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DE RUEHRI #0302 3041604
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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