Nick Snow
Washington Editor
With a semisubmersible rig en route in a few more weeks to drill one of the first deepwater exploratory wells in Cuban waters sometime this fall, questions are being raised there and in the US whether trade embargo restrictions will deny Cuba and companies working there access to US spill control technology if an accident similar to the Macondo blowout occurs off Cuba.
The International Association of Drilling Contractors in Houston is playing a major role. Two years ago, it applied to the US Department of the Treasury's Office of Foreign Asset Control for a license to go to Cuba and learn about offshore well management issues there but was turned down, IADC President Lee Hunt said.
When it reapplied after the Macondo well accident as crude oil leaked into the Gulf of Mexico, permission was granted, and IADC officials met in Havana with chief officers of the Ministry of Basic Industries, which includes oil and gas exploration; the Minister of Nuclear and Industry Regulation, which is writing offshore drilling regulations; and the Ministry of State Affairs, Cuba's counterpart to the US Department of State, he continued.
"They know what they're doing, and they're very credible about what they're putting in place," Hunt told OGJ. "They conducted in-depth research on both offshore drilling regulations and safety practices, and have gone largely to Northwest Europe, specifically Norway and the United Kingdom, as well as to IADC for the structure of their regulations."
Cuban officials also recognize the trade embargo imposed on their government by the US seriously limits them in some significant ways, he added. "They are prepared to handle transportation and industrial spills of less than 5,000 bbl," Hunt said. "Anything over that, and they do not have access to nearby resources for response, containment, and cleanup. They can't acquire first-class equipment or use any of the resources working in the Gulf of Mexico in the event of a major spill."
Trying to prepare
Others confirmed that the Cuban government is trying to develop regulations to prevent offshore oil and gas accidents and control spills quickly and effectively. "They're basically photocopying everything that has come out of the [US Bureau of Offshore Energy Management, Regulation, and Enforcement] and President [Barack] Obama's independent oil spill commission," Jorge R. Pinon, visiting research fellow at Florida International University's Cuban Research Institute in Miami, said. "They're also consulting with Norway. But regulations basically are just paper. Many Latin American countries have wonderful regulations, but they're worthless without the resources to monitor the industry. Regrettably, Cuba does not yet have the resources and know-how to find out that everything is being done the right way."
It's trying to get those resources, according to Dan Whittle, a senior attorney and director of the Environmental Defense Fund's (EDF) Cuba program in Raleigh, NC. "In my opinion, the Cubans have not rushed into the offshore oil and gas arena," he told OGJ. "They've been thinking about it for a long time. It certainly would provide much-needed economic security. But they've taken it seriously and deliberately."
He and Pinon separately noted that Cuba's selection of Repsol SA to lead the consortium that would drill the initial offshore well reflects that government's careful planning. "They seem to have chosen their partners well: Repsol has a decent reputation among companies that are courting Cuba," Whittle said. "They have consistently reached out to US companies and, indirectly, to the US government to take a more pragmatic approach. They have an interest in having agreements with US companies that could respond to a spill. There's a great urgency to move forward because they want to have more energy security, and their economy is not in good shape. But Cuba does not have a drill-baby-drill mentality, even though it might have a better reason for having it."
Pinon said his sources in Cuba say the rig will leave Singapore, where it was constructed, in late June or early July and arrive off Cuba in early September, where it has been committed to drill 5 or possibly 7 wells. At a cost of $100 million each, that would result in $500-700 million being spent to explore for crude off Cuba's northern coast in the next year, he noted. "Nobody is going to build a semi tailor-made to meet Cuba needs with fewer than 10% US parts without a better than 50% chance of finding oil," Pinon told OGJ.
"Repsol is a good company," he added. "It drilled the Chevron-Repsol project south of Houston to 20,000 ft. It has a lot to lose if it messes up in Cuba. I can guarantee that Repsol is crossing all the t's and dotting all the i's."
Policy adjustments
Hunt emphasized that while IADC does not advocate ending the US trade embargo against Cuba, the Obama administration may want to consider as a matter of national interest ways to adjust its policies so Florida and other East Coast states' shorelines and coastal waters are protected if a major spill occurs off Cuba. "Just as a pharmaceutical company is allowed to send avian flu vaccine to Cuba, US companies should be allowed to send oil spill cleanup and containment resources in an emergency," he said.
In addition to developing regulations, Hunt said Cuba now requires well operators there to demonstrate how they're complying with US requirements—insofar as they can under the trade embargo. "For example, new BOEMRE regulations require independent third-party certification of the blowout preventer," he said. "That's not to say Repsol can't fly someone in from Norway to do that, but it won't have access to US engineers and firms who are providing such services, nor can they get parts and service from US suppliers.
"The embargo's restrictions are inhibiting the operators from putting the best of services into Cuba for blowout prevention, equipment maintenance, and blowout response," Hunt maintained. "We need to look very carefully at a very narrowly defined set of licenses or exemptions for blowout-related services and equipment and spill response services and equipment—the front and back end of the problem."
He said he planned to bring the matter up late last month when he met with Bromwich in Washington to discuss a wide range of issues. BOEMRE's director previously indicated that the agency is monitoring Cuba's offshore oil and gas activities. US Interior Secretary Ken Salazar, while not mentioning Cuba specifically, has said that he hopes other countries adopt stronger offshore oil and gas requirements such as the US developed in the Macondo well accident and spill's wake.
"The limitations are made in the USA. They're self-imposed," said Whittle, who has been working in Cuba on marine and coastal eco-system conservation issues since 2000. "With oil and gas, and its potential environmental implications, restrictions like this are potentially self-defeating. Blocking trade certainly hurts Cuba and has minimal impacts in this country. In the case of oil and gas, the potential impacts could be greater in the US than in Cuba, although the consequences would be severe there. It really calls into question how sensible the restrictions are in this context."
Pragmatic, not political
He said the Obama administration, under existing law, does have some latitude to protect US interests and could broadly license US companies to respond to a crude oil spill offshore Cuba. The US Department of State indicated, following the Macondo well spill, that it would take a pragmatic instead of political approach toward Cuba in a similar situation, the EDF official said. "As we get closer to when that rig arrives in Cuban waters, it's essential that the US be pragmatic," he maintained. "I hope Director Bromwich and other officials can basically make the case that we can't afford to politicize this issue. It's in our backyard, and there's simply too much at stake."
Hunt said under existing conditions, Repsol, as the leader of the consortium drilling the well would not have access to the capping stacks owned by the Marine Well Containment Corp. or the Helix Well Containment Group if a spill occurred. "The only other capping stack capable of a Macondo-level response is in the UK," he said. "It's a response issue of 3-5 days from the US vs. 30-60 days from the UK. Even then, I'm not sure that the UK capping stack doesn't violate the 10% US content well."
Options include emergency presidential licenses or advance planning by the US Coast Guard, which is working closely with IADC, to have resources available to respond to Repsol, the primary contractor, and not the Cuban government, according to Hunt. "Hypothetically, if a well blew out and lost control, Repsol as its operator could apply to OFAC for a license to contact US owners for equipment," he told OGJ. "However, the company with the equipment and personnel then would have to apply to OFAC for an export license, which could take 30-60 days to process.
"There's another route," he continued. "Licenses could be available in advance under a special presidential order. That would involve pre-planning with companies capable of providing everything from a capping stack, subsea robotics, skimmers, and personnel. All would have to enter the Cuban economic zone, first under contract to Repsol, and then to a succession of operators. This would not involve ending the embargo, only addressing the limitations the embargo places on protecting US interests by providing access to necessary spill containment equipment for operators in the Cuban economic zone."
In the meantime, IADC is seeking a license to let Cuba Petroleo, the country's national oil company, attend the trade association's meetings as an associate member, Hunt said. "Our view is that dialogue and consultations should be the solution because safety should have no secrets," he explained. "Every oil company on the planet should have access to safety information."
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