could make it energy independent and help the government achieve its goal of assuring the survival of the communist system put in place by Fidel Castro after he took power in a 1959 revolution.

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.

Chavez 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 practice 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 western 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 in 2010 could cause massive damage to the state's coast and coral reefs.

(Editing By Tom Brown, Toni Reinhold)