Houston Meeting Mulls Post-Castro Boon for US Oil Giants

HOUSTON, Nov 15, 2006 (Dow Jones Newswires)

The end of Fidel Castro's long reign could open the door for U.S. energy companies to return to Cuba, but the potential campaign is fraught with uncertainty, a University of Miami expert said Tuesday.

The Cuban premier's reportedly terminal illness paves the way for dialogue between Havana's new masters and a Democrat-controlled Congress in the U.S., University of Miami researcher Jorge Pinon told a Houston business gathering. If U.S. laws prohibiting investment in Cuba are "revisited," there could be a flood of dollars into Cuba's potentially rich Gulf of Mexico deepwater territory, he said.

"There are many U.S. companies that are interested in Cuba," including in the oil and gas sector, Pinon told Dow Jones Newswires. "But they are not going to do anything until U.S. law allows them to."

Tuesday's gathering, hosted by the Greater Houston Partnership, a prominent local business group, spotlighted a geologically promising region that has been off-limits to U.S. oil giants throughout Castro's long tenure. Although no major oil companies attended the gathering, the industry has been closely eyeing the island since Spanish-Argentine energy giant Repsol-YPF (REP) found oil in Cuba's waters.

But the path is laden with obstacles. A new Cuban administration - headed by Fidel's brother Raul Castro - is unlikely to loosen its iron grip on the island's economy and politics. And U.S. policy is heavily influenced by Miami's powerful Cuban-American exile community, which backs a continuation of the embargo unless the island opens up to democracy, something that is unlikely to occur, Pinon said.

Island Of Opportunity

U.S. oil and gas companies fled Cuba shortly after Castro took power in 1959, leaving behind mostly refining assets that are now obsolete. But they could come back to find 6 billion to 7 billion barrels of undiscovered reserves lying in Cuba's Gulf of Mexico deepwater, Pinon said.

International companies such as Spanish Repsol-YPF S.A.(REP), Norway's Norsk Hydro ASA (NHY), Indian ONGC Ltd. and Canada's Sherritt International Corp. (S.TO) are already present in the sector. The island is off-limits to U.S. companies due to an embargo instituted in the 1960s, after the government confiscated U.S. properties.

Sherritt and another Canadian company, Quebec-based Pebercan Inc. (PBC.TO), already control over a third of the island's 68,000 barrel-a-day coastal production under joint ventures with Cuban state oil monopoly Cupet that have proven reliable.

"I don't think anyone would have a problem going over there and signing a deal with the Cubans," Pinon said.

Cuba, traditionally one of the world's major sugar producers, could be a major source of ethanol-related investment for U.S. energy firms. The island's potential ethanol industry compares favorably to that of Brazil, due to its proximity to U.S. markets, Pinon said.

Although interest in Cuba has peaked on reports of Castro's failing health, uncertainty still dominates the oil industry's perceptions about Cuba.

"It's like the forbidden fruit," said Hernan Arizmendi-Posada, chief executive of Lago Energy, a Houston-based oil and gas brokerage specializing in Latin America.

"We must enter Cuba now before the conditions are defined" and there's more competition from other countries, he said.

Copyright (c) 2006 Dow Jones & Company, Inc.

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