Oil exploration - probability high, challenges greater

The Government is ready to start the much awaited oil and gas industry in Sri Lanka and has invited Sri Lankan experts with wide experience in the field. The Petroleum Resource Development Secretariat (PRDS) is now working on drafting contracts, development of human resources and other aspects for the industry.

Director General of the PRDS Dr. Niel de Silva told the Sunday Observer that according to the recent seismic surveys there is a high probability of having oil and gas in Sri Lanka. However, commercial production of oil and gas is not simple and there are many challenges ahead of us, he said.

Dr. Silva said that tenders will be called from international oil companies for six land plots in the potential oil field in the Southern Mannar Basin by the middle of this year.

The Government has awarded two land plots to India and China. According to the schedule drilling operations will commence in 2009 and there is a probability of obtaining oil the same year. However, it will take a further two or three years to start commercial production, he said.

The data provides the basic details and more research has to be done about the quantity of gas and oil available.

The socio-economic and environmental impact of the oil industry is extremely high and therefore the challenges ahead of us are great. The Government is working to manage the petroleum resources prudently and safely. Contracts are being drafted to get the maximum benefits for the country and the transactions are being carried out in a transparent manner, he said.

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(The full interview with Dr. Niel de Silva)

Lanka may strike oil and gas in 2009

by Gamini Warushamana

Sri Lanka's oil exploration has two chapters. The first started in 1967 and ended in 1974 with encouraging evidence of the high probability of having oil and gas in Sri Lanka. However, surprisingly even after the open economy this potential treasure was neglected. All successive governments since 1977 went after donors with the begging bowl but never thought of this hidden resource.

The second chapter of the oil exploration started in 2001 with an unknown agreement being signed between TGS Nopec, a Norwegian company and the Ceylon Petroleum Corporation (CPC) and the process continues.

Director General of the Petroleum Resource Development Secretariat (PRDS) Dr. Neil De Silva explained the recent developments and the oil prospects in Sri Lanka in an interview with the Sunday Observer.

Dr. Silva, an expert in petroleum geology and petroleum geo physics has gained experience in oil exploration for over 30 years. He obtained his first degree in geology from the University of Peradeniya and MSc and Phd in Canada. He has worked in the areas of collecting seismic data, seismic data interpretation and drilling in leading oil companies and institutions and has published several publications.

Q. In oil exploration what is happening today? What happened to the data collected by TGS Nopec? Have they sold the data to a third party?

A. Today PRDS has seismic data obtained by the TGS Nopec in 2001 and 2004. According to the agreement signed in 2001 TGS Nopec had the rights to sell the data. It sold the data to two companies, Oil and Natural Gas Corporation (ONGC) India and British Gas, in India. The sale of this data is not a violation of the agreement.

However, in 2006 the government decided that the data should be in the government's possession and the government should manage them and therefore purchased the data at $10.5 million.

The company had earned $2 million by selling the data while the government paid only $8.5 million. Now the company has no right to sell them to third parties. Right now we are doing the prepatory work to begin oil exploration in Sri Lanka.

Q. What does the data say?

A. They have collected sufficient data to get a good understanding of the Mannar basin. The data is in good quality. Good quality data means the technology used is advanced and allows you to do a scientific interpretation. According to the data we can suggest that there is potential for oil and gas in Sri Lanka. However, the data is not sufficient to project the amount of oil and gas that exists and more research has to be done.

Q. Who will explore oil in these fields

A. Since oil exploration is highly expensive and technologically complex the government hopes to get the help of international oil and gas companies. We have divided the potential oil field in the Southern Mannar basin into eight plots.

The Government has decided to award one plot to India and one to China. The remaining six land plots will be tendered for international bidding. Before that we have to do much preparatory work such as the designing contract to sign with the companies. At present we are drafting the terms and conditions of the agreements which will be passed by the Cabinet soon.

Q. What are the terms and conditions in the contract? How will the revenue be shared?

A. I can't disclose the terms and conditions before the Cabinet approves it. But the agreements will be prepared in a manner that the country gets maximum benefits. What we are drafting are the general conditions, bonuses (signatory bonus, production bonus, discounting bonus), work commitment of the companies (how much of the 2D seismic surveys that needs to be done, how much of the 3D seismic surveys should be done, how much of drilling) and profit sharing.

Broadly there are two parts of the contract; work commitment and fiscal regime. However, it is not a secret and after cabinet approval is given, it will be a public document. All transactions will be done in a fully transparent manner.

Q. What is the reason for special preference to India and China?

A. It is the government's decision to strengthen the bilateral relations with regional countries. But in the oil industry we need technical cooperation from friendly nations. We have to collaborate with the Indian government in the management of oil in the border area.

This is because all over the world, oil and gas fields do not know the country boundaries and in many instances they span over country boundaries. Countries have agreements to exchange technical data. India has found oil fields but not close to our border. India is not tapping our oil.

Q. So what is the reason for giving a plot to China? Is it to balance regional politics?

A. It is the government's decision. Maybe to strengthen relations with China. However, we have to live with regional politics. What we have to do is to manage them to get the maximum benefits to the country.

Q. Who will manage Sri Lanka's oil industry? Do we have experts?

A. We should manage this treasure wisely, prudently and safely. The socio-economic and environmental impact of the oil and gas industry is higher. We have to consider the fishing community in the region. I am fully aware about our responsibility.

For the management of the resources we have the Ministry and the PRDS.

At present I can manage the technical work but we need more human resources in the future. We have Sri Lankan experts working overseas with broader experience. As I need their service I will contact them.

We are also in the process of introducing petroleum related subjects in our universities. We will offer contracts from the middle of this year till mid 2008. Drilling may not start until 2009-2010. We have enough time to train people and now we are in a recruitment drive.

Q. How soon will oil change the destiny of Sri Lanka?

A. It is uncertain. More research has to be done to give such detailed information. For a detailed study of the available seismic data it will take six months.

I studied it in two days and we can come to a rough conclusion that the probability of having oil and gas is high. Drilling is expensive and each well will cost $20-30 million.

The world average probability of having oil is one out of ten wells. In some areas the probability is as high as 1/2. There is a probability of striking oil and gas in 2009.

However, it would take another couple of years to evaluate what is discovered, to assess whether the petroleum found is commercially viable.

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