Cuba is a country known mainlyfor two things: communism and tourism. Oh, and cigars.
But the possible discovery of as much as 4.6bn barrels of oil lying within its reach means Cuba could soon become oil-rich.
All red-blooded penny share fans love a good oil story. It's high-risk stuff. But if a small company finds oil, its shares can rocket. And this is another big story I can see gaining a following in the months ahead.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Another big oil story for 2012
2012 is already going to be another busy year for oil exploration. Drilling is now under way in the deeper waters of the Falklands southern basin. And there is also activity in Somalia, Uganda and Kurdistan to name a few off the top of my head.
But the drilling campaign that is really ruffling feathers in Washington DC has commenced just 60 miles off the precious Florida Keys.
This finger of coastline cradles the Gulf of Mexico, where the USA has total authority as BP has found out to its cost. To the south and east of the Florida Keys, beyond the prescribed offshore boundary, the USA has no jurisdiction. But when did that ever stop it from throwing its weight around?
Drilling has begun for oil reserves which could lead to new found prosperity for the communist country. That is Cuba's affair, you might suppose. But this has raised the temperature in Washington. William Reilly, co-chair of the National Commission on the BP Deepwater Horizon Oil Spill, spluttered: "The fact that Cuba is about to drill six wells in the next two years, some of them very deep, deeper than Macondo, in places we wouldn't allow if it were in our waters you better believe that the United States has an important interest in that."
What's really bothering the US
Florida's Lieutenant Governor, Jennifer Carroll, reckons that Cuba cannot be trusted to protect regional waters from an oil spill. Furthermore, Ileana Ros-Lehtinen, Chairwoman of the House Foreign Affairs Committee, wants to deny a US visa to anyone helping the Cuban government with their offshore ambitions. And even more forcefully, Senator Bill Nelson of Florida wants to rip up the agreement that determined the respective maritime zones of the USA and attempt to prevent Cuba from drilling at all.
None of these threats is likely to make much difference to members of the drilling consortium that include Spain's Repsol, Norway's Statoil and the Indian State National Oil Corporation. But there are two prospects bothering the United States. First, another tide of spilled oil could threaten its beaches once again. Another $40bn in damages would be disastrous for the Florida tourist industry. And secondly, the thought that poor communist Cuba could quickly become oil-rich communist Cuba
How Latin America could benefit from this oil discovery
BP's Macondo blow-out has left a deep scar and shaken up the insular US oil services industry. But the demand for energy is such that deep water drilling in the Gulf of Mexico has resumed, which hardly gives the US the high moral ground here.
Furthermore, it can hardly make dark threats about the fitness of the appointed Chinese Scarabeo oil rig given that its trade embargo has denied Cuba the oil drilling expertise of the USA. Besides, the only major US made component of this rig is reportedly the same blowout preventer that failed BP. So, assuming that the USA has learned its lessons and fixed this chancy device, there should not be anything to worry about.
A US delegation has been sent to Cuba, presumably to discuss contingency plans in the event of an accident, but while the USA frets about that, it is also anxious that a Cuban oil strike could swing the political balance of the Central American and Caribbean region.
Cuba is already receiving cheap oil from Venezuela in return for providing medical and educational services to the anti-US regime of Hugo Chavez and an oil bonanza in Cuba could bolster the resolve of other Central American states to spurn the USA in favour of Latin America.
What could this mean for penny shares?
So there is plenty riding upon Cuban oil, and we will soon find out just how much it might possess. At present Cuba's known on-shore oil reserves amount to a paltry 0.1 billion barrels of heavy, sour crude. But the US Geological Survey estimates that there could be 4.6bn barrels of better quality oil in the North Cuba Basin, a figure thought to be far too conservative by Cuban and other observers.
The first well will be on the Jagey prospect, a deep-water play just 55 to 60 miles south of Key West. Repsol and its partners are prepared to risk the wrath of the USA to participate in this campaign. Other oil companies have also taken exploration rights over some of Cuba's 59 off-shore blocks; these have come from Vietnam, Malaysia, Russia and Angola. The involvement of these countries could raise the political stakes even higher. But while the USA huffs and puffs there is not much that it can do to prevent Cuba from seeing what it might find beneath its coastal waters.
I'm watching this space. The importance for Red Hot readers is that Cuba's northern waters are very close to where of course BPC (BPC) holds extensive license areas. I will be keeping a close eye on developments here.
This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.
-
Stop inheritance tax perk on pensions, says IFSThe government could raise billions of pounds in revenue by closing inheritance tax loopholes, such as on pensions and AIM shares. Is your pension at risk?
-
Revealed: Best buy-to-let property hotspots in the UKLooking for the best buy-to-let property locations in the UK? We reveal the top 10 postcodes with the strongest rental returns
-
The end of the war on drugs?Features Two American states have legalised the use and possession of marijuana – is this the start of a ceasefire in the global war on drugs? James McKeigue reports.
-
Is Britain on the road to disaster?
Features George Osborne is now relying on quantitative easing to fund spending. That is dangerous, says John Stepek – investors should act now to protect their wealth. Here, he explains how.
-
Three growing trends that will make you big profits on the internet
Features More and more of us are online – looking for love, for entertainment, or for a quick buck. Backing the leaders will prove lucrative, says James McKeigue. Here, he tips four stocks to buy now.
-
Your ticket to an energy bonanza in East Africa
Features Southeast Asia is increasingly turning to Africa to fulfil its energy needs, says Lars Henriksson. Here, he explains why, and reveals the best way to profit.
-
How to profit from 'smart farming'
Features The global food supply is under pressure from the growing world population. That's creating some interesting developments in farming, says Merryn Somerset Webb - and opportunities for investors.
-
Two ways to play the Latin building boom
Features While Britain wallows in debt, Latin America is forging ahead with massive infrastructure projects, says James McKeigue. Here, he reveals a great story that most investors are missing out on.
-
Why small caps look set to rocket this yearFeatures The credit crunch took a brutal toll on the small-cap stocks in London's Alternative Investment Market. But this year they look set to beat the FTSE 100. Tom Bulford picks out some of the most promising plays.
-
A small-cap manufacturer on the road to recovery
Features Latest figures show that the UK's manufacturing sector is bouncing back faster than anticipated. Tom Bulford picks one small-cap firm that took a battering, but which is now staging a recovery.