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As winter officially approaches and convoys of tourists head south to enjoy the temperate climate and sparkling waters of our nation's Sunshine State, just 50 miles off Florida's lower tip another event is occurring that is proving more than a little daunting to those inhabiting this vacationland.
By the end of this month, Spanish oil company Repsol (OTC: REPYY) will move a new, China- and Taiwan-manufactured, $750 million, Italian-owned semisubmersible drilling rig, the Scarabeo 9, into position off of Cuba in the Florida Straits and begin exploring for oil and gas. The operation planned by Repsol will occur closer to Florida than the Macondo well that failed in 2010 in the Gulf of Mexico, reported Bloomberg. Once the Spaniards have completed their planned efforts, the rig will be utilized by companies from Russia, Brazil, Vietnam, and Norway.
Adding to the consternation in the U.S. regarding the planned operations, in addition to their proximity to the fragile lands of south Florida, is the 6,000-foot water depths in which they will occur. For the sake of perspective, last year's tragic BP (NYSE: BP ) and Transocean (NYSE: RIG ) Gulf of Mexico disaster occurred at 5,500 feet and it was 85 days before the resulting sea floor gusher could be brought under control.
Will this bill be paid?
U.S. officials are taking action. For starters, Democrats Sen. Bill Nelson of Florida and Sen. Robert Menendez of New Jersey have joined forces in producing a bill that would establish the culpability of foreign oil companies that were demonstrably culpable for oil spills that affected U.S. territory. The bill, which was introduced in November, specifies that those affected by a spill can bring legal actions against the companies involved, and without the current $75 million liability limit.
According to Menendez, "Hopefully, companies seeking to drill in Cuban waters will think twice once they know they would be fully liable for any damages to the Florida Keys, south Florida beaches, or if the spill reached the Gulf Stream, anywhere up the East Coast."
Nevertheless, dealing with the effects of a spill would likely be slowed by a 50-year-old trade embargo against Fidel Castro's communist government. In the event of a spill, the reaction times of those companies capable of dealing most effectively with the circumstances would be extended by the requirement that the U.S. federal government provide them with special permission to operate in Cuba's waters.
Nelson pointed out that any consequential delay could result in dire effects on Florida's environment and tourism-based economy. As he said, "If there is a spill there, we could lose part of the Everglades, or the Keys, or the coral reefs, or our fishing industry and jobs."
Backing the crusher
The two senators aren't alone in their concern about Repsol's impending activities in Cuba. In September, 34 lawmakers under the leadership of Ileana Ros-Lehtinen, R-Fla., signed a letter to the company requesting that it not enter Cuban waters. Their primary contention was that the initiation of offshore drilling would underpin the Castro regime and "bankroll the apparatus that violently crushes dissent."
As you know, the world's hydrocarbons -- especially crude oil -- are becoming progressively more tightly controlled by the countries where they're located, especially when the resources are located in places like Russia, Venezuela, or Kazakhstan. On that basis alone, the extent to which the efforts of Repsol and the other companies scheduled to work in Cuban waters are placed under the thumb of the country's dogmatic government will bear watching.
Let's look at Brazil, for example. There continues to be a significant amount of consternation within the U.S. regarding President Obama's trip to the South American country earlier this year. During his journey, he assured the locals there that, "We want to work with you. We want to help with technology and support to develop (Brazil's) oil reserves safely, and when you're ready to start selling, we want to be one of your best customers." Those assurances were rendered despite the president's ongoing comments that the U.S. is working diligently to expand its own energy self-sufficiency.
Following the 2006 discovery of the massive Tupi field in Brazil's ultradeep Santos Basin, major U.S. operators, including ExxonMobil (NYSE: XOM ) , began working diligently in the basin, frequently with considerable success. However, two years ago the Brazilian government generated rules requiring that Petrobras (NYSE: PBR ) , the state-controlled oil and gas company, receive a major share of any field.
Early last month, Chevron (NYSE: CVX ) , the second-largest U.S.-based energy company, experienced a so-called oil leak off the coast of Rio de Janeiro. My conversations with the company have indicated that the "leak" was likely an uncontrollable seepage, which can occur naturally in any body of water overlying oil deposits.
Before it was halted, the seepage apparently oozed about 2,400 barrels from the floor of the south Atlantic, an infinitesimal amount, compared with the 4.9 million barrels that BP's tragedy unleashed in the Gulf of Mexico last year. Nevertheless, in an atmosphere that has become more severe and in what appears to me to be a distinct overreaction, Brazilian authorities have suspended the company from drilling in their country and have initiated a seemingly gratuitous criminal probe of the incident.
As to the soon-to-occur drilling start-up in Cuba, spilled oil rarely is attentive to political boundaries. Nevertheless, there's little we can do to stunt the nascent activity in the land of Fidel and his pals.
A progressively tougher world
From the important perspective of investing in energy exploration and production companies, given the recalcitrance of a number of the world's hydrocarbon-bearing countries, it becomes progressively more important to remain cognizant of where your companies are operating. For instance, as The Wall Street Journal noted last week, Royal Dutch Shell (NYSE: RDS-B ) has been making a decided push toward the geopolitical safety inherent in working in such countries as Canada, Australia, and the U.S.
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