Cairn to Drill Sri Lanka's 1st Oil Wells in Mannar Basin in January. International Oil Exploration Tenders to be Called on more Blocks

30th July 2010, www.dailymirror.lk, By Sandun A. Jayasekera

Cairn Sri Lanka (Pvt) Ltd a subsidiary of Cairn India (Pvt. Ltd) will begin drilling the first three oil wells in the Mannar Basin in January, the Petroleum Ministry said today.

Petroleum Resources Minister Susil Premajayantha said Cairn Sri Lanka was calling for bidders globally to undertake sub contracts for the eight-year three-stage oil exploration project, which is estimated to cost of US$172 million or Rs.18 billion.

The Minister said Cairn (India) had conducted three-dimensional seismic surveys and based on the results were now able to begin the drilling in the Mannar Basin. Cairn Sri Lanka will use its parent company know how, machinery and manpower for the excavation of test wells off Jaffna.

Minister Premajayantha said the Petroleum Resources Development Committee (PRDC) on behalf of Sri Lanka had signed six contractual agreements with Cairn Sri Lanka. The Indian company had paid a signature bonus of US$ One million for each contract which deals with current movements, seismic survey, data processing and structural evolution.

“The government has been successful in its tender procedure whereas the Indian company has consented to go for oil exploration in block SL 2007-01-001 in the Mannar Basin on very generous terms. Under the tender agreement Cairn Sri Lanka will pay US$50 million when the oil production resumes at the end of successful oil exploration. The royalty payable by the Indian company to Sri Lanka on the total production is 15 per cent in addition to the local taxes on their income. The Indians must also purchase 15 per cent of the shares of the National Oil Company that will be formed after the last phase of the project.

The agreement that runs for eight years has been planned in such a way that Sri Lanka will gradually enhance its royalty until the full ownership of the oil production is reached,” Minister Premajayantha said.

“In the first part of the bidding in 2007, Sri Lanka offered three blocks -- M2, M3 and M4 in the Mannar Basin when it called for international tenders after an international road show. Cairns (India) won a bid as the only Indian company able to meet the conditions of the tender and asked for block M2,” the minister said.

He said five blocks in the Mannar Basin -- M1, M2, M3, M4 and M5 situated off the North West coast have been lined up for this year’s international tenders.

“The decision on conducting an international road show will be taken at the next ‘Petroleum Resources Development Committee’ meeting.

Sri Lanka has identified and demarcated 12 blocks -- three in the Cauvery Basin (off North East coasts of Sri Lanka), eight in the Mannar Basin (off Western and North Western Coasts) and one in the Southern Basin (off Hambanthota) for oil exploration and will call for international tenders for all blocks except M2.

Related Info:
Petroleum Resources Development Secretariat (PRDS) - Sri Lanka

The Current Status of Oil Exploration of Sri Lanka and Future Opportunities (PRDS - July 2008)