By Maheesha Mudugamuwa
The Government is looking to sign a new oil exploration deal for the Mannar Basin later this year, after the ex-Cairn M2 block was reopened for development and commercialisation through a limited tender offer.
After a three-year lapse, Sri Lanka has received three proposals from two consortiums and an operator based in the UK, Southeast Asia, and the Middle East.
The Petroleum Resources Development Secretariat (PRDS) said the proposals were being evaluated by the project team and would then be referred to the Cabinet-Appointed Negotiation Committee (CANC) for recommendations. After the competition of the evaluation process is completed, the secretariat stated, the agreement between the selected company and the Government would be signed at the end of this year.
Industry downturn
PRDS Director General Vajira Dassanayake said that as the oil and gas industry is currently facing a grey period, the authorities were unable to find investments for oil exploration.
“We tendered for the M2 block once again and the deadline was on 7 June. Due to the adverse market and security situation in the country, we managed to get three proposals. In addition, we went for another bidding round for M1 and C1. We called for tenders in May and we are closing tenders on 15 July. That is also for exploration. Also, we are looking at a party to first develop the existing discoveries, and then we will look at the other prospects which lie within that block,” he said.
Dassanayake told The Sunday Morning that the secretariat was planning to sign the agreement with one of those three companies at the end of this year, and in the meantime, it was looking for an investor for gas production.
“The proposals are currently being evaluated by the project committee and it would then be sent to the Cabinet-Appointed Negotiations Committee (CANC) to obtain recommendations,” he added.
He said that they first want to secure gas production by 2023 with the existing developments of the M2 block for which they have already advertised.
Once the oil exploration deal is awarded as expected by the secretariat at the end of this year, it would be the second such Petroleum Resources Agreement (PRA) signed by the country for the block SL-2007-01-001 after the very first PRA signed in 2008 with Cairns Lanka to explore oil and natural gas in the Mannar Basin.
Lost confidence
While the Government is preparing for the signing of new agreements, former Minister of Petroleum Resources Chandima Weerakkody, who brought down Total – a French oil and gas multinational company – to Sri Lanka to begin offshore oil exploration in the eastern coast in 2016, lamented that his successors had abandoned his project and as a result, the whole process was delayed by over two years.
“We were able to bring Total into the country and we were ready for the bidding round. It took quite a long time for us to come to that position as when it comes to a country like ours, it is very difficult to get the attention of the giants in this industry to come to Sri Lanka,” he stressed.
“At that time, we were able to get about 11 competitors for the bidding, and the top 11 companies indicated their willingness and data would have also been purchased by many. But unfortunately, after I was removed from my post, my successors had abandoned the projects,” Weerakkody alleged.
“We prepared the agreements, and for that, we hired internationally recognised legal experts. But the Government changed the proceedings. As a result, the attention of those who indicated their willingness was withdrawn. Now, I have no idea what happened to my plan,” he said.
According to Weerakkody, his plan was to get LNG in Sri Lanka by 2020.
Explaining further, he stressed: “Sri Lanka’s energy future lies with LNG. As of now, the energy cost is very high in this country. Therefore, it is very difficult to promote investments in the country. The only solution lies with solar and LNG.”
In 2008, the Government, through the Minister of Petroleum and Petroleum Resources Development, signed a PRA with Cairn Lanka (Pvt.) Ltd. However, in 2015, Cairn Lanka, one of the leading independent exploration and production companies globally, exited from its operations in Sri Lanka due to the drop in crude oil prices
From 1960s
In Sri Lanka, oil exploration is not a new phenomenon as it dates back to the 1960s when Compagnie Generale de Geophysique (CGG) collected approximately 420 km of onshore and 75 km of offshore seismic data on behalf of Ceylon Petroleum Corporation (CPC), or Ceypetco. It is said that the Soviets, with their increased interest in South Asia in the 1970s, recorded 4,837 km of marine seismic data from 1972 to 1975, along with some onshore data to evaluate the Palk Bay area in the Cauvery Basin under an agreement with the Sri Lankan Government.
According to the PRDS, in the first comprehensive seismic programme in the Mannar Basin, which was conducted in 1984 under a tripartite agreement between Phoenix Canada Oil Company, Petro-Canada, and CPC, Petro-Canada acquired 980 km of 2D seismic data in the Mannar Basin. However, no further work was done, and by 1984, petroleum exploration work offshore came to a halt and remained dormant till 2001.
Again in 2001, the CPC and TGS NOPEC signed an agreement to collect 1,100 km of 2D seismic data in the Mannar Basin. In 2007, under a Cabinet decision, the Government of Sri Lanka bought the Mannar Basin 2D data from TGS NOPEC, thereby cancelling TGS NOPEC’s exclusive rights to collect seismic data in the territorial waters of Sri Lanka. Based on this data, the Mannar Basin was divided into nine exploration blocks ranging from 3,340 sq. km to 6,640 sq. km. Out of the said nine blocks, the Cabinet decided to offer three for petroleum exploration under an international licensing round.
In September 2007, the PRDS, under the President’s Office, launched the Mannar Basin licensing round for three exploration blocks in the Mannar Basin. In 2008, the Government, through the Minister of Petroleum and Petroleum Resources Development, signed a PRA with Cairn Lanka (Pvt.) Ltd. However, in 2015, Cairn Lanka, a subsidiary of Cairn India Ltd. (CIL), one of the leading independent exploration and production companies globally, exited from its operations in Sri Lanka due to the drop in crude oil prices.
Up-to-date database
As the experts claimed, the country needed an up-to-date geophysical database for it to attract more investors.
“We hope to have a more attractive geophysical database by the end of August, and thereafter, looking at available data, we will decide which other blocks in the Mannar Basin will be put up for tenders,” Dassanayake said.
“The data acquisition process was completed by the end of October 2018 by Total. Thereafter, data processing took place, which completed end-March this year. Currently, data is being interpreted by Total – we are expecting preliminary reports by the end of August. Further to that, the Norwegian oil company Equinor expressed their interest in joining Total for a joint study in the two blocks. We have received the Cabinet nod for that as well as the clearance from the Attorney General, and we are hoping to sign the agreement within the next two weeks, with Equinor. That will bring in better technology and higher investment in ultra-deep blocks. Also, we need ample investments for drilling – two of the leading oil and gas explorers will be joining this. It will help to see the full potential of JS5 and JS6,” he explained.
“In addition, the PRDS is looking at southern coast exploring data in JS1 and JS4. We don’t have seismic data. There are geological theories that there can be potential in the southern block. We are joining the multi-client umbrella to come and invest on seismic survey,” he added.
When asked about the reasons for the delay in launching the exploration activities, Dassanayake said: “There’s no delay at all. It took Saudi Arabia 60 to 70 years to produce from the start – mainly the war-impacted areas. The process takes some time. Even for seismic data to process, it takes around seven months and then comes interpretation of data to make decisions and approvals. Commercially, we started in 2007 and the second licensing was done in 2013. We didn’t get the desired result. However, the economic factors would not drastically affect exploration activities.”
Photo Lalith Perera
The Government is looking to sign a new oil exploration deal for the Mannar Basin later this year, after the ex-Cairn M2 block was reopened for development and commercialisation through a limited tender offer.
After a three-year lapse, Sri Lanka has received three proposals from two consortiums and an operator based in the UK, Southeast Asia, and the Middle East.
The Petroleum Resources Development Secretariat (PRDS) said the proposals were being evaluated by the project team and would then be referred to the Cabinet-Appointed Negotiation Committee (CANC) for recommendations. After the competition of the evaluation process is completed, the secretariat stated, the agreement between the selected company and the Government would be signed at the end of this year.
Industry downturn
PRDS Director General Vajira Dassanayake said that as the oil and gas industry is currently facing a grey period, the authorities were unable to find investments for oil exploration.
“We tendered for the M2 block once again and the deadline was on 7 June. Due to the adverse market and security situation in the country, we managed to get three proposals. In addition, we went for another bidding round for M1 and C1. We called for tenders in May and we are closing tenders on 15 July. That is also for exploration. Also, we are looking at a party to first develop the existing discoveries, and then we will look at the other prospects which lie within that block,” he said.
Dassanayake told The Sunday Morning that the secretariat was planning to sign the agreement with one of those three companies at the end of this year, and in the meantime, it was looking for an investor for gas production.
“The proposals are currently being evaluated by the project committee and it would then be sent to the Cabinet-Appointed Negotiations Committee (CANC) to obtain recommendations,” he added.
He said that they first want to secure gas production by 2023 with the existing developments of the M2 block for which they have already advertised.
Once the oil exploration deal is awarded as expected by the secretariat at the end of this year, it would be the second such Petroleum Resources Agreement (PRA) signed by the country for the block SL-2007-01-001 after the very first PRA signed in 2008 with Cairns Lanka to explore oil and natural gas in the Mannar Basin.
Lost confidence
While the Government is preparing for the signing of new agreements, former Minister of Petroleum Resources Chandima Weerakkody, who brought down Total – a French oil and gas multinational company – to Sri Lanka to begin offshore oil exploration in the eastern coast in 2016, lamented that his successors had abandoned his project and as a result, the whole process was delayed by over two years.
“We were able to bring Total into the country and we were ready for the bidding round. It took quite a long time for us to come to that position as when it comes to a country like ours, it is very difficult to get the attention of the giants in this industry to come to Sri Lanka,” he stressed.
“At that time, we were able to get about 11 competitors for the bidding, and the top 11 companies indicated their willingness and data would have also been purchased by many. But unfortunately, after I was removed from my post, my successors had abandoned the projects,” Weerakkody alleged.
“We prepared the agreements, and for that, we hired internationally recognised legal experts. But the Government changed the proceedings. As a result, the attention of those who indicated their willingness was withdrawn. Now, I have no idea what happened to my plan,” he said.
According to Weerakkody, his plan was to get LNG in Sri Lanka by 2020.
Explaining further, he stressed: “Sri Lanka’s energy future lies with LNG. As of now, the energy cost is very high in this country. Therefore, it is very difficult to promote investments in the country. The only solution lies with solar and LNG.”
In 2008, the Government, through the Minister of Petroleum and Petroleum Resources Development, signed a PRA with Cairn Lanka (Pvt.) Ltd. However, in 2015, Cairn Lanka, one of the leading independent exploration and production companies globally, exited from its operations in Sri Lanka due to the drop in crude oil prices
From 1960s
In Sri Lanka, oil exploration is not a new phenomenon as it dates back to the 1960s when Compagnie Generale de Geophysique (CGG) collected approximately 420 km of onshore and 75 km of offshore seismic data on behalf of Ceylon Petroleum Corporation (CPC), or Ceypetco. It is said that the Soviets, with their increased interest in South Asia in the 1970s, recorded 4,837 km of marine seismic data from 1972 to 1975, along with some onshore data to evaluate the Palk Bay area in the Cauvery Basin under an agreement with the Sri Lankan Government.
According to the PRDS, in the first comprehensive seismic programme in the Mannar Basin, which was conducted in 1984 under a tripartite agreement between Phoenix Canada Oil Company, Petro-Canada, and CPC, Petro-Canada acquired 980 km of 2D seismic data in the Mannar Basin. However, no further work was done, and by 1984, petroleum exploration work offshore came to a halt and remained dormant till 2001.
Again in 2001, the CPC and TGS NOPEC signed an agreement to collect 1,100 km of 2D seismic data in the Mannar Basin. In 2007, under a Cabinet decision, the Government of Sri Lanka bought the Mannar Basin 2D data from TGS NOPEC, thereby cancelling TGS NOPEC’s exclusive rights to collect seismic data in the territorial waters of Sri Lanka. Based on this data, the Mannar Basin was divided into nine exploration blocks ranging from 3,340 sq. km to 6,640 sq. km. Out of the said nine blocks, the Cabinet decided to offer three for petroleum exploration under an international licensing round.
In September 2007, the PRDS, under the President’s Office, launched the Mannar Basin licensing round for three exploration blocks in the Mannar Basin. In 2008, the Government, through the Minister of Petroleum and Petroleum Resources Development, signed a PRA with Cairn Lanka (Pvt.) Ltd. However, in 2015, Cairn Lanka, a subsidiary of Cairn India Ltd. (CIL), one of the leading independent exploration and production companies globally, exited from its operations in Sri Lanka due to the drop in crude oil prices.
Up-to-date database
As the experts claimed, the country needed an up-to-date geophysical database for it to attract more investors.
“We hope to have a more attractive geophysical database by the end of August, and thereafter, looking at available data, we will decide which other blocks in the Mannar Basin will be put up for tenders,” Dassanayake said.
“The data acquisition process was completed by the end of October 2018 by Total. Thereafter, data processing took place, which completed end-March this year. Currently, data is being interpreted by Total – we are expecting preliminary reports by the end of August. Further to that, the Norwegian oil company Equinor expressed their interest in joining Total for a joint study in the two blocks. We have received the Cabinet nod for that as well as the clearance from the Attorney General, and we are hoping to sign the agreement within the next two weeks, with Equinor. That will bring in better technology and higher investment in ultra-deep blocks. Also, we need ample investments for drilling – two of the leading oil and gas explorers will be joining this. It will help to see the full potential of JS5 and JS6,” he explained.
“In addition, the PRDS is looking at southern coast exploring data in JS1 and JS4. We don’t have seismic data. There are geological theories that there can be potential in the southern block. We are joining the multi-client umbrella to come and invest on seismic survey,” he added.
When asked about the reasons for the delay in launching the exploration activities, Dassanayake said: “There’s no delay at all. It took Saudi Arabia 60 to 70 years to produce from the start – mainly the war-impacted areas. The process takes some time. Even for seismic data to process, it takes around seven months and then comes interpretation of data to make decisions and approvals. Commercially, we started in 2007 and the second licensing was done in 2013. We didn’t get the desired result. However, the economic factors would not drastically affect exploration activities.”
Photo Lalith Perera