Oil exploration – the battle begins

I was most amused to read the above interview given by the Minister of Petroleum and Petroleum Resources to The Sunday Times FT and a Press Conference held recently on the subject of offshore oil exploration. It shows how naive our politicians are when it comes to scientific reasoning. The minister is highly optimistic in giving a figure of 1 billion barrels of oil in three offshore blocks that are to be put on offer for bids by international oil companies. I have over the past few weeks published two very pertinent articles in The Sunday Times FT and raised some very critical issues that have been conveniently avoided by the minister. For the interest of the general public will the minister answer the following?

1. Divulge the names of the oil industry experts who have concurred with him the reserves of 1 billion barrels of offshore oil in the 3 Blocks offered? Does the Director General of the Petroleum Resources Development Secretariat also concur with the minister on this figure? For the information of the minister the total reserves of oil in Colombia which is a known oil bearing province that is presently in production is only 1.8 billion barrels which is 0.2 of the world’s reserves.

How is the minister certain that the offshore blocks contains oil and not gas? Is the minister aware that even in the Gulf of Mexico the wells drilled only 1 in 10 is productive? Also will the minister give the reasons for not offering the remaining 3 Blocks for international bidding as it will save the expenses of running Road Shows again?

2. Is the minister aware that the offshore Blocks in the south west of Sri Lanka is in water depths of between 1000 to 10 000 feet and exploration will take at least 4 –6 years. It is rather optimistic to give a time bar to getting oil by 2010 and this is purely political rhetoric. Further the countries experienced in deep water exploration and production of oil and gas are Norway, US and Great Britain and will the government decide to give the Blocks to Norway or a consortium of these companies? It was also stated that ONGC of India will compete.

3. I specifically pointed out the Maritime Boundary Agreements between Sri Lanka and India signed as far back as 1974 and relevance of Article 7 to the off shore Blocks under this agreement. What is the government response to this Treaty vis a vis offshore oil exploration where the western boundary is the aforesaid maritime boundary? What will be the outcome if an oil reservoir straddles this boundary?

4. It was also stated that two blocks were “sold “to India and China and the public has every right to know the terms and conditions of such a sale.

5. Is the minister aware that the present consultants to the Petroleum Resources Development Secretariat were earlier involved with TGS NOPEC who carried out Phase 2 of the 2D seismic survey on a cost sharing basis and will these consultants be able to give proper advice as there may have vested interests?

6. I was pleased to note that the Regulations under the Petroleum Resources Act No. 26 of 2003 have been finalized. Did the consultants or the Director General of the Petroleum Resources Development Secretariat (PRDC) who is paid a salary of US $ 4000 with added perks draft these Regulations? What were the consultancy fees paid for drafting the regulations and has the Attorney General concurred with the Regulations before being legislated? The public has every right to know and in other countries even newly independent Timor Leste the draft Petroleum Act, Regulations, Petroleum Taxation Act and Model Production Sharing Contract (PSC) were in the public domain for comments before legislation. Why is there so much of secrecy and no transparency on these legal enactments and is the Director General of the PRDC who is a Canadian citizen competent in such legislative enactments? How many foreign consultants are employed by the government and what are the consultancy fees? Is the government bearing the costs or any other multi lateral or bi lateral agency? Who is bearing the costs of the Road Shows and the travel and subsistence of the Sri Lankan VIPs and their staff?

7. The minister is highly optimistic if he expects signature bonus from companies who will bid for the 3 Blocks. Is the minister aware that the Sri Lankan off shore Blocks are a new frontier and there is no show of oil or gas off shore or near shore? Moreover these Blocks are in deep water without any 3 D seismic data or any results of exploratory wells. The companies will be rather reluctant to agree to such payments upfront.

8. The minister at a recent press conference stated that the government will request a 10 per cent free equity or carried interest for a new company incorporated in Sri Lanka to produce oil. It is ambiguous to include a free interest of carried interest in a PSC, as it will then amount to a Joint Venture operation. At the same conference the minister also stated that there would be a Production Bonus and 10 per cent royalty on oil sales and 35 per cent income tax on profits. No further details were given. I would like to remind the minister that there are more petroleum fiscal systems in the world than there are countries and the public has every right to know what the PSCs and related fiscal systems the government has finalized.

9. I would like to draw the attention of the minister to Part 1 of the Petroleum Resources Act No. 26 of 2003 which specifically states that the absolute ownership of petroleum resources are vested in the State and since the State is the custodian of such non renewable resources on behalf of the people of Sri Lanka we have every right to know the details of such contracts and fiscal systems.

10. It is inappropriate for a politician to spell out technical details of oil exploration and long term Production Sharing Contracts at press conferences without appropriate intervention of the Director General of PRDS who is silent. It must also be pointed out the Director General PRDS is a one man show and it is relevant to inquire whether he has trained appropriate staff to take over once his contract expires next year. Can the Director General of PRDS confirm the reserves of oil as 1 billion barrels in the three off shore block put out for offers?

In conclusion I would like to state that all this rhetoric on offshore oil is more politically motivated without any scientific reasoning and should be taken with a pinch of salt. Further it is dangerous to count your chicks before they hatch and let the public know the real picture of this exercise specially the terms for the two blocks “sold “ to China and India and other details of the PSC. I make these statements with 40 years of experience as a geologist locally and internationally.

Dulip Jayawardena
Retired Economic Affairs Officer United Nations ESCAP and former Director Geological Survey Department (Present GSMB)