News

Oil and gas exploration: Long drill process to hit the field   

  • Nearly four-decade wait to be expedited through new legislation  
  • New Petroleum Resources Act to address all long-drawn issues  

By Maheesha Mudugamuwa 

Nearly four decades since the first comprehensive seismic programme in the Mannar Basin was conducted in 1984, the country has failed to begin oil/gas production as yet due to its inability to attract a proper foreign investment company. 

On many occasions, governments in the past have trumpeted the findings of oil and gas in the Mannar Basin, giving hope to the public that the country had finally found an avenue to earn trillions of foreign exchange to escape the debt trap.

However, during the past several decades, nothing has been executed other than the development of data related to the oil and gas deposits. 

Nevertheless, several investors showed their interest, and some were even to sign agreements, but none of those plans worked out for reasons unknown to many. 

In such a backdrop, the Energy Ministry has drafted a new Petroleum Resources Act to create investor confidence within Sri Lanka in order to enable the country to attract a prospective investor to invest in long-delayed oil and gas exploration projects.  

Accordingly, the Ministry hopes that the country would be able to begin oil and gas drilling in the Mannar Basin within the next four years.

Act to be approved next month

Speaking to The Sunday Morning, Energy Minister Udaya Gammanpila said the newly drafted Petroleum Resources Act would rectify the issues that prevailed on the decision-making level, while it would help attract prospective investors to invest in oil and gas drilling activities in Sri Lanka. 

“Before we finalise the draft act, we have sent it to major investors to get their opinions as well as to see whether the act is strong enough to build the trust among the investors. The act will be passed in Parliament next month,” he added. 

The Sunday Morning learnt that the Attorney General (AG) had cleared the new Petroleum Resources Bill, leading it to be gazetted shortly for parliamentary nod.  

The Cabinet, in January this year, gave the go ahead to draft a new act including provisions required to develop the petroleum and natural gas exploration and production industries in Sri Lanka.  

The new act, once passed by Parliament, will replace the existing Petroleum Resources Act No. 26 of 2003. 

However, Gammanpila said, under the new act, changes in the country’s political situation would not affect the oil and gas exploration activities. Even if there was a change of the respective minister or government, the investor or his/her investment would not be affected. 

The act would resolve the issues relating to the difficulties of attracting suitable investors, he added.   

Oil exploration in SL dates back decades

In Sri Lanka, oil exploration is not a new phenomenon, as it dates back in the 1960s when Compagnie Generale de Geophysique collected approximately 420 km of onshore and 75 km of offshore seismic data on behalf of the 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 Petroleum Resources Development Secretariat (PRDS), the first comprehensive seismic programme in the Mannar Basin conducted in 1984 under a tripartite agreement between Phoenix Canada Oil Company, Petro-Canada and CPC, and 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 Sri Lanka 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 the exclusive rights that TGS NOPEC had 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 to 6,640 sq. km. 

Out of the said nine blocks, the Cabinet of Ministers 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 Petroleum Resources Agreement with Cairn Lanka (Pvt.) Ltd. 

However, again in 2015, Cairn Lanka, a subsidiary of Cairn India Ltd. (CIL), one of the leading independent exploration and production companies globally, exited its operations in Sri Lanka due to the drop in crude oil prices. 

After Cairn Lanka abandoned the Sri Lankan project, it was under former Petroleum Resources Development Minister Chandima Weerakkody and during the presidency of Maithripala Sirisena that Total, a French oil and gas giant, was brought down to Sri Lanka to begin offshore oil exploration off the eastern coast in 2016. 

However, Weerakkody’s successor abandoned this project and later on in 2019, the previous Government had re-opened the ex-Cairn M2 block in the Mannar Basin for development and commercialisation through a limited tender offer, and it was earlier said that Sri Lanka had received three proposals from two consortiums and an operator based in the UK, South East Asia, and the Middle East. 

The previous management at the PRDS was planning to have gas production by 2023 with the developments of the M2 block. They were to get the second Petroleum Resources Agreement (PRA) signed by the country for 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, was undertaken in July 2008 in Colombo. 

Three-year timeline

Meanwhile, PRDS Advisor Saliya Wickramasuriya said in order to attract investors, there should be a proper policy framework, regulator, and a competitive environment. The newly drafted act and the formulated policies are aimed to enhance investor confidence and also acts as a protection. 

When asked further about the nature of the investment, Wickramasuriya noted: “The Government has the right over the oil and gas but that they have to produce it through an investor. Therefore, they would invest in oil and gas exploration expecting a profit. 

According to him, if the policy framework as well as the ground situation is cleared and a proper investor is attracted, oil and gas exploration would be able to commence within three years.