I am retired and take educated guesses on all things financial.

July 02, 2010

July 2, 2010: Well, Well, Cuba Drills Deep

As reported in Friday's Wall Street Journal, Cuba will begin deep water drilling early next year. The first well to be drilled will be done by Repsol YPF a scant sixty miles south of Key West. Repsol (REP) will use a floating drill rig presently being repaired in a Chinese shipyard which is almost identical to the Deepwater Horizon unit of BP fame,with the addition of five blowout devices instead of the four on Deepwater Horizon. Almost all parts and components of the rig, reports the WSJ, are from non-US companies. Thanks to a 1977 treaty between Jimmy Carter and Fidel, the Straits of Florida were divided equally between Cuba and the United States, which gives Cuba the right to drill so close to the U.S. land boundary.

Inspires hope and confidence,doesn't it? And there are many more oil projects off the Cuban coast from Havana to the Yucatan Channel to follow. Repsol's partners in Cuba include Statoil ASA (STO) and India's state-run Oil and Natural Gas. Eight other oil companies hold fossil fuel leases from the Castro Brothers, including Petrobas(PBR)and Sherrit International (SHERF.PK).

It appears as though anything that President Obama does to curtail drilling for fossil fuels in the Gulf of Mexico fails to stop other countries from exploiting the billions of dollars in fossil fuel energy stored beneath the waves.We lose.Cuba,Mexico,Venezuela and other Caribbean countries win.

Investors should monitor this series of events, as well as Cuba's efforts to extract fossil fuels and minerals on land, via companies such as Freeport-McMoran (FCX).

By most measures, Cuba itself is an awful place to do business. Cuba,for the companies named above, is a small part of their overall operation. The takeway is that the United States can remove U.S. Gulf of Mexico oil production through regulation, Florida Governor and Senate hopeful Charlie Christ can propose an amendment to the Florida constitution to forever ban drilling off the Florida coast and we can spend our way to alternative energy oblivion while right under the nose of the most powerful nation on earth, deepwater drilling en masse will commence with the lion's share of profits going to our adversaries.

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