Sunday Observer EXTRA

Oil drilling to begin on July 1:

Oil exploration on track in Mannar Basin

By L.S. Ananda WEDAARACHCHI

Seismic vessel and the supply boat at Mannar Sea

Seismic vessel

Argos beacon (Met ocean bouy) the gadget to collect undersea data “Chikyu”, the drilling ship which will commence drilling in July

The oil exploration in the Mannar Basin in the North Western Coast is on track and on schedule. There are positive developments in oil exploration said Director General Dr. Neil de Silva of the Petroleum Resource Development Secretariat (PRDS).

Dr. De Silva, an expert in petroleum geo-physics counts over 30 years’ experience in energy exploration. He obtained his MSc and Ph.D in Canada and had been engaged in onshore oil exploration in Canada before his return to Sri Lanka to be appointed DG-PRDS.

The ‘Sunday Observer’ interviewed Dr de Silva recently on oil exploration in the Mannar Basin.

Excerpts of the interview:

Q: Oil exploration in Block SL 2007/01/001 in the Mannar basin was contracted out to CAIRN Lanka Co in October 2008 by the Sri Lanka government after calling for international tenders. What is the present progress of oil exploration carried out by CAIRN?

A: Drilling of oil will commence on July 1, after completing the ground work. We are at present conducting final studies and providing facilities to commence drilling.

Q: Some critics have alleged that the oil exploration in the Mannar Basin was very slow. They expect quick results. Your comments.

A: I must say that when compared to oil exploration work in other parts of the world, the period of two and half years spent for the seismic studies is justifiable. Mannar basin continued to remain untapped. For the first time in history studies were conducted to explore oil and gas in the area.

Q: Can you elaborate on the formation of oil and gas in the seabed?

A: Oil is formed from remains of animals and plants that lived millions of years ago. The dead animals and plants deposited in the ocean bed got covered by layers of sediments over time more sediments got accumulated and the extreme pressure from the weight of rocks and high temperatures, converted the organic matter into what we call oil and gas. As layers of rocks moved and folded inside the earth oil and gas migrates to fill empty spaces in rocks inside traps.

Q: How do the scientists explore the potential for undersea oil and gas accumulations?

A: Scientists explore areas of thick sedimentary rocks called sedimentary basins for potential oil and gas accumulations using seismic data. Seismic data are produced by sending sound waves into the earth and collecting and processing the sound energy reflected from rock layers below the sea bed. If the seismic data indicates oil and gas deposits, the drilling begins.

Q: You said that drilling process is expected to commence on July 1 after the completion of the ground work. Is there any time frame for drilling of oil wells?

A: Initially Cairn Lanka will drill three wells in the Mannar basin within a period of six months. The company called for contractors for off-shore supply vessels, services related to drilling tools, well-testing, weather forecasting and providing fuel, water and ambulances. The collecting of meteorological data and monitoring ocean current is now under way ahead of the test drilling programme. Mannar Basin covers 3400 square Km at depths between 200 to 800 meters.

Q: Oil exploration is certainly a costly exercise. Can you indicate how much the Mannar Basin oil exploration will cost?

A: The total cost of oil exploration in the Mannar Basin is estimated at US$ 172 million. We have spent US$ 17.5 million up to September 30-2010. The estimated cost of drilling five oil exploration wells is US$ 120 million. The Mannar Basin area is estimated to have deposits of one billion barrels of oil.

Q: What are the financial benefits for Sri Lanka, if its quest for oil becomes a reality?

A: The oil production share will be divided between the Government of Sri Lanka and Cairn Lanka. It will be calculated by Investment Multiple, which is the ratio of accumulated net cash income to the accumulated investment, provided according to the Petroleum Resources Agreement. At the beginning of the oil production process the Sri Lankan Government’s share would be 15% and Cairn Lanka’s 85%. The Sri Lankan Government will also receive a 10% royalty, a US$ 50 million production bonus, the profit share based on the investment, a 15% tax on contractor profit and other taxes. The exploration license is deemed to be valid for eight years consists of three stages. Three, two and three years. As the years go by Sri Lanka’s share will also increase to 17.5%, 20%, 40%, 60% and 85% while Cairn Lanka’s share will come down to 82.5%, 80%, 60%, 40%, and 15%. All aspects of the oil exploration deal are fully transparent and made available to general public both here and overseas through the PRDS website.

Q: The Mannar Basin has eight blocks of which the M3 block was given over to Cairn Lanka in 2008 - through the worldwide tenders. Other blocks in Mannar Basin and cauvery basin in northern coast also have petroleum and gas deposits. What are the future plans to explore those petroleum and gas deposits.

A: The tenders for more blocks in the Mannar Basin will be called soon. After the bidding is finalized more exploration blocks will be made available for exploration.

Q: The petroleum exploration in Sri Lanka has a long history. The Ceylon Petroleum Corporation (CPC) sought assistance from Soviet Russia to explore oil in Palk Bay area in the Cauvery Basin, in the Northern Coast of Sri Lanka in 1970s. It was a failure. Any comments.

A: According to the records available, in 1974 Soviets started ‘Pesalai I’ on the Mannar Island and drilled to a TD of 2,594 meters to Pre-Cambrian genies basement. The well encountered a water-bearing basal -lower cretaceous sandstone with a small amount of dissolved gas with heavy ends of pentane. Encouraged by this in Pesalai I, the Soviets drilled two more wells nearby ‘Pesalai 2’ and 3 in Pesalai, but both failed to encounter significant reservoirs rocks or a trap. This led to the withdrawal of the Soviets from the area.

Q: What made you launch the present oil and gas exploration?

A: In 2001, the CPC and TGS NOPEC signed an agreement to collect 1100 Km of 2D seismic data in Mannar Basin. The data was acquired in June-July 2001 and a detailed interpretation report was produced by New South Global in 2002 under contract to TGS NOPEC. The report highlighted the petroleum potential of the Mannar Basin and encouraged TGS NOPEC to collect additional 4600 Km of seismic data in the basin 2005.

These two TGSNOPEC data acquisitions provided modern high quality 2D seismic data set of the Mannar Basin caused exploration companies to show interest in the area.