By Davis George Moye, Journal of Transnational Law & Policy Member

Many Floridians sighed in relief two weeks ago when Russian state-owned oil company Zarubezhneft announced it would table its oil exploration program near Gulf Stream waters off of Cuba’s north-central coast. Zarubezhneft’s decision terminated the last ongoing offshore oil exploration program in Cuban waters. However, Zarubezhneft intends to resume exploratory drilling operations 70 miles from Florida’s coast next year may yet undermine years of lobbying against offshore drilling near Floridian waters.

Cuban energy needs appear sated for the near future, following last month’s agreement between Venezuelan President Nicolás Maduro and Cuban President Raúl Castro to continue the Chavez era’s longstanding trade agreements between Venezuela and Cuba. Venezuela will continue to provide Cuba 130,000 barrels of oil per day at subsidized rates in exchange for 40,000 Cuban expatriate medical professionals’ continued employment in Venezuela. This exchange has proven costly to the Venezuelan government and was a controversial topic in last April’s Venezuelan presidential election. Petroleum comprises about 35% of Cuban imports, virtually all of which is subsidized by Venezuela. Understandably, Cuban authorities are trying to promote an indigenous industry. Because several other companies are making plans to explore for oil in Cuban waters, Zarubezhneft’s announcement appears more of a delay than a dismissal of the inevitable.

The longstanding U.S. embargo keeps much American-made drilling equipment out of Cuba. Last December, Zarubezhneft presented a Norwegian-owned rig it planned to use in Cuba to American authorities. Zarubezhneft, which does some business in the United States, likely sought to mitigate liability in the event of a mishap.

The worst-case fear of a spill would present infrequent legal dilemmas when affected Floridians to seek economic relief. Cubapetroleo, Cuba’s state-owned petroleum company, is a joint partner in all drilling operations in Cuban waters. The most obvious issue stems from Cubapetroleo being a Cuban company. On account of the embargo, Cubapetroleo has little (if any) assets in the United States. Section 457m comment g of The Restatement (Third) of Foreign Relations Law indicates that in the absence of diplomatic channels between two states, service may be made through a “protecting country” or third country that does have diplomatic relations with both the United States and the defendant country.

The U.S. faced a similar situation in the 1980s following the Iranian Hostage Crisis. After American-Iranian diplomatic relations had severed, the Supreme Court in Dames & Moore v. Regan, ruled the President had authority not only to freeze the Iranian government’s assets, but then to agree to a neutral arbitration panel to decide claims made by American citizens against the Iranian government. Dames & Moore v. Regan, 452 U.S. 654 (1981).

Such a solution is unlikely in the event of a mishap by Cubapetroleo. Claims in Dames & Moore were against the Iranian government. Cubapetroleo, is a corporation (albeit state-owned) and is therefore distinct from the Cuban government as an instrumentality (Rest 3d of Foreign Relations Law § 457m comment a). Even were Cubapetroleo to be served, 50 years of embargo means that recovering damages would be nearly impossible.

Recent events in the Cuban oil industry indicate Cubapetroleo will partner with Zarubezhneft (or any other company with a multinational presence; Zarubezhneft is used here for argument’s sake) in future drilling operations. Florida’s comparative fault statute provides an exception for economic damages caused by pollution. Fla Stat 761.81(4). Likewise, the Oil Protection Act allows for the subrogation of third parties involved in oil spills. USC 2702. Thus Florida and Federal law would allow plaintiffs to hold Zarubezhneft liable for all damages. Were Zarubezhneft to seek reimbursement from Cubapetroleo in another venue, it would be entitled to do so, but such litigation would be immaterial to the needs of injured Floridians.

In 2010, BP created the Gulf Coast Claims Facility (GCCF), a $20 billion fund to handle claims in the immediate aftermath of the Deepwater Horizon Oil Spill. In practice the GCCF capped the total damages affected plaintiffs could recover at $20 billion, a value many claim to have been too low. BP created the GCCF with the apparent assent of President Obama after BP’s leadership consulted him prior to the fund’s inception. In 2012 BP reported a profit of nearly $20 billion ($12 billion after fines associated with Deepwater Horizon). By contrast Zarubezhneft reported a $500 million profit. A Deepwater Horizon scale lawsuit could bankrupt a company of similar size to Zarubezhneft, or incentivize it to pull chocks out of the United States in order to avoid litigation altogether. Either course of action would grossly undermine injured citizens’ tort remedies unless American leadership either ignored its citizens’ damages or disregarded the restatement by demanding payment from the respective companies’ owners–the Cuban and Russian governments. Demanding payment from those governments would violate the Restatement’s provisions and is unheard of in recent times. The other option would be to let billions of dollars in damages go unpaid. Oil exploration in the waters between Cuba and Florida has stopped for now, but if and when it resumes, Floridians should be prepared to keep a closer eye on this topic.

For more information about this topic, see:

Company Overview of JSC “Zarubezhneft”, BusinessWeek.com, http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=10403973.

Emily Gosden, BP profits halved after Gulf of Mexico charges, The Telegraph, Feb. 5, 2013, http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/9849098/BP-profits-halved-after-Gulf-of-Mexico-charges.html.

Enrique De La Oza, Venezuela signs $1bn agreement with Cuba, News24 News, April 14, 2013, http://www.news24.com/World/News/Venezuela-signs-1bn-agreement-with-Cuba-20130429-3.

Jeff Franks, Cuban oil hopes sputter as Russians give up for now on well, Reuters, May 29, 2013, http://www.reuters.com/article/2013/05/29/cuba-oil-idUSL2N0EA00W20130529.

Peter Orsi, Oil rig arrives off Cuba for new exploration, AP, (Dec. 15, 2012, 4:41 PM), http://bigstory.ap.org/article/oil-rig-arrives-cuba-new-exploration.

William E. Gibson, Companies abandon search for oil in Cuba’s deep waters, Sun Sentinel, April 14, 2013, http://articles.sun-sentinel.com/2013-04-14/news/fl-cuban-oil-drilling-retreat-20130414_1_jorge-pi-north-coast-cuban-officials.

 

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