Cairn India's Mannar oil exploration on schedule

Colombo: Dr. Neil De Silva, Director General Petroleum Resources Development Secretariat, said that Cairn India is on schedule exploring for oil off the shores of Mannar.

'They signed the agreement with the government in October and they have six months from then in which to begin explorations for oil,' Dr. De Silva told the Island Financial Review.

'There is a gamut of office related work and preparations that needs to be done before they actually get vessels on the water to conduct seismic research and we hear Cairn India is on schedule,' he said.

Dr. De Silva said that Cairn Lanka (Pvt.) Ltd, a fully owned subsidy of Cairn India, had already called for tenders for various operations in relation to the forthcoming seismic exploration.

Early last July Cairn India was awarded the license to explore for oil in a 3,000 square kilometer block on the sea bed of the Mannar Basin where water depths range from 200 to 1,800 metres.

However, the agreement was actually signed in October after the draft agreement was scrutinized in parliament. The oil exploration company is expected to pump in US$ 100 million for the exploration.

The Sri Lankan side of the Mannar Basin is about 30,000 sq km and was divided into eight blocks. Two blocks were allocated to India and China on nomination but according to sources a clear response has not been received as yet.

'The government is yet to decide on when to call for tenders for the remaining blocks,' Dr. De Silva said.
According to Dr De Silva, oil exploration in Sri Lanka began about 40 years ago with the acquisition of the first offshore seismic reflection survey by Compaigne General de Geophysicque (CGG) performed on behalf of the Ceylon Petroleum Corporation in 1967.
Since then various other surveys had been carried out.

Dr. De Silva estimates a 60 percent likelihood of there being hydrocarbon deposits in the Mannar basin. According to the agreement with Cairn India, if commercially viable deposits of hydro carbons are found, Sri Lanka’s share of the profits would begin at 12.5 percent and increase to 60 percent within five years of commencement of oil extraction.

The basis of allocating the share of profits is based on the investment multiple, with Cairn India taking a larger share to cover its costs at the initial stages and Sri Lanka taking a significant share (which could go up to 90 percent) at later stages of an oil rigs lifetime.

The government will also receive 10 percent royalty fees and other taxes. Cairn India paid a US$ 1 million signature bonus to the government in July when it was awarded the block.