Recent reports in the international and local media indicate that seismic surveys and exploratory drilling operations in the Block SL 2007-01-01 will be launched by Cairn Lanka (Pvt) Ltd (CLPL) in April 2010 and 2011. It is also revealed that these activities by CLPL which is wholly owned by Cairn India PLC (CIPL) will be carried out jointly with a block in the Palar basin in the eastern offshore area of India.
owever, according to the Petroleum Resources Agreement (PRA) signed by CLPL and the Government of Sri Lanka (GOSL) on July 7, 2008, exploration activities should have commenced on the effective date after the exploration licence is issued. It must be noted that this licence was issued by the Minister of Petroleum and Petroleum Resources Development on behalf of the GOSL only in October 2008 as there is no provision for such a licence in the Petroleum Resources Act No. 26 of 2003. Further regulations and amendments to the Act have not been completed and there is no proper legislative framework to legally regulate exploration and development activities at present.
My article in the Sunday Times FT on 11 October 2009 revealed that the three companies CLPL, CIPL and their parent company Cairn Energy PLC (CEPL) are involved in exploration in Mannar and requested the GOSL to disclose whether there are any financial and technical agreements between CLPL and CIPL. I also stated that seismic surveys both in the Palar and Mannar will cost CIPL US$73 million but costs in Mannar are not given. CLPL is expected to drill 5 holes with a total depth of 25,000 meters in 2011. The cost of hiring an offshore rig was given as US$250,000/day. Since the time for completion of drilling was not stated it is not possible to work out the costs.
CLPL according to the signed PRA, should have commenced the First Exploration Phase in April 2009 which is now scheduled to commence in April 2010, one year late. Further the costs are estimated as LMS (Likely Money Spent) at US $112.1 million. From these developments it appears that CLPL is now dragging its feet on commencement of exploration activities and is trying to tie up the Mannar survey with the commitments that CIPL have in India. It is also interesting to follow up recent developments in the financial arrangements of CEPL and CIPL. Since the commencement of production from the Mangala oil field, CIPL completed financial arrangements for US$1.6 billion for funding the Rajasthan project. This facility is to repay an existing loan of US$850 million and the balance to fund the ongoing project in Rajasthan.
CEPL has also agreed to sell to Malaysia’s Petronas International Corporation Ltd, (PICL) 43.6 million shares of CIPL taking a total holding of PICL in CIPL to 14.94%. Further CEPL has agreed to sell to PICL 10% interest in its existing 6 operating blocks offshore Greenland with PICL having the option of increasing its interest to 20%. CEPL and PICL have also agreed to cooperate on an 80/20 basis on future bids in Greenland. The total consideration to be paid by PICL in respect of these transactions is US$310 million.
From the above financial transactions it is now clear that CEPL is farming out its holding in CIPL and raising loans for the operations in Rajasthan and Greenland keeping the Mannar exploration on the back burner. It is also interesting to find out what role CEPL and CIPL will play in Mannar and the commitments CIPL have to CLPL in at least completing Phase 1 of the exploration under the PRA. Since CLPL is the signatory to the PRA there is no way CIPL is liable although it was CIPL that responded to the bidding round. It is possible that CIPL will also farm out its 100% interest in CLPL to others for its on going operations in Rajasthan.
It is noted that a shallow water block CY–OSN-2009/1 in the southern Cauvery basin (Mannar sub-basin) was awarded to Bengal Energy International Inc (BEII) a wholly owned subsidiary of Bengal Energy Ltd. Canada under the New Exploration Licensing Policy (NELP V111) in India. This block west of the Mannar Block 2 of CLPL is 1,362 square kilometers and 6 to 16 kilometers offshore with over 60% in water depths less than 100 meters and 85% in depths less than 500 meters. BEII will acquire 310 line kilometers of 2D and 81 square kilometers of 3D seismic data and drilling one hole after the first 4 years. The total costs are US$2 million or US$6/acre.
The Mannar block is 2 ½ times the BEII block and the LMS for 1st Phase of Exploration is US$112.5 million at US$132/acre. The Mannar block is in water depths of 400 -1200 meters and exploration costs are 22 times that of BEII Block. Did the Technical Evaluation Committee (TEC) and the Cabinet Appointed Negotiating Committee (CANC) study comparative costs when evaluating the 3 offers received for Mannar? Further were both these Committees aware that offshore rigs will be available for hire only in 2011 or 2012 and why it agreed to the CLPL time frame? It is also questionable whether the high costs for exploration were given to outbid the others.
In conclusion, it is regretted that GOSL through the MPPRD has still not issued a statement on the delays in commencing the oil exploration in Mannar by one year in accordance with the PRA and on the existence of a binding agreement between CLPL and CIPL in completing Phase 1 of the minimum work programme.
It must also be stated that the Mannar block is part of the Cauvery basin covering 250,000 square kilometers and has 28 producing oil and gas fields. Delays in exploration will lead to Sri Lanka losing millions of dollars in oil revenue and the transparent exploration policies of India will eventually draw out our oil and gas to their off shore regions in the southern Cauvery basin across the maritime boundary.
(Mr Jayawardena is the Sunday Times FT’s specialist writer on marine affairs. He is a retired Economic Affairs Officer United Nations ESCAP and can be contacted at fasttrack@eol.lk ) |
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