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Cablegate: Brazil-Petrobras and Cuba-Petroleo to Sign Oil Deal, Low

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RR RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHMT
RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHRI #0302 3041604
ZNR UUUUU ZZH
R 301604Z OCT 08
FM AMCONSUL RIO DE JANEIRO
TO RUEHC/SECSTATE WASHDC 4685
INFO RUEHBR/AMEMBASSY BRASILIA 1016
RUEHSO/AMCONSUL SAO PAULO 5206
RUEHRG/AMCONSUL RECIFE 3475
RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RUCPDOC/USDOC WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS RIO DE JANEIRO 000302

SIPDIS

STATE FOR WHA/BSC, WHA/CCA, WHA/EPSC, EEB/ESC

E.O. 12958: N/A
TAGS: EPET ENRG CU BR
SUBJECT: BRAZIL-PETROBRAS AND CUBA-PETROLEO TO SIGN OIL DEAL, LOW
OIL PRICES MAY AFFECT PRE-SALT PLANS

REF: RIO DE JANEIRO 288

1. Summary. Brazil's Petrobras will partner with its Cuban
counterpart, Cuba-Petroleo (Cupet), for offshore oil exploration and
production in Cuban waters, according to Brazilian officials. The
agreement between Petrobras and Cuba-Petrol will be finalized and
signed during the Brazilian President Lula's visit to Havana on
October 30-31. Cuba's recent announcement of significant offshore
oil reserves (varying estimates between 5-20 billion barrels) and
the deal with Brazil may signal a shift in Petrobras' business
strategy. The high cost of ultra-deepwater pre-salt exploration in
domestic waters combined with the falling price of oil might have
Petrobras executives rethinking their plan to draw-down
international operations in order to focus on opportunities around
Brazil's newly discovered pre-salt reserves. End Summary.

2. Several Petrobras executives are accompanying President Lula to
Havana to finalize the joint venture arrangement between the
Petrobras and Cupet. No details on the oil agreement have been made
public. A Petrobras manager who deals with the company's North
America business operations told EconOff that the Cuba-Petrol deal
is not purely political motivated and that it shows excellent
promise. The deal would be Petrobras' only venture in the
Caribbean. He pointed to a recent Wall Street Journal article which
reported that Cuban geologists estimate more than 20 billion barrels
of oil equivalent off the country's northwest coast. (Note: The
U.S. Geological Survey estimate of the reserve is somewhere between
5-10 billion barrels)

3. If the deal is concluded, Petrobras will join the following
other international oil companies with a presence in Cuba: Repsol
(Spain), StatoilHydro (Norway), Oil & Natural Gas Corp. (India), and
PDVSA (Venezuela). China is also reportedly interested in offshore
opportunities in Cuba, but so far is only involved in onshore
activities there. Further details of the Cuba-Petrol deal and
Petrobras' plans will be reported as they become available via
septel.

4. The increasing seriousness of the financial market crisis is
already affecting Petrobras' strategic investment plans, Petrobras
CEO Jos Sergio Gabrielli hinted at an industry conference in
Houston last week. The worsening global scenario will "strongly
affect" the exploration of pre-salt oil, he said, and Petrobras'
ambitious investment plan could be pushed back.

5. COMMENT: The falling price of oil also plays an important factor
in Petrobras' pre-salt plans (reftel). The pre-salt reserves lie in
ultra-deep waters, which are very expensive to explore. The
unofficial estimate for the cost of drilling and producing in the
pre-salt area is around USD 60 per barrel. Given the current price
of oil at below USD70 per barrel, Petrobras may see Cuba's
significant discovery and cheaper explorations costs there as an
attractive alternative to hedge its domestic pre-salt gamble.

6. This message was cleared/coordinated with Embassy Brasilia.

MARTINEZ

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