Sherritt to benefit from Cuba's new tax laws

Canada's Sherritt International will benefit from a reduction in tax rates on its electric power, oil and gas E&P and mining operations in Cuba as a result of a new foreign investment law, the Toronto-based firm said.

In the wake of the new law, the statutory tax rate for oil and gas operations drops from 30% to 22.5% and for power generation from 30% to 15%, with a cut from 45% to 22.5% for mining activities on the island.

Sherritt increased its electricity generation in Cuba in 2014 due in part to the start-up in February of the Boca de Jaruco combined cycle plant (pictured), which contributed to a 44% increase in the volume of power generated.

However, Sherritt saw its Cuban oil production drop in 2014 due to technical problems, while higher cost recovery and lower prices affected profits.

Loss of production at one of Sherritt's wells in the Yumuri area due to mechanical failure pushed production down by 416b/d compared with 2013 and the well was shut during the fourth quarter as workover attempts failed to restart output.

A further decrease in production was caused by natural reservoir declines, according to the firm, the largest independent energy producer in Cuba.

Cost-recovery oil production in Cuba increased in 2014 due to higher recoverable spending and lower oil prices, which was partly offset by higher oil prices earlier in the year.

The firm reported an expenditure increase in 2014 due to equipment purchases and development drilling, including six oil development wells drilled in Cuba, and which are all producing. Two additional development wells were started in Q4 and are expected to be completed in 1Q15.

Last June the Cuban government signed an agreement with Sherritt to extend a production-sharing contract for the country's Puerto Escondido and Yumuri oilfields. Under the 10-year extension to March 2028, Sherritt must drill a minimum of seven additional wells within an initial two-year period.

The company also has nickel interests in Cuba.