Cuba upstream fiscal and regulatory guide – PSA focus

14 December 2020 (Last Updated December 14th, 2020 14:17)

Cuba upstream fiscal and regulatory guide – PSA focus

Cuba offers acreage for upstream operations through production sharing agreement (PSA) models.

A new deepwater PSA model has been announced as part of Cuba’s first Offshore Licensing Round taking place between 2019-2021. The licensing round includes 24 deepwater blocks in Cuba’s Gulf of Mexico EEA and is supported by data from new seismic surveys and previous exploration wells.

Cuba has a competitive fiscal regime, which offers a high rate of return compared to other countries in North and South America. Its fiscal changes since 2014 are relatively attractive, especially for deepwater blocks.

Deepwater PSA model is attractive

Under the new deepwater PSA model, licensees are not required to pay any signature and production bonuses, nor royalties or surface fees. The cost recovery limit is biddable and can reach up to 70%.

Furthermore, the profit-sharing under the new PSA is calculated based on the R-Factor, which includes minimum biddable shares for CUPET. Since 2014, corporate tax has decreased from 30% to 15-22.5% and now includes eight years of tax holiday.

Taking into consideration that all peer countries of Cuba have higher exploration activity, Cuba’s favourable terms are expected to remain in place over the following years with the objective to attract foreign investments and support the economy.

Sector uncertainty is Covid driven

During the last few years, an increasing exploration interest across the Caribbean region has been noticed which might encourage investments in Cuba as well.

However, the reinstated US sanctions, the sector uncertainty caused by the Covid-19 pandemic, the accelerated efforts towards the energy transition, and the frontier nature of the deepwater blocks may be barriers to investment.

Additionally, some uncertainty remains in the legislation following reports that a draft of a new Petroleum Law has been submitted to the National Assembly. The country does not currently have a Petroleum Law in force.