Gulf prepares for a

AMERICAN PROTESTS NOTWITHSTANDING, Cuba and partner Venezuela may begin drilling for oil from a Chinese-made deepwater rig late this summer within 120 miles of Key West, officials say.

“It’s worrisome. I don’t know what you do about it. Some of this may be Castro and (Hugo) Chavez thumbing their noses at us, ” says Chauncey Goss, a Republican candidate for the District 19 seat in the U.S. House of Representatives. Mr. Goss has said he will not support any drilling in the eastern gulf.

The U.S. has little recourse but to watch, since the drilling would occur in the sovereign waters of Cuba and the U.S. embargo on Cuba prevents American companies from participating in oil exploration by selling equipment or expertise.

“The idea of non-U.S. drilling (there) has always been a concern, and now it’s heightened,” notes another District 19 candidate, Gary Aubuchon, a state representative and Republican. “It’s important that Washington applies pressure to make sure that all international laws and rules — particularly as they relate to safety — are being followed.”

But profit as well as anxiety is part of the consideration for some Americans watching events in Cuban waters unfold with the summer.

Investors who bet their money on the government-owned Venezuelan oil company preparing to do the drilling, Petroleos de Venezuela S.A., might do well, according to Durig Capital, a U.S. investment firm. Last month, Durig recommended that investors buy highyield, short-term Yankee bonds for Petroleos de Venezuela, estimating an 11.43 percent yield in profit by the time they mature in Oct., 2014.

“Given the savvy, high reward to risk opportunity we see these bonds represent, we are recommending (them) for our clients looking for both greater cash flow and diversification away from over-weighted U.S. economybased assets, and it is why we are adding it to our Foreign and World Fixed Income holdings,” the company advised in an online newsletter.

The Cuban-Venezuelan effort would follow a failed attempt last spring by a Spanish company, Repsol, to locate oil from the same rig only about 70 miles off Key West.

But ocean currents there were not as dangerous as those in waters 6,000 feet deep, located south and mostly west of the Keys. Given the flow patterns of those currents, Florida beaches on both coasts would lie in a potential zone of catastrophe if a BP-style deep-water accident were to take place in those waters, according to spill scenarios produced by the National Oceanic and Atmospheric Administration.

“If oil did reach U.S. waters,” NOAA warns in a typically understated written comment, “marine and coastal resources in southern Florida could be at risk, including coral reefs and the Florida Keys National Marine Sanctuary, located north (and east) of the Cuban drilling sites.”

Not only could southern Florida’s marine ecosystems be at risk, they could be devastated for decades to come or even destroyed forever, say members of Hands Across the Sand. An international organization with many Florida chapters, Hands will join together on beaches worldwide on Sunday, Aug. 4 (see www.handsacrossthesand.com for Florida locations).

“The mantra of Hands is this: No to offshore drilling, Yes to clean energy,” says Robin Hurley, coordinator of the event on Fort Myers Beach.

“People need to be aware of this drilling plan even though it’s outside our waters. You should contact the various environmental agencies or your congressional representatives to protest,” she adds.

One factor influencing both investors and the opinions of other analysts may be the safety record of Petroleos. Unfortunately, it’s difficult to discover in simple searches.

“We can call for higher returns, greater profits, more free cash flow, but we have to know at what point companies are sacrificing safety performance to increase profits — the single most risky and potentially value-destructive strategy possible,” wrote Paul Sankey, a Deutsche Bank analyst quoted in CNNMoney, who had delivered that opinion to investors a month after the BP spill.

“It’s not possible to state with certainty, based on comparable data, who has combined best profitability with best safety. That is an enormous hole in our ability to analyze and recommend stocks.”

Although he was speaking of American oil companies, the same is true of most others. What it means is that estimating a ration of safety to profit is probably anybody’s guess.

Environmentalists, economists and politicians all analyze Cuba’s new search for energy and wealth in gulf waters differently. The Cubans claim as much as 20 billion barrels lie below their waters, while the U.S. Geological Survey estimates 5 billion barrels.

But they all reach at least one similar conclusion, based on the sober estimation of NOAA: The potential downside of the project for Americans and Floridians is dismal.

Officials at the Keys National Marine Sanctuary, at Rookery Bay in the Ten Thousand Islands region, and at the Charlotte Harbor Aquatic Preserves on the southwest coast did not return phone calls asking about their concerns by press time.

Spokeswomen for both NOAA and the state Department of Environmental Protection said their agencies are working closely with the U.S. Coast Guard, who would take the lead in any catastrophe affecting American waters or shores.

“We also work with local communities to make sure their emergency response plans are up to date,” says Jennifer Diaz, press secretary for the state DEP.

She would not elaborate, or talk about the specific threat imposed by drilling in waters off Cuba with currents that can reach Florida in less than 100 hours.

No senior officers of the International Association of Drilling Contractors, which offers training and establishes safety standards for rig operators and sub-surface engineers, responded to requests for comments.

But the organization’s president and CEO, Steven Kolville, noted in an online trade journal, www.drillingcontractors.org, that the IADC has upgraded its “Knowledge, Skills and Abilities” tests designed to make rig operators competent.

“The revamped KSAs will provide the industry with a benchmark for globally consistent drilling position requirements, as well as recommend means for effectively evaluating personnel,” he promised.

But whether that can help an organization — Petroleos de Venezuela S. A. — managed not just for profit but for its value as a cash cow that funnels money into many state programs in Venezuela, is anybody’s guess, says Dean Stansel, an economics professor at Florida Gulf Coast University. Professor Stansel previously worked at the CATO Institute, a conservative Washington-based think tank.

Professor Stansel weighed both the upside and the downside of the Cuban- Venezuelan drilling arrangement this way:

“In simple economic terms, if the world supply of oil increases, that would put downward pressure on the price. So the upside is the lower price.

“The downside is that it’s a government owned company, so they may be less careful about avoiding a spill. The profit motive is a wonderful thing. It gives producers a strong incentive to avoid unnecessary costs, such as the costs of an oil spill.”

Sometimes. In the case of B.P., the profit motive didn’t work in preventing the worst U.S. spill in a generation or more. But there are other factors, too, Professor Stansel notes.

“In this case, the fact that it’s a government-owned company and that government is run by a dictator who is not exactly an ally of the U.S. means that the incentive to take the necessary precautions is likely to be lower than it would be for a private oil company. So, the chances of a spill are likely to be higher.”

U.S. House candidate Goss questions whether the cost of getting to oil in such deep water will ultimately prove worth it to the Cubans and Venezuelans.

“It’s very deep, it’s expensive to get, so it costs more, and if they’re not getting that much more oil for the effort, you have the accounting-to-scale thing that goes on. So if it’s expensive to extract, why would they? Opportunity cost suggests that rig could be used more effectively somewhere else.”

As for the politics of it, “both Venezuela and Cuba are going to take care of themselves,” Mr. Goss surmises.

That may not help protect Florida’s beaches come fall and winter, but it will likely make a difference over time.

“It’s a pretty safe bet that Castro won’t live forever,” Mr. Goss says. “In fact, I can say with certainty that he won’t. Neither will Chavez, who is not healthy, and not working in the best interests of his people. Something has to give.”

With any luck, what finally gives won’t be a pipe and a drill stretching downward 6,000 feet below the ocean’s surface, fixed to a floating rig only 120 miles from the sea-blessed shores of the Sunshine State. ¦