The agreement signed last week between Cuba and a Russian oil company to explore waters in the Gulf of Mexico raises a question that seems almost like a joke - if Cuba can explore for oil and gas off the coast of Florida, how come the United States can't? The agreement signed between Cubapetroleo, the state owned Cuban Oil Company, and Zarubezhneft, allows the Russians to explore deep water off the Northern coast of Cuba in an area called the North Cuba Basin.

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The World is Drilling in Cuba
Cuba divided this offshore basin into 59 blocks, and signed an agreement with several companies for about half the blocks. Repsol YPF SA (NYSE:REP), a Spanish oil company, has been active in Cuba for more than five years. It drilled a test well off the coast in 2004, and was all set to start a second well when it postponed it in early July 2009.

StatoilHydro ASA (NYSE:STO), a Norwegian company, is also exploring and was a partner with Repsol YPF on the blocks.

The third public company involved is Petroleo Brasileiro (NYSE:PBR), the Brazilian oil company, also known as Petrobras. They just opened an office in Havana, and have a 32-year lease to explore. Other companies involved with this group are the national oil companies of Venezuela, Malaysia and Vietnam.

Much to Discover
In 2004, the U.S. Geological Service (USGS) estimated that the North Cuba Basin contained undiscovered oil of 4.6 billion barrels and 9.8 Trillion cubic feet of natural gas. This estimate was done with no input from Cuba, a country with which we have no diplomatic relations. Cuba estimated in October 2008, that its reserves were closer to 20 billion barrels of oil.

The problem that I have is not with Cuba exploring, as they are within their legal rights, or even that there are no American companies involved due to U.S. law. The issue is that the exploration of the North Cuba Basin will come within 45 miles of the Florida coast, which is closer than American companies can drill in U.S waters.

Exploration and development in an area of the Gulf of Mexico under U.S. jurisdiction called the Destin Dome, was blocked in 2002 when the U.S. Government bought back most of the leases issued to several exploration and production companies. These leases belonged to Chevron (NYSE:CVX), Murphy Oil (NYSE:MUR) and Conoco Phillips (NYSE:COP). This area was effectively dead anyway before the buy back because Florida quashed any permits.

The Bottom Line
Cuba, a country with which we have no diplomatic or commercial relations, can drill and explore for oil and gas closer to our coast than our own domestic industry can. This underscores the disarray of U.S. Energy Policy, and will prolong our dependence on foreign sources of oil even longer. (To learn more, see our Oil And Gas Industry Primer.)

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