Oil report

Cuba said set to drill offshore well this year

HAVANA, March 11 (Reuters) - Spanish oil firm Repsol-YPF REP.MC and Cuban authorities have decided to go ahead with scheduled offshore drilling this year after a behind-the-scenes discussion over slumping oil prices, diplomatic and industry sources said this week.

Cuba and Repsol announced last year that drilling would begin before July 2009, but plummeting international oil prices led Repsol to consider delaying the project, the sources said.

There were also problems getting a drilling rig that did not violate the long-standing U.S. trade embargo against Cuba, but that issue appears to be resolved, they said.

Repsol officials were in Cuba earlier this year to discuss the project, which is mandated by their exploration agreement with Cuban state-run oil monopoly Cubapetroleo, or Cupet, said a company employee who asked not to be identified.

“The issues involved both the overall economic situation, relatively low oil prices and difficulty in getting a rig with less than 10 percent U.S. technology as mandated by the embargo,” the employee said.

A half dozen interviews with diplomats and business sources, all of whom did not want to be identified, confirmed drilling would begin this year, but they did not know precisely when.

A foreign businessman said a well would be sunk in May, but other sources said the drilling could begin later in the year due to the recent discussions.

Cupet and Repsol had no comment.

Oil company representatives and international experts hope to find out more next week when they come to Havana for an international geology conference which will include presentations on Cuba’s Gulf of Mexico waters, where seven foreign companies have taken out 20 of 59 available blocks.

Interest in the blocks picked up after Repsol said it had discovered indications of high-quality light oil in a 2004 test well.

Repsol has since joined forces with Norsk Hydro STL.OL and ONGC Videsh ONGC.BO of India on the project, and there have been recent, but unconfirmed indications that the finding may have been more encouraging than was disclosed.

One source told Reuters that several hundred million barrels of oil had been discovered and the next well will be not an exploratory well, but one to measure the size of the oil field.

Also, in January an Indian publication said “people close to the development” had disclosed that leads “likely to result into major hydrocarbon discoveries” had been found.

Cupet surprised the oil world when it said in October it believes it has at least 20 billion barrels of oil in its offshore fields, with geological structures that could hold much more.

Those numbers were far above the generally accepted estimates of the U.S. Geological Survey, which said the North Cuba basin could contain 4.6 billion barrels of oil, with a high-end potential of 9.3 billion barrels, and 10 trillion cubic feet of natural gas.

Venezuela's PDVSA has also taken out blocks in the gulf, as have Vietnam state oil and gas group Petrovietnam, Malaysia's state-run Petronas PETR.UL and Brazil's Petrobras PETR4.SA.

Cuba produces the equivalent in oil and gas of 75,000 barrels per day, around 50 percent of its energy needs, importing the remainder from oil-rich ally Venezuela on preferential terms in exchange for health, education and other services. (Editing by Jeff Franks and Marguerita Choy)