Prospective Oil & Gas resources in Sri Lanka

[oscar_81]

Cairn Lanka sets Feb 01 for spudding fourth exploratory well
* US$ 150mn invested on phase one, local companies, Navy & Air Force get US$ 12.4mn
* IF commercially viable hydrocarbon deposits found, extraction could start 3 to 5 years from now
January 29, 2013, 8:32 pm


Cairn Lanka will commence drilling a fourth exploratory well 21km off the Kalpitiya coast on February 01, 2013, in its search for commercially viable hydrocarbon deposits in Sri Lanka’s side of the Mannar Basin.

The availability of a drillship, the ‘Discoverer Seven Seas’ owned by Singapore-based Transocean Inc, made it possible for Cairn Lanka to advance the drilling by a quarter, paving way for the team to exploit a prime ‘weather-window’.

Cairn Lanka, fully owned by Cairn India, has already invested US$ 150 million on the first phase which resulted in the discovery of two (out of three) successive gas and condensate discoveries on wells named CLPL Dorado and CLPL Barracuda.

Spudding, or the start of drilling, on the fourth exploratory well is part of phase two and the well will be called CLPL Wallago, named after a breed of catfish found in the Central Province of Sri Lanka, Cairn India Head of Corporate Affairs and Communications Dr. Sunil Bharati, told The Island Financial Review yesterday.

The company has already exceeded commitments under phase one, which was the drilling of three exploratory wells, by acquiring 3D seismic data covering 600sq km of the Mannar Basin sea bed.

Data from the CLPL Wallago well, 1.1km from the sea-level and 3km from the seabed, the seismic data and data from the two successful wells would be subject to a series of gruelling analysis, which could take months.

"IF the data is promising then we could commence appraising the hydrocarbon deposits within a year or two," Dr. Bharati said.

The appraisal process referred to the process of finding out the size or volume of hydrocarbon deposits. This data is again analysed and a commercialisation study is done to determine whether the hydrocarbon deposits are commercially viable.

For an industry where guess-work is shunned for meticulous study and preparation Dr. Bharati cautiously said: "IF all goes well, and IF the data points to commercially viable hydrocarbons, then extraction could commence within three to five years time." He stressed again, that everything depended on finding such a deposit, and this takes time, and money.

Cairn Lanka’s commitment for phase one was US$ 110 million but it had spent more than US$ 150 million for additional work, such as the acquisition of 3D seismic data. Dr. Bharati was tight-lipped on how much would be invested on phase two.

Sri Lankan companies, alien to the hydrocarbon exploration industry, have already forged partnerships with Cairn Lanka, and Dr. Bharati said he was impressed.

"We have already spent US$ 12.4 million on Sri Lankan businesses for their services and goods. We appreciate the services carried out by the Sri Lanka Navy (security) and Sri Lanka Air Force (helicopter ferrying) both on commercial terms," he said.

Hayleys Energy, GAC Shipping, NARA, Lanka IOC were some of the others doing business with Cairn Lanka, apart from the city hotels that provides accommodation to an international team conducting operations on the drill ship for three to four months at a time.

"At any given time there are more than a hundred people on the drill ship," Dr. Bharati said.

During exploratory activities in phase one, around six Sri Lankan professionals and scientists were on board the drillship providing their services.

He paid to a tribute to Sri Lanka’s bureaucracy, saying it was more efficient than a few other regions where Cairn operated.

"Government approvals are a lot quicker than in some places, and full marks to them, given that this was a relatively new industry," Dr. Bharati said.

IF, commercially viable hydrocarbon deposits are found, it would belong to the government of Sri Lanka, where a royalty fee and profit sharing with Cairn Lanka would ensue according to the Petroleum Resources Agreement signed in 2009.

The government expects a 10 percent royalty, apart from the profit share based on the investment multiple, taxes and the revenue of the participating National Oil Company which will be incorporated IF and WHEN commercial oil extraction commences.

According to this agreement IF commercially viable deposits of hydro carbons are found, based on the investment multiple, the shares in profits will begin from 12.5 percent to Sri Lanka and increase to 60 percent within five years of commencement of oil extraction.
http://www.island.lk/index.php?page_...de_title=71471

[Rajasinha]

Second phase of oil drilling in SL begins today

The second phase of the Exploratory Drilling Campaign for oil in the Mannar Basin will be starting from next week onwards and Helitours, the Commercial Arm of the Air Force has been selected as the official Air Logistic Operations provider for the entire operation.

Picture courtesy of Sri Lanka Air Force - A department of the Ministry of Defence.
Licensed Under Creative Commons By 3.0


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[Popthepuff]

This'll hopefully help the economy. Cheers .

[Popthepuff]

Hang on why only 12.5% profit to SLK at first??? That's crazy!

[Rajasinha]

Originally Posted by Popthepuff

Hang on why only 12.5% profit to SLK at first??? That's crazy!

I did a quick calculation; if we are able to produce 219,178 barrels per day or ~80 milion barrels per year. We would add 8% to our yearly GDP growth based on $100 a barrel.

When you see countries like Iraq with a GDP similar to SL, producing 2.6 million barrels a day, almost a 1 Billion barrels a year. You can see how easily that can boost the economy.

[Popthepuff]

Yeah, but...I dunoo, I feel like it should be at least a little more to start off with, around 25%, and then gradually increase.

[erathal]

Sri Lanka plans to launch the second round of bidding for the oil blocks in the Mannar Basin off Sri Lanka's northwest coast at a conference on energy in Houston, Texas.

The bids for the oil blocks will be announced at the IHS CERAWeek 2013 in Houston on March 07, and the announcement will be followed by a road show, Petroleum Resources Development Secretariat Chairman Saliya Wickramasuriya has said in an interview with Daily Mirror.

The Secretariat has informed around 25 oil companies of the launch last Wednesday (13) and many of the companies have shown interest.

The road show will be in London from March 11th to 15th and in Singapore from March 18 to 22.

According to Wickramasuriya, up to 10 offshore blocks would be awarded in the second bidding round.

Cairn Lanka, a subsidiary of Cairn India bought the only block awarded in the first round. Cairn had explored three oil wells in the block in phase one and found petroleum residues in two of them. Exploration on a fourth well is about to start this month after a third well found to be unproductive and plugged in December 2011.

Colombo Page

[dramirez]

Originally Posted by Popthepuff

Yeah, but...I dunoo, I feel like it should be at least a little more to start off with, around 25%, and then gradually increase.

That doesn't benefit anyone. Oil field require managed production to ensure that the field life is as long as possible. If you start with a high profit oil rate and increase every year, the operator is likely to maximise production at startup and then deplete as fast as possible, let the production rate crater and abandon, leaving massive amounts of recoverables behind.

What you have left is a wasted oil field and a poor deal for an oil operator. While increasing profit rate over time recovered by the government may seem like a good idea it's a very short-term contract.

Sri Lanka should think about a tax + royalty regime or a more lenient production sharing contract regime to encourage investment.

In any case, Cairn have only found gas... it'll be hard to sell that gas regionally since India's market is very closed down and it'll cost a bomb to develop our own infrastructure for local use.

[Popthepuff]

Originally Posted by dramirez

That doesn't benefit anyone. Oil field require managed production to ensure that the field life is as long as possible. If you start with a high profit oil rate and increase every year, the operator is likely to maximise production at startup and then deplete as fast as possible, let the production rate crater and abandon, leaving massive amounts of recoverables behind.

What you have left is a wasted oil field and a poor deal for an oil operator. While increasing profit rate over time recovered by the government may seem like a good idea it's a very short-term contract.

Sri Lanka should think about a tax + royalty regime or a more lenient production sharing contract regime to encourage investment.

In any case, Cairn have only found gas... it'll be hard to sell that gas regionally since India's market is very closed down and it'll cost a bomb to develop our own infrastructure for local use.

I swear they found oil and gas....
Anyway, it'll probably be used down in 'Tota as part of the re-exporting/exporting port scheme they have.
I feel we should develop our own infrastructure for use; in the long run, if we find more oil and gas deposits, it could help achieve energy self-sustainability.

News:

Sri Lanka to amend the Petroleum Resources Act to comply with international standards
Sat, Jan 26, 2013, 01:19 pm SL Time, ColomboPage News Desk, Sri Lanka.


Jan 26, Colombo: Sri Lanka will make amendments to its Petroleum Resources Act No. 26 of 2003 to conform to the international standards in the petroleum industry.

The petroleum industry laws will be amended to meet the required standards of global expectations of the petroleum Industry, the Government said.

The amended act will also introduce principles of good governance into Sri Lanka's Oil and Gas industry.

The Cabinet has approved the proposal to amend the Petroleum Act forwarded by President Mahinda Rajapaksa.

Sri Lanka launched the exploration of the northwestern Mannar sea bed for oil in 2008 and gave the top block, Block 1, of the eight blocks identified by seismic studies as viable oil resources to Cairn India for drilling.

Cairn Lanka, subsidiary of Cairn India discovered gas and liquid hydrocarbons deposits in two of the three wells drilled in 2011and the company is set to launch its second phase of operations this year.

Sri Lanka has decided to expand the oil exploration activities from Mannar to Galle in the South this year.

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Cairn Lanka/India to begin phase 2
* To start drilling of 4th well around Feb. 1-official

* Commercial viability to be decided by 2014

* Cairn found gas, condensate in 2 wells drilled in phase-1

* Sri Lanka has 8 blocks in Mannar; India, China offered 1 each

By Ranga Sirilal

COLOMBO, Jan 31 (Reuters) - Cairn India will start the second phase of its Sri Lankan oil exploration programme this week with the drilling of a fourth well and will decide the commercial viability of the project by 2014, a company official said on Thursday.

Success in the project for the unit of London-listed Vedanta Resources Plc would mark a significant step in Sri Lanka's efforts to reduce its dependence on imported fuel.

The island nation produces no oil and its oil import bill was $4.6 billion in 2011. Since the end of a three-decade war with Tamil separatists in May 2009, the government has tried to reinvigorate oil and gas exploration.

Cairn India has the rights to drill in one of eight blocks in the offshore Mannar basin. China and India have been offered one each, which they have yet to accept, while the remaining five are expected to be tendered later this year.

Cairn has already concluded the first phase in Mannar basin, discovering gas and condensate in two out of three wells drilled, although their commercial viability has yet to be determined. A third well was plugged and abandoned as a dry hole in December 2011.

The fourth well, named Wallago, is located 22 km off the Sri Lankan western coastal town of Kalpitiya.

"Fourth well drilling will commence around Feb. 1," Sunil Bharati, Cairn India's head of corporate affairs and communication who was in Colombo, told Reuters.

"We think it will be completed within 35-40 days, if everything goes well and there is no equipment failure."

INVESTMENT PLAN

Cairn has spent $150 million for the first phase, more than the estimated $112 million, Bharati said, adding investment in the second phase could be more than that of the first phase.

Seismic work done earlier by Norway's TGS Nopec Geophysical Co ASA showed some potential in the northern Cauvery Basin, which on the Indian side has producing wells, and in a basin off the island's southern coast.

Sri Lanka's government has said the seismic data shows the potential for more than 1 billion barrels of oil under the sea in a 30,000 sq km area of the Cauvery basin.

Russia's natural gas monopoly Gazprom and Malaysian state oil company Petronas have held talks with Sri Lanka on potential exploration, and Vietnam and Sri Lanka signed a deal on oil and gas cooperation in October, 2011.----------------
Greater potential for natural gas: Cairn official
THURSDAY, 31 JANUARY 2013 08:54
Sri Lanka’s Mannar Basin has a greater chance of being endowed with natural gas than oil, a top official of Cairn Lanka, which has established the country’s first working petroleum system in the Mannar Basin said.

“Logically speaking, there is a greater likelihood of gas. But that does not exclude the possibility of oil being there,” Cairn India and Cairn Lanka Director Dr. Sunil Bharati told Mirror Business in a brief interview yesterday.

In October, 2011, Cairn Lanka, a fullyowned subsidiary of Cairn India, announced it had discovered natural gas deposits in Dorado, an exploratory well located in SL 2007-01-001 block in Mannar Basin.

This was followed by a further announcement in November that the firm discovered gas deposits with hydrocarbon potential in the second exploratory well, Barracuda. A third well was also drilled and subsequently abandoned as a dry hole.

Sri Lanka has identified eight blocks for oil exploration in the Mannar Basin. Cairn Lanka has rights for one block while another two blocks have reportedly been offered to China and India, which they are yet to accept. Remaining five blocks are to be tendered shortly.

Cairn Lanka is currently bracing to drill its fourth exploratory well, three months before the original date set to kick off the second phase of drilling, as a result of early availability of a rig.

According to Bharati, the drill ship arrived in the Sri Lankan waters on January 23 and the drilling of the well, named Wellago, is expected to commence in the first week of February.

“It will take about 35 to 45 days to complete the drilling. There is only one commitment well (exploratory well) in the second phase,” he noted.

Talking about the possibilities lying beyond the second phase, Bharati noted that there are several paths that Cairn Lanka could tread along in going forward.

“Depending on the results of the second phase, there could be two or three different paths available to us, as envisaged in the PRA. Either we can choose to proceed to the third phase, which will again require drilling a commitment well and has a time period of one to two years, or not to enter the third phase but enter into an appraisal phase followed by a development phase.”

“If we opt to enter the development stage, we will have to do a detailed appraisal to establish the volume of oil or gas available in the block, which will take one to two years. Only then you will know whether the block is commercially viable,” Bharti noted.

He further added that both paths have timelines clearly defined in the Petroleum Resource Agreement (PRA) Cairn Lanka has entered into with the Sri Lankan government, with six months to one year extension periods.

Commercial production can only take place 3 to 5 years after the appraisal being carried out, as it generally takes 2 to 3 years to set up the required infrastructure.

“If it is gas, it will not be easy. As gas cannot be easily transported and contained. If it is oil, it’s a straight forward pipeline,” Bharati added.
--------------

[Popthepuff]

High interest for second round bidding
MONDAY, 18 FEBRUARY 2013 09:43

Mirror Business recently met with Petroleum Resources Development Secretariat Chairman Saliya Wickramasuriya to discuss the latest developments in the country’s petroleum exploration front. Following are excerpts of the interview

By Indika Sakalasooriya

Q: When is the second licensing round starting?

Saliya Wickramasuriya
The second round bidding has not been launched yet, but has been announced. It was announced to the industry and part of the business community who had been in touch with us.
The mail to the business community went out last Wednesday morning and the mail to the industry went from two different sources—there was a notification on February 8, sent out by our bid consultants, IHS, through their international network. About four to five thousand people subscribe to their alerts and it went as a mail shot to everybody.
But at the same time on Wednesday the 13th, we informed about 25 oil companies of different sizes who had been in contact with us over the last year. Many of them have visited us here and some of them have already bought our data. The launch date of the bid would be March 7, 2013 and it will be launched in Houston, our first venue of the road show we are planning. We have selected Houston at that time because it coincides with the week in which the industry’s premier oil conference called CERAWeek takes place. It is populated by the people at senior executive level.
Since we have been invited to speak at the event, we plan to announce the second licensing round there. The road show is not going to be at the CERAWeek but at a venue not far away. We are using CERAWeek as an opportunity to reach at the highest level of decision makers in the industry.
Thereafter the road show will move to London on March 11th. We will carry out the road show until March 15 and then will hold the last lap of the road show in Singapore from March 18 to 22. At every venue data rooms will be run hosted by IHS and assisted by PRDS technical staff.



Q: So after that oil companies can bid?
Well, not really. Those interested will start compiling their bids. The major event in publicizing the opportunities in Sri Lanka’s oil and gas sector will be held in Sri Lanka in the form of an E&P (Exploration and Production) Symposium about a month after the conclusion of the road shows. It will be by invitation only. The event would be a much more focused affair as we hope to influence the decision by oil companies to select Sri Lanka as a potential destination because ultimately we want to showcase a little bit of the country as well.

The event will also be attended by a selected group of the local business community. One of the objectives we have is to tie Sri Lankan interests with international businesses and that is very high up on our list of priorities. We are approaching this in a very collaborative manner. We are not bringing in any onerous rules of regulations that require certain percentages or mandatory local representation. But we have strategic means of increasing the local content in the industry in a mutually beneficial manner that will come out in the Petroleum Resources Agreement (PRA).



Q: When exactly will the actual bidding process takes place?
Well….let me clarify first. There are some companies who already know a lot about Sri Lanka. Those companies are already assessing their prospects and doing their due diligence. There will be some companies who will come to the road shows to hear about Sri Lanka for the first time. Those companies have to start from the scratch and that process may take a few months as a lot technical and business due diligence may be required. That means after the road show we have to give enough time to those companies to do what they need to do. So we are planning to run the bid round for five months or so, which is about a month longer than the normal industry practice. Another reason for this is because we are a new destination and we want to put more data on the market. We are currently acquiring some additional data such as airborne gravity magnetic data, 3D seismic data and reprocessing existing 2D data. They won’t be ready at the start of the road shows. The road shows are to show people what we have, what is to come and what the time frame is, so that they can start their work. Before they make their final decision we would like to have this new information on the table. So we have simply calculated the end of the licensing round period to include enough time for road shows, for companies’ work, for us to acquire data and process it and give it to those who want it and for them to have time to use it before they make their final investment decision. Therefore the bids are only going to be due in August-September and we expect at least 10 serious bidders.



Q: What are the blocks available for bidding?
There will be a publicly released block map within the next few days. We are still making few adjustments to it. The principle is that all of the Cauvery basin which is now divided into five blocks as opposed to the earlier map of 3 blocks will be on offer plus at least another five to six blocks in the Mannar basin, which is most of the Mannar basin. There are nine blocks in the Mannar basin and one is already operated by Cairn India, who won it in the 2007 bid round.



Q: What about the two commitment blocks given to China and India?
The history of those blocks is that they were offered some years ago as acreage for potential collaboration in E&P. And it was the decision at the time to offer India and China two blocks on a government-to-government basis. There wasn’t really any take up of that offer at the time, and recently there has been interest expressed by several other companies in all blocks. So those blocks at this point are treated the same as any other block.



Q: So those two blocks will also be on offer in this licensing round?
Yes, very possibly. So there could be a total of 10 to 11 blocks that will be on offer. We may not offer all the blocks in the Mannar basin for reasons other than that. It’s because some of them are in very deep water, with very little information gathered from them.

But at the same time, we are introducing the concept of joint study acreage, for which we have earmarked certain very large areas in offshore Sri Lanka in which there is no data at all and very little knowledge of subsurface conditions. It’s very deep, so production potential is in the future. But prospects are high and therefore long term potential is quite high. Those we want to bring to the market as joint study blocks where we encourage investment in research, data acquisition, information gathering and study jointly with the government.

So an interested company can apply for a certain block for specific reasons, and this application would be considered on the basis of the company’s prior experience in developing similar areas, reputation in the industry, financial capability, and proposed joint study programme. Upon approval, the company will sign an agreement which allows them exclusive rights to gather information in a particular place for a particular period of time.

They will then interpret their data and come to the conclusion whether they should proceed further or not. If they decide not to proceed further, that’s their business decision, and it frees the Government to release the block to others interested. If they do come up with prospectivity, then they should bring that to our attention and we then have a choice to either negotiate a production sharing regime with that company or block it up and bid, giving them the right of first refusal to match the highest bid.

That’s the broad outline of a joint study agreement and we feel that it’s very equitable. The biggest benefit to us is that it exponentially accelerates the information availability, the knowledge transfer, the capacity building in Sri Lanka’s professional community. Let’s say there are six blocks. That means there will be up to six capable oil companies working on those blocks concurrently engaging up to six teams of Sri Lankan geo scientists, which is of significant benefit to us because all of that will help to address the current information asymmetry between the operator and the resource holder. That is also most likely to come up in the second round bidding, although the JS blocks themselves will not be competitively bid.



Q: What kind of financial commitment are you looking at from companies who would bid in the second round?
Well, those are by definition going to be quite large because of the cost of doing business in the Gulf of Mannar. The well that is being drilled by Cairn at the moment is going to cost approximately US $ 70 million. Seismic shooting here is quite expensive, simply because of the mobilization and demobilization charges to Sri Lanka.
If you ask me a number, my expectations are quite high simply because in the presence of those significant hurdles in 2007 and 2008 we had a very aggressive bid of approximately US $ 112 million from Cairn. So going forward with cost of business increasing, I believe a commitment of let’s say three exploration wells, 3000 square kilo metres of 3D seismic data, you are looking at a couple of hundred million dollars per block in Mannar, although the Cauvery will be a fraction of this. These are what the general costs are in deep water basins.

Some blocks will require longer time before wells are drilled because more data has to be acquired and interpreted. Other blocks have sufficient propectivity to encourage 3D seismic shoots and a quick exploration well. So it’s hard to generalize, but we do expect a reasonable amount to be invested. Of course nothing of it comes directly to Sri Lanka as we don’t charge money for awarding blocks other than an upfront Signature Bonus, which is standard practice. We simply award the blocks primarily on the basis of the best financial commitment. But it will have a very beneficial impact on the economy indirectly.
But more than the income we do have certain expectations. We would like to have a group of significantly capable and high quality operators as we are looking at diversity and capacity.



Q: There were media reports that apart from India0n, Russian, Vietnamese and the Malaysian firms have already expressed interest to explore petroleum prospects in Sri Lanka
All of those countries have shown interest. Particularly the Indian firms which have a very detailed knowledge in the Cauvery basin. We have also had delegations from PetroVietnam and Gazprom. All of these companies have examined our data carefully, and current indications are that they are interested in what Sri Lanka has to offer.
In addition we’ve had several other international oil companies—independents, majors and super majors—who have approached us. I have to clarify that all of these relationships started on an unsolicited basis. Sri Lanka thus far has not actively marketed itself. But by virtue of the fact that there had been some success in a virgin deep water basin—such things are rare in the oil and gas industry these days—we have attracted attention on our own.

Now is the first time we are going to reach out to the industry and say look we want the best oil companies to work in Sri Lanka and we are prepared to offer an optimum working environment here, giving them efficiency, transparency, flexibility and speed of action. So in a nutshell we want the best in the industry to work here. Having understood that hydrocarbon potential exists in the Mannar basin, we want to find it fast because we want to produce it fast, because we need the economic boost to sustain our energy demand growth. So from that standpoint we are going to be an encouraging and enabling partner to oil companies and that’s the message we want to pass to the industry.



Q: What would be the licence regime like in the latest round of bidding?
There would be two kinds of licences. There will be shallow water licence which will have slightly different stipulations. And there would be more incentivised deep water licences. We are not going to take this PRA (Petroleum Resources Agreement) and apply to the Cauvery basin as there would be a more benign version. But in this particular one we are going to stick to the pretty much same license validity period of 8 years as we don’t feel there’s a need to change the time frame.



Q: What would be the ownership structure of the blocks that would be on offer?
The ownership of oil resources vests 100 percent with the state. The question is how we equitably reward the investor who has invested in producing it. The world is divided into two domains when it comes to the ownership structure of oil blocks. One is the contractual or production sharing regime and the other is the concessional regime. In developed countries, the state does not share in the resources. What they do is they license an operator to produce and that operator explores and produces at his own costs and makes a profit. The government taxes the operator under the normal corporate tax regime and derives income. Sometimes there may be a special petroleum tax regime.

In developing countries where the production sharing system originated, the state required some income for economic purposes but the state had no investment capacity. So they encourage investments but ask for a share in the production. There may be a light taxation element here as well.

So what we have here is a contractual regime like this. The basic terms of our agreement are that oil companies invest and produce and out of the production the state gets a share. However the production doesn’t start at high levels. It ramps up over a period of time. So in the early days, we allocate the majority part of the production towards recovering the investor’s cost of the preceding years of exploration and development. When production comes to a level where we have dealt with these costs, then the share starts tipping in favour of the state.

The current way in which we allocate that exact share is dynamic and not static. If you were to ask me how much they get and how much we get I can’t answer that question other than for a specific scenario. In fact in the current production regime we use an investment multiple where the numerator is net cumulative revenue and the denominator is net cumulative costs. As time goes on this ratio gets bigger. When the ratio is small we get the smallest amount of money—at the moment I think it’s 15 percent. When the ratio goes above a certain number we get up to 85 percent. So that split depends on the costs and the revenue to that point.
Now we are changing that slightly going forward. We are going to base the share on levels of production. We are taking costs out of the equation on both the top side and the bottom side.The key advantage in doing that is it incentivizes everybody to focus on production maximizing rather than costs.



Q: The Petroleum Resources Act is currently being amended. This was an initiative taken by the PRDS. What were the reasons behind this move?
There were several categories of reasons. I’ll start with the administrative ones. The way the current Act was put together, it has all the ingredients but in different places. It apportions a huge amount of authority and responsibility to an organization called the PRDC—Petroleum Resources Development Committee. There is no mention of the PRDS but it refers to a Secretariat that functions under the PRDC. Now what that does is, it places the whole administrative burden of the industry in the PRDC, which means that approval of the fairly mundane day-to-day tasks should go to PRDC. Let alone being cumbersome, it’s almost impossible considering that the PRDC consists of Secretary to the President, Secretaries of Finance, Defence, Fisheries, Environment, Petroleum Industries, etc. It’s impossible as a committee to get those distinguished people together more than twice or thrice of and year. So from that standpoint there was a big administrative need to tidy up.
We managed OK with a single operator operating one block. But when we have 10 operators in 10 blocks with 15 to 20 wells we don’t want the administrative system to fail. So in the amendments what we have done is we have clearly allocated responsibilities to PRDC and the PRDS, delegation of authorizes and functions and powers, in order to achieve administrative convenience as well as our second objective. That is good governance.

The three functions of policy, regulation and operations need to be clearly separated in any industry for good governance. The oil industry is no different. In the new amendments, the Policy responsibility rests with the PRDC, who represent through the involved line ministries, the ultimate resource owner - the people of Sri Lanka. While the PRDS is subordinate to PRDC in terms of organizational stature, and will follow policy directives accordingly, it will be an autonomous body with its own board and statute. This will enable it to perform regulatory functions independently. The PRDC represents the nation’s conscience, political alignment, and economic interest with respect to managing the petroleum resources off shore. The PRDS will manage the business on an administrative level.

The third point of the triangle is the operator. We still don’t have a national oil company. It is a step that we have to take at the appropriate time, but we have put in place its responsibilities ahead of time. It’s not appropriate either the PRDC having defined as the policy maker or PRDS having defined as the regulator should operate.
When the Act was put together, it was put together with the best intentions but in a non-operating environment. It’s only by using the Act that the deficiencies, ambiguities, overlaps and vagueness have surfaced. So by amending the Act, we have cleared all of that up.



Q: Would it be gas or oil for Sri Lanka? In a recent interview with Mirror Business, Cairn India Director Sunil Bharati said that the Mannar basin has greater potential for oil.
Sunil knows what he is talking about. Apart from the fact that he has been here for a long while, he is a petroleum geo chemist. Such people are the ones that make such pronouncements. So I’m absolutely not going to challenge him or qualify his observation. My only comment would be that the Mannar basin extends to different depths and different ages and possibly different source rock in different places. So there is the potential that there are accumulations of hydrocarbon which are a from a different maturity window. Even in the gas that was found in Cairn’s two wells, there is condensate. This indicates that possibly somewhere there is a window for oil. We hope we can find it.



Q: What kind of challenges do you envisage for a future Sri Lankan oil industry?
In one word I would say infrastructure - physical and institutional. Finding oil and gas in an established or mature basin is challenging but not as challenging as here. Finding oil and gas out in there poses the question how do you get it out of the ground and get it to the shore. If it’s gas it’s even more complicated. So everything we do as a country should be focused on getting it out of the ground. Having it and talking about it won’t achieve anything. And when you produce you have got to produce scientifically. There are countries around the world that have produced too much too soon and destroyed their reservoirs. So we have to wise ourselves up with the knowledge and experience that is available and make use of the natural resources that we are gifted with smartly.

[dramirez]

Originally Posted by Popthepuff

I swear they found oil and gas....
Anyway, it'll probably be used down in 'Tota as part of the re-exporting/exporting port scheme they have.
I feel we should develop our own infrastructure for use; in the long run, if we find more oil and gas deposits, it could help achieve energy self-sustainability.

News:

Sri Lanka to amend the Petroleum Resources Act to comply with international standards
Sat, Jan 26, 2013, 01:19 pm SL Time, ColomboPage News Desk, Sri Lanka.


Jan 26, Colombo: Sri Lanka will make amendments to its Petroleum Resources Act No. 26 of 2003 to conform to the international standards in the petroleum industry.

The petroleum industry laws will be amended to meet the required standards of global expectations of the petroleum Industry, the Government said.

The amended act will also introduce principles of good governance into Sri Lanka's Oil and Gas industry.

The Cabinet has approved the proposal to amend the Petroleum Act forwarded by President Mahinda Rajapaksa.

Sri Lanka launched the exploration of the northwestern Mannar sea bed for oil in 2008 and gave the top block, Block 1, of the eight blocks identified by seismic studies as viable oil resources to Cairn India for drilling.

Cairn Lanka, subsidiary of Cairn India discovered gas and liquid hydrocarbons deposits in two of the three wells drilled in 2011and the company is set to launch its second phase of operations this year.

Sri Lanka has decided to expand the oil exploration activities from Mannar to Galle in the South this year.

----------
Cairn Lanka/India to begin phase 2
* To start drilling of 4th well around Feb. 1-official

* Commercial viability to be decided by 2014

* Cairn found gas, condensate in 2 wells drilled in phase-1

* Sri Lanka has 8 blocks in Mannar; India, China offered 1 each

By Ranga Sirilal

COLOMBO, Jan 31 (Reuters) - Cairn India will start the second phase of its Sri Lankan oil exploration programme this week with the drilling of a fourth well and will decide the commercial viability of the project by 2014, a company official said on Thursday.

Success in the project for the unit of London-listed Vedanta Resources Plc would mark a significant step in Sri Lanka's efforts to reduce its dependence on imported fuel.

The island nation produces no oil and its oil import bill was $4.6 billion in 2011. Since the end of a three-decade war with Tamil separatists in May 2009, the government has tried to reinvigorate oil and gas exploration.

Cairn India has the rights to drill in one of eight blocks in the offshore Mannar basin. China and India have been offered one each, which they have yet to accept, while the remaining five are expected to be tendered later this year.

Cairn has already concluded the first phase in Mannar basin, discovering gas and condensate in two out of three wells drilled, although their commercial viability has yet to be determined. A third well was plugged and abandoned as a dry hole in December 2011.

The fourth well, named Wallago, is located 22 km off the Sri Lankan western coastal town of Kalpitiya.

"Fourth well drilling will commence around Feb. 1," Sunil Bharati, Cairn India's head of corporate affairs and communication who was in Colombo, told Reuters.

"We think it will be completed within 35-40 days, if everything goes well and there is no equipment failure."

INVESTMENT PLAN

Cairn has spent $150 million for the first phase, more than the estimated $112 million, Bharati said, adding investment in the second phase could be more than that of the first phase.

Seismic work done earlier by Norway's TGS Nopec Geophysical Co ASA showed some potential in the northern Cauvery Basin, which on the Indian side has producing wells, and in a basin off the island's southern coast.

Sri Lanka's government has said the seismic data shows the potential for more than 1 billion barrels of oil under the sea in a 30,000 sq km area of the Cauvery basin.

Russia's natural gas monopoly Gazprom and Malaysian state oil company Petronas have held talks with Sri Lanka on potential exploration, and Vietnam and Sri Lanka signed a deal on oil and gas cooperation in October, 2011.----------------
Greater potential for natural gas: Cairn official
THURSDAY, 31 JANUARY 2013 08:54
Sri Lanka’s Mannar Basin has a greater chance of being endowed with natural gas than oil, a top official of Cairn Lanka, which has established the country’s first working petroleum system in the Mannar Basin said.

“Logically speaking, there is a greater likelihood of gas. But that does not exclude the possibility of oil being there,” Cairn India and Cairn Lanka Director Dr. Sunil Bharati told Mirror Business in a brief interview yesterday.

In October, 2011, Cairn Lanka, a fullyowned subsidiary of Cairn India, announced it had discovered natural gas deposits in Dorado, an exploratory well located in SL 2007-01-001 block in Mannar Basin.

This was followed by a further announcement in November that the firm discovered gas deposits with hydrocarbon potential in the second exploratory well, Barracuda. A third well was also drilled and subsequently abandoned as a dry hole.

Sri Lanka has identified eight blocks for oil exploration in the Mannar Basin. Cairn Lanka has rights for one block while another two blocks have reportedly been offered to China and India, which they are yet to accept. Remaining five blocks are to be tendered shortly.

Cairn Lanka is currently bracing to drill its fourth exploratory well, three months before the original date set to kick off the second phase of drilling, as a result of early availability of a rig.

According to Bharati, the drill ship arrived in the Sri Lankan waters on January 23 and the drilling of the well, named Wellago, is expected to commence in the first week of February.

“It will take about 35 to 45 days to complete the drilling. There is only one commitment well (exploratory well) in the second phase,” he noted.

Talking about the possibilities lying beyond the second phase, Bharati noted that there are several paths that Cairn Lanka could tread along in going forward.

“Depending on the results of the second phase, there could be two or three different paths available to us, as envisaged in the PRA. Either we can choose to proceed to the third phase, which will again require drilling a commitment well and has a time period of one to two years, or not to enter the third phase but enter into an appraisal phase followed by a development phase.”

“If we opt to enter the development stage, we will have to do a detailed appraisal to establish the volume of oil or gas available in the block, which will take one to two years. Only then you will know whether the block is commercially viable,” Bharti noted.

He further added that both paths have timelines clearly defined in the Petroleum Resource Agreement (PRA) Cairn Lanka has entered into with the Sri Lankan government, with six months to one year extension periods.

Commercial production can only take place 3 to 5 years after the appraisal being carried out, as it generally takes 2 to 3 years to set up the required infrastructure.

“If it is gas, it will not be easy. As gas cannot be easily transported and contained. If it is oil, it’s a straight forward pipeline,” Bharati added.
--------------

They found condensate, which is likely to be natural gas compounds at atmospheric pressures and temperatures.

See the last sentence - if it is gas it will not be easy. It's a question of market, cost and distribution. If they find fields large enough, gas can work, but if they are small accumulations the infrastructure cost to refine and market the gas may be uneconomical at today's gas prices.

However, it's good if there is more interest in the second round - other companies may have further ideas on the hydrocarbon development in the area.

[dramirez]

Originally Posted by Popthepuff

High interest for second round bidding
MONDAY, 18 FEBRUARY 2013 09:43

Mirror Business recently met with Petroleum Resources Development Secretariat Chairman Saliya Wickramasuriya to discuss the latest developments in the country’s petroleum exploration front. Following are excerpts of the interview

By Indika Sakalasooriya

Q: When is the second licensing round starting?

Saliya Wickramasuriya
The second round bidding has not been launched yet, but has been announced. It was announced to the industry and part of the business community who had been in touch with us.
The mail to the business community went out last Wednesday morning and the mail to the industry went from two different sources—there was a notification on February 8, sent out by our bid consultants, IHS, through their international network. About four to five thousand people subscribe to their alerts and it went as a mail shot to everybody.
But at the same time on Wednesday the 13th, we informed about 25 oil companies of different sizes who had been in contact with us over the last year. Many of them have visited us here and some of them have already bought our data. The launch date of the bid would be March 7, 2013 and it will be launched in Houston, our first venue of the road show we are planning. We have selected Houston at that time because it coincides with the week in which the industry’s premier oil conference called CERAWeek takes place. It is populated by the people at senior executive level.
Since we have been invited to speak at the event, we plan to announce the second licensing round there. The road show is not going to be at the CERAWeek but at a venue not far away. We are using CERAWeek as an opportunity to reach at the highest level of decision makers in the industry.
Thereafter the road show will move to London on March 11th. We will carry out the road show until March 15 and then will hold the last lap of the road show in Singapore from March 18 to 22. At every venue data rooms will be run hosted by IHS and assisted by PRDS technical staff.



Q: So after that oil companies can bid?
Well, not really. Those interested will start compiling their bids. The major event in publicizing the opportunities in Sri Lanka’s oil and gas sector will be held in Sri Lanka in the form of an E&P (Exploration and Production) Symposium about a month after the conclusion of the road shows. It will be by invitation only. The event would be a much more focused affair as we hope to influence the decision by oil companies to select Sri Lanka as a potential destination because ultimately we want to showcase a little bit of the country as well.

The event will also be attended by a selected group of the local business community. One of the objectives we have is to tie Sri Lankan interests with international businesses and that is very high up on our list of priorities. We are approaching this in a very collaborative manner. We are not bringing in any onerous rules of regulations that require certain percentages or mandatory local representation. But we have strategic means of increasing the local content in the industry in a mutually beneficial manner that will come out in the Petroleum Resources Agreement (PRA).



Q: When exactly will the actual bidding process takes place?
Well….let me clarify first. There are some companies who already know a lot about Sri Lanka. Those companies are already assessing their prospects and doing their due diligence. There will be some companies who will come to the road shows to hear about Sri Lanka for the first time. Those companies have to start from the scratch and that process may take a few months as a lot technical and business due diligence may be required. That means after the road show we have to give enough time to those companies to do what they need to do. So we are planning to run the bid round for five months or so, which is about a month longer than the normal industry practice. Another reason for this is because we are a new destination and we want to put more data on the market. We are currently acquiring some additional data such as airborne gravity magnetic data, 3D seismic data and reprocessing existing 2D data. They won’t be ready at the start of the road shows. The road shows are to show people what we have, what is to come and what the time frame is, so that they can start their work. Before they make their final decision we would like to have this new information on the table. So we have simply calculated the end of the licensing round period to include enough time for road shows, for companies’ work, for us to acquire data and process it and give it to those who want it and for them to have time to use it before they make their final investment decision. Therefore the bids are only going to be due in August-September and we expect at least 10 serious bidders.



Q: What are the blocks available for bidding?
There will be a publicly released block map within the next few days. We are still making few adjustments to it. The principle is that all of the Cauvery basin which is now divided into five blocks as opposed to the earlier map of 3 blocks will be on offer plus at least another five to six blocks in the Mannar basin, which is most of the Mannar basin. There are nine blocks in the Mannar basin and one is already operated by Cairn India, who won it in the 2007 bid round.



Q: What about the two commitment blocks given to China and India?
The history of those blocks is that they were offered some years ago as acreage for potential collaboration in E&P. And it was the decision at the time to offer India and China two blocks on a government-to-government basis. There wasn’t really any take up of that offer at the time, and recently there has been interest expressed by several other companies in all blocks. So those blocks at this point are treated the same as any other block.



Q: So those two blocks will also be on offer in this licensing round?
Yes, very possibly. So there could be a total of 10 to 11 blocks that will be on offer. We may not offer all the blocks in the Mannar basin for reasons other than that. It’s because some of them are in very deep water, with very little information gathered from them.

But at the same time, we are introducing the concept of joint study acreage, for which we have earmarked certain very large areas in offshore Sri Lanka in which there is no data at all and very little knowledge of subsurface conditions. It’s very deep, so production potential is in the future. But prospects are high and therefore long term potential is quite high. Those we want to bring to the market as joint study blocks where we encourage investment in research, data acquisition, information gathering and study jointly with the government.

So an interested company can apply for a certain block for specific reasons, and this application would be considered on the basis of the company’s prior experience in developing similar areas, reputation in the industry, financial capability, and proposed joint study programme. Upon approval, the company will sign an agreement which allows them exclusive rights to gather information in a particular place for a particular period of time.

They will then interpret their data and come to the conclusion whether they should proceed further or not. If they decide not to proceed further, that’s their business decision, and it frees the Government to release the block to others interested. If they do come up with prospectivity, then they should bring that to our attention and we then have a choice to either negotiate a production sharing regime with that company or block it up and bid, giving them the right of first refusal to match the highest bid.

That’s the broad outline of a joint study agreement and we feel that it’s very equitable. The biggest benefit to us is that it exponentially accelerates the information availability, the knowledge transfer, the capacity building in Sri Lanka’s professional community. Let’s say there are six blocks. That means there will be up to six capable oil companies working on those blocks concurrently engaging up to six teams of Sri Lankan geo scientists, which is of significant benefit to us because all of that will help to address the current information asymmetry between the operator and the resource holder. That is also most likely to come up in the second round bidding, although the JS blocks themselves will not be competitively bid.



Q: What kind of financial commitment are you looking at from companies who would bid in the second round?
Well, those are by definition going to be quite large because of the cost of doing business in the Gulf of Mannar. The well that is being drilled by Cairn at the moment is going to cost approximately US $ 70 million. Seismic shooting here is quite expensive, simply because of the mobilization and demobilization charges to Sri Lanka.
If you ask me a number, my expectations are quite high simply because in the presence of those significant hurdles in 2007 and 2008 we had a very aggressive bid of approximately US $ 112 million from Cairn. So going forward with cost of business increasing, I believe a commitment of let’s say three exploration wells, 3000 square kilo metres of 3D seismic data, you are looking at a couple of hundred million dollars per block in Mannar, although the Cauvery will be a fraction of this. These are what the general costs are in deep water basins.

Some blocks will require longer time before wells are drilled because more data has to be acquired and interpreted. Other blocks have sufficient propectivity to encourage 3D seismic shoots and a quick exploration well. So it’s hard to generalize, but we do expect a reasonable amount to be invested. Of course nothing of it comes directly to Sri Lanka as we don’t charge money for awarding blocks other than an upfront Signature Bonus, which is standard practice. We simply award the blocks primarily on the basis of the best financial commitment. But it will have a very beneficial impact on the economy indirectly.
But more than the income we do have certain expectations. We would like to have a group of significantly capable and high quality operators as we are looking at diversity and capacity.



Q: There were media reports that apart from India0n, Russian, Vietnamese and the Malaysian firms have already expressed interest to explore petroleum prospects in Sri Lanka
All of those countries have shown interest. Particularly the Indian firms which have a very detailed knowledge in the Cauvery basin. We have also had delegations from PetroVietnam and Gazprom. All of these companies have examined our data carefully, and current indications are that they are interested in what Sri Lanka has to offer.
In addition we’ve had several other international oil companies—independents, majors and super majors—who have approached us. I have to clarify that all of these relationships started on an unsolicited basis. Sri Lanka thus far has not actively marketed itself. But by virtue of the fact that there had been some success in a virgin deep water basin—such things are rare in the oil and gas industry these days—we have attracted attention on our own.

Now is the first time we are going to reach out to the industry and say look we want the best oil companies to work in Sri Lanka and we are prepared to offer an optimum working environment here, giving them efficiency, transparency, flexibility and speed of action. So in a nutshell we want the best in the industry to work here. Having understood that hydrocarbon potential exists in the Mannar basin, we want to find it fast because we want to produce it fast, because we need the economic boost to sustain our energy demand growth. So from that standpoint we are going to be an encouraging and enabling partner to oil companies and that’s the message we want to pass to the industry.



Q: What would be the licence regime like in the latest round of bidding?
There would be two kinds of licences. There will be shallow water licence which will have slightly different stipulations. And there would be more incentivised deep water licences. We are not going to take this PRA (Petroleum Resources Agreement) and apply to the Cauvery basin as there would be a more benign version. But in this particular one we are going to stick to the pretty much same license validity period of 8 years as we don’t feel there’s a need to change the time frame.



Q: What would be the ownership structure of the blocks that would be on offer?
The ownership of oil resources vests 100 percent with the state. The question is how we equitably reward the investor who has invested in producing it. The world is divided into two domains when it comes to the ownership structure of oil blocks. One is the contractual or production sharing regime and the other is the concessional regime. In developed countries, the state does not share in the resources. What they do is they license an operator to produce and that operator explores and produces at his own costs and makes a profit. The government taxes the operator under the normal corporate tax regime and derives income. Sometimes there may be a special petroleum tax regime.

In developing countries where the production sharing system originated, the state required some income for economic purposes but the state had no investment capacity. So they encourage investments but ask for a share in the production. There may be a light taxation element here as well.

So what we have here is a contractual regime like this. The basic terms of our agreement are that oil companies invest and produce and out of the production the state gets a share. However the production doesn’t start at high levels. It ramps up over a period of time. So in the early days, we allocate the majority part of the production towards recovering the investor’s cost of the preceding years of exploration and development. When production comes to a level where we have dealt with these costs, then the share starts tipping in favour of the state.

The current way in which we allocate that exact share is dynamic and not static. If you were to ask me how much they get and how much we get I can’t answer that question other than for a specific scenario. In fact in the current production regime we use an investment multiple where the numerator is net cumulative revenue and the denominator is net cumulative costs. As time goes on this ratio gets bigger. When the ratio is small we get the smallest amount of money—at the moment I think it’s 15 percent. When the ratio goes above a certain number we get up to 85 percent. So that split depends on the costs and the revenue to that point.
Now we are changing that slightly going forward. We are going to base the share on levels of production. We are taking costs out of the equation on both the top side and the bottom side.The key advantage in doing that is it incentivizes everybody to focus on production maximizing rather than costs.



Q: The Petroleum Resources Act is currently being amended. This was an initiative taken by the PRDS. What were the reasons behind this move?
There were several categories of reasons. I’ll start with the administrative ones. The way the current Act was put together, it has all the ingredients but in different places. It apportions a huge amount of authority and responsibility to an organization called the PRDC—Petroleum Resources Development Committee. There is no mention of the PRDS but it refers to a Secretariat that functions under the PRDC. Now what that does is, it places the whole administrative burden of the industry in the PRDC, which means that approval of the fairly mundane day-to-day tasks should go to PRDC. Let alone being cumbersome, it’s almost impossible considering that the PRDC consists of Secretary to the President, Secretaries of Finance, Defence, Fisheries, Environment, Petroleum Industries, etc. It’s impossible as a committee to get those distinguished people together more than twice or thrice of and year. So from that standpoint there was a big administrative need to tidy up.
We managed OK with a single operator operating one block. But when we have 10 operators in 10 blocks with 15 to 20 wells we don’t want the administrative system to fail. So in the amendments what we have done is we have clearly allocated responsibilities to PRDC and the PRDS, delegation of authorizes and functions and powers, in order to achieve administrative convenience as well as our second objective. That is good governance.

The three functions of policy, regulation and operations need to be clearly separated in any industry for good governance. The oil industry is no different. In the new amendments, the Policy responsibility rests with the PRDC, who represent through the involved line ministries, the ultimate resource owner - the people of Sri Lanka. While the PRDS is subordinate to PRDC in terms of organizational stature, and will follow policy directives accordingly, it will be an autonomous body with its own board and statute. This will enable it to perform regulatory functions independently. The PRDC represents the nation’s conscience, political alignment, and economic interest with respect to managing the petroleum resources off shore. The PRDS will manage the business on an administrative level.

The third point of the triangle is the operator. We still don’t have a national oil company. It is a step that we have to take at the appropriate time, but we have put in place its responsibilities ahead of time. It’s not appropriate either the PRDC having defined as the policy maker or PRDS having defined as the regulator should operate.
When the Act was put together, it was put together with the best intentions but in a non-operating environment. It’s only by using the Act that the deficiencies, ambiguities, overlaps and vagueness have surfaced. So by amending the Act, we have cleared all of that up.



Q: Would it be gas or oil for Sri Lanka? In a recent interview with Mirror Business, Cairn India Director Sunil Bharati said that the Mannar basin has greater potential for oil.
Sunil knows what he is talking about. Apart from the fact that he has been here for a long while, he is a petroleum geo chemist. Such people are the ones that make such pronouncements. So I’m absolutely not going to challenge him or qualify his observation. My only comment would be that the Mannar basin extends to different depths and different ages and possibly different source rock in different places. So there is the potential that there are accumulations of hydrocarbon which are a from a different maturity window. Even in the gas that was found in Cairn’s two wells, there is condensate. This indicates that possibly somewhere there is a window for oil. We hope we can find it.



Q: What kind of challenges do you envisage for a future Sri Lankan oil industry?
In one word I would say infrastructure - physical and institutional. Finding oil and gas in an established or mature basin is challenging but not as challenging as here. Finding oil and gas out in there poses the question how do you get it out of the ground and get it to the shore. If it’s gas it’s even more complicated. So everything we do as a country should be focused on getting it out of the ground. Having it and talking about it won’t achieve anything. And when you produce you have got to produce scientifically. There are countries around the world that have produced too much too soon and destroyed their reservoirs. So we have to wise ourselves up with the knowledge and experience that is available and make use of the natural resources that we are gifted with smartly.

Thanks for sharing this!

[saraprobe]

Exxon Mobil Corp. (XOM) and Total SA (FP) are among explorers reviewing Sri Lanka’s oil and natural gas reserves ahead of the biggest auction of blocks planned by a nation that imports all its crude.

Exxon Mobil, the world’s largest oil company by value, and Total, Europe’s third-largest, bought data related to the sale of 13 offshore fields, Saliya Wickramasuriya, director general at the Petroleum Resources Development Secretariat, said in an interview. Eni SpA (ENI), BP Plc (BP/) and India’s Oil & Natural Gas Corp. (ONGC) have enquired about the bids, which are scheduled to open at a meeting with potential investors in Houston on March 7 and end about five months later, he said.

“We’ve had quite a few people from Big Oil come by,” Colombo-based Wickramasuriya said in a Feb. 25 telephone interview. “We’ve had 20 companies that took our data, made repeat visits, or expressed interest in taking discussions further in the framework of the bid round.”

Global oil majors are being lured by prospects beyond the island’s famed white-sand beaches as the nation seeks to rebuild an economy ravaged by three decades of civil war. Sri Lanka, where conflict ended in 2009, is looking for technology to unlock the potential of the area neighboring India, where companies including Reliance Industries Ltd. (RIL) and BP are present.
“It’d be good for Sri Lanka to get the big conglomerates in the energy sector interested at the onset,” said Dushni Weerakoon, director at the Institute of Policy Studies in Colombo. “It’ll be a signal of confidence and an enormous economic relief as we are a heavy energy importer.”

Crude Importer

Sri Lanka, which doesn’t produce any oil or gas, imports all its crude oil requirements from nations including Saudi Arabia and Iran. The nation has identified 13 blocks off the northern and western coasts of Sri Lanka for the auction, including five in the Cauvery basin and eight in the Mannar. Two of the 13 may be withdrawn because of a lack of data, Wickramasuriya said.
Alan Jeffers, a spokesman for Irving, Texas-based Exxon didn’t reply to an e-mail seeking comment on the bidding. Total spokeswoman Anastasia Zhivulina and ONGC Chairman Sudhir Vasudeva declined to comment, as did an Eni spokesman, who couldn’t be named because of company policy.
“BP continuously evaluates and ranks new exploration access opportunities around the world,” spokesman Mark Salt said in an e-mail on Feb. 25.
Cairn India Ltd. (CAIR), which is producing oil at India’s largest onshore block, discovered gas in an offshore area in Sri Lanka’s Mannar basin last year, estimated by the government to hold 1 billion barrels of oil. That’s equal to about 18 percent of India’s proved oil reserves, according to BP data.

Gauge Potential

Cairn India started drilling a new well in the area this month, Chief Executive Office P. Elango said in a Feb. 20 interview. It needs to drill two or three more wells before it can gauge the potential of the reserves, Wickramasuriya said.
The Sri Lankan Cauvery basin is a geological extension of an area in India off the coast of Tamil Nadu state, Wickramasuriya said. Reliance announced a gas discovery in a deepwater well in the Indian waters of the basin in July 2007. Four years later, it announced another discovery in the area.
Loans from China’s Export-Import Bank and companies including China Merchants Holding International and China Machinery Engineering Corp. are helping Sri Lanka expand its ports, power generation, and transportation networks. Chinese oil explorers have yet to contact Wickramasuriya or his office for the latest auction, he said.

“Now that we’re launching the bid, some companies that have been interested internally may now start contacting us,” he said.

To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Anusha Ondaatjie in Colombo at anushao@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

[dramirez]

Nothing There
01 Mar, 2013 15:17:06
Sri Lanka Cairn draws blank on fourth well
Mar 01, 2013 (LBO) - Cairn Lanka (Pvt) Ltd has not found any oil in its fourth exploration well, its parent company said in a stock exchange filing.

Cairn India said the well found "thick high quality re servoir sands, which were not hydrocarbon bearing," and it was plugged and abandoned.
The data from the well and another two wells where petroleum was found will be used to fully understand the potential of the block, the firm said.

Analysis of data is expected to take at least until the first quarter of next year, according to earlier statements.

http://lbo.lk/fullstory.php?nid=33314080

[saraprobe]

Iluka Resources Ltd. (ILU.AU), one of the world's biggest producers of minerals sands, is considering a return to Sri Lanka a decade after exiting the south Asia island as a civil war intensified.

The move underscores how global mining companies are taking a new look at countries previously deemed too risky, as few large resources discoveries are made in traditional production hubs like Australia and Canada and mining costs rise sharply.

Mineral sands demand is closely linked to the health of housing markets in major economies. The basket of commodities includes zircon and titanium oxide, which are key ingredients in manufacturing ceramic tiles and paint, respectively. Demand for mineral sands is likely to improve as the U.S. economy recovers and urbanization in China and India accelerates.
Iluka is focusing more on new investments outside of Australia, which has included "early stage country risk analysis within a number of international regions, including Sri Lanka," the company said in a statement to The Wall Street Journal.

"While Iluka will continue to explore in Australia, the Perth, Eucla and Murray Basins are increasingly mature mineral sands provinces, resulting in the need to accelerate exploration activities in new areas elsewhere in Australia and internationally," Iluka said.

Sri Lanka is offering tax incentives and liberal regulations to lure investors to its mining sector as the country overhauls its infrastructure and opens up to foreign business after nearly three decades of civil war, the country's minister of environment and renewable energy Susil Premajayantha said in an interview last week.

While it has only modest reserves of precious and industrial metals such as gold and copper, Sri Lanka is home to large deposits of mineral sands.

Iluka was previously involved in exploring Sri Lanka between 1997 and 2001. It relinquished its exploration leases there in 2003 because the quality of the resource was poor, the Perth-based company said at the time. Management also cited "accessibility" issues for its departure, without elaborating.

-Clementine Wallop in Singapore contributed to this article.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires


Read more: http://www.foxbusiness.com/news/2013...#ixzz2O6I2rX00

[ak892]

Oil Support
04 May, 2013 10:25:59
Sri Lankan firms gearing up for petroleum support services
May 4, 2013 (LBO) - Sri Lankan firms are gearing up to provide petroleum support services as off-shore oil exploration and development begins to take-off, officials said.
Following the sale of the first off-shore oil exploration block to Cairn Energy, Sri Lankan firms had supplied logistics to the seismic and drilling vessels that arrived.
"Sri Lankan companies provided the support services which were pretty complex," Chas Charles, chief executive of Hayleys Energy Services told a business forum in Colombo.

"But the hydrocarbon services came from abroad. We are pretty well geared up to support the oil industry on logistics, supply chain, warehousing."

Hayleys Energy is one of several companies set up by Sri Lankan business groups to support the reenfield oil business in Sri Lanka.

A Japanese drilling vessel that came had 147 people on board. In a drilling program different types of people are needed at different times and people also went on shore leave and new crew came, requiring helicopter services.

Sri Lanka's Navy also provided security.

Head of Sri Lanka's Petroleum Development Secretariat Saliya Wickramasuriya said he would like to see more Sri Lankan firms and people getting into the industry.

A second bidding round that is now underway had attracted strong interest with the first block having found traces of gas and several blocks are expected to be sold, which will increase opportunities for Sri Lanka firms to win business in 2014.

Charles said Sri Lankan companies can move up the ladder and start providing cementing services, mud services and logging services.

"Sri Lanka has to move up the ladder from providing logistics to the next step of providing technical services," Charles said.

"We are moving slowly I think we need more training."

Officials said Sri Lanka universities have to start teaching petroleum industry related courses for Sri Lankans work in the core hydrocarbon services sector and there have been initial discussions to start a Masters program in petroleum.

They were speaking at a regional conference on ports and logistics organized by Seatrade Communications a consultancy and Sri Lanka Ports Authority.

Asked by a member of the forum whether Sri Lanka would mandate a set percentage of local purchase of services by employing the coercive power of the state against oil exploring companies, like Nigeria had done, Wickramasuriya said it was too early for such moves.

Sri Lanka still did not have proven reserves yet and unlike Nigeria and foreign companies could go around rules by striking partnerships with local firms.

"In this day and age what is local and what is global?" he asked. "We felt that it is best to be more collaborative than restrictive,"

He said the petroleum secretariat had instead specified guidelines to operators giving priority to local goods and services allowing for maxim knowledge transfer and opportunity for local business.

Wickramasuriya himself had worked abroad in the oil industry in companies in free countries that were employing 'foreigners'.

Charles also a Sri Lankan who has a UK education worked for more than three decades in several parts of the world in the oil and gas sector with Haliburton a US based company allowing for knowledge transfer freely.

Sri Lanka's Colombo Dockyard has also been building oil supply ships and exporting them to free trading countries like Singapore at world class quality and prices.

Each oil rig may need about three oil supply vessels industry officials said.

Industries that receive state protection can become inefficient and unable to compete globally.

Officials were also looking in to the possibility of setting up a specialized free zone for oil supply and related services.