Sri Lanka to launch fresh bid round for oil and gas blocks

7 December 2015 02:56 am Views - 3060

    Ex-Cairn blocks to be offered first 

    Canadian energy firm Bonavista to start exploration soon

    Commercial gas delivery by 2020

    Cabinet nod to acquire airborne gravity and magnetic data 


By Chandeepa Wettasinghe
Sri Lanka will begin a fresh international bidding process for the development of offshore oil and gas blocks in the Mannar Basin from the first quarter of 2016, a top government official told Mirror Business.

The “M2” block, off Puttalam, was explored by Cairn India since acquiring the licensing rights in 2007. Out of the 4 exploration attempts, 2 wells yielded gas deposits, before Cairn exited Sri Lanka this October to focus on their Indian oil fields. The government expects to call bids for “M2” block first, most likely in the first quarter of next year. “A Negotiating Committee and Technical Evaluation Committee have been appointed to prepare a strategy for this, and their first meeting is to happen shortly. The Minister will await their final recommendations before officially launching the program in the first quarter of 2016,” Petrolum Resource Development Secretariat (PRDS) Director General Saliya Wickramasuriya told Mirror Business. He noted that commercial gas deliveries could start by 2020, as opposed to Cairn’s estimate of 2018, due to delays experienced in the past couple of years.

Cairn had spent US$ 240 million in exploring the block, which also has evidence pointing to oil reserves. “The ex-Cairn block is most likely to attract initial interest, due to the large amount of modern data acquired over the whole acreage. PRDS has already received tentative enquiries on the future opportunity from several oil companies,” Wickramasuriya said.

 He said that Canadian energy firm Bonavista Energy Corporation which bid for the C2 and C3 blocks in 2013 will be starting exploration soon, as Cabinet approval was received recently.

He noted that while other blocks may have similar exploration costs, the discovery of gas in the basin has reduced the risk of the entire basin. However, he said that information is scant on the other blocks.

“In this regard, Cabinet approval has recently been obtained, along with the re-processing of legacy seismic data,” Wickramasuriya said.

He noted that the government will bear no costs, with the surveying also taking place with an international bidding process.

He added that following the surveys, all other available blocks in the Mannar and the northern Cauvery Basins will be open to bidding in the 1st or 2nd quarters of 2016.

“Now is the best time to get good deals. In the current squeeze on exploration spending worldwide, margins are tight and data acquisition companies have spare capacity on their hands,” he said.

However, he said that since fossil fuel prices have fallen significantly, the gas deposits would have to be marketed as a “long-term economic benefit” of over 10 years instead of the “today’s price” principle practiced by oil companies in the past to recover investments in 
around 4 years.

Wickramasuriya said that this would be included in the national gas policy and new laws being hammered out to facilitate the development of the country’s 
petroleum resources.

“What oil companies do need is investment protection and market assurance, and to this end the Ministry of Petroleum Resources Development is working on introducing new legislation, and drafting a national Gas Policy to create and ramp-up local demand,” he said.

Wickramasuriya accepted that the Ceylon Electricity Board not including the gas deposits in its 20-year power generation plan was the correct decision, as it would be impossible to base power generation on potential, but that as commercial operations start, gas would be included in the power generation mix.
He said that initial investments for the infrastructure of gas power generation such as pipelines and storage would run up to about US$ 1 billion, but that subsequent investment sizes would be smaller.

“But with the current environment, it’s the best time to invest in some larger pipes at lower costs, so that we can cater to the longer-term,” he added.
There are 20 blocks identified for exploration around Sri Lanka, with 9 blocks in the Mannar Basin, 5 blocks in the Cauvery Basin. The 6 blocks to the South and East have no data, and the government is open to joint partnerships in surveying.