The Sri Lankan government expressed confidence that drilling for offshore oil and gas reserves in the Mannar Basin in late 2010 or early 2011 will reap extraordinary benefits for the country. Speaking to the Business Times on Thursday, Minister of Petroleum and Petroleum Resources Development A.H.M. Fowzie said that as a result of finding oil and gas reserves, Sri Lanka will soon become one of the richest countries in Asia.
At the press conference. Pic by Gemunu Wellage
“Sri Lanka will save a lot of foreign exchange by not importing oil,” he said. “There will be increased employment and the country will also have trained geo scientists and geo physicist. We will also expand our refineries to refine oil and sell it abroad.”
Almost 18 months after the government signed a Petroleum Resource Agreement (PRA) with Cairn Lanka (Pvt) Ltd, a fully owned subsidiary of Cairn India, to explore for oil and natural gas in the Mannar Basin, an exploration vessel to conduct 3D seismic surveys arrived offshore on Wednesday to acquire the data. The company has invested over US$100 million for all the phases of the exploration process.
Later at a press conference on Thursday, Mr. Fowzie said oil and gas will be found in Sri Lanka very soon. He explained that the 3D seismic surveys will determine what amounts of hydrocarbon deposits are present in the block in the Mannar Basin. A cabinet paper has already been submitted by Mr. Fowzie to call for bids for exploration for three of the remaining seven blocks in the Mannar Basin. A website has been set up for future bidders with the relevant information.
He said he hopes there will be more bids during the next rounds following the end of the civil conflict in May 2009. He said there have also been discoveries of oil and gas in the Cauvery Basin and that studies in the Southern Province have shown the presence of hydrocarbons.
Also speaking at the press conference, Cairn’s Director of Strategy P. Elango said the surveys have to be conducted in the right ‘weather window’.
He said the US$100 million was made because the company is optimistic of finding hydrocarbons. The cost for the 3D surveys depends on the current market rate for services which have decreased over the past year, following the decreasing trend in global oil prices. “We will share the cost after the activities are complete.”
Mr. Elango further stated that drilling is expected to commence during the 2010/2011 weather window. He added that Cairn India, which operates in Rajasthan, Andhra Pradesh and Gujarat in India, drilled 14 dry wells in Rajasthan before making one of the largest offshore discoveries in India which supplies 20% of India’s domestic production.
Director General of the Petroleum Resources Development Secretariat (PRDS) Neil de Silva said the Production Sharing Agreement (PSA) is an all encompassing document which covers all legal and financial aspects of how the work is conducted and what benefits would come to Sri Lanka. He explained that there is a 10% royalty from production and cost recovery from what is remaining. Under the profit sharing formula the total revenue is divided by the total investment. Dr. De Silva said the 10% royalty is just the beginning because many other benefits will flow.
In a press release from Cairn Lanka, Director Indrajit Banerjee stated that while there are no guarantees of success when exploring a frontier area such as the Mannar Basin, the block is under explored and the company is encouraged by the studies conducted to date.