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Sri Lanka says oil exploration bids satisfactory
07 Feb, 2008 12:48:18
Feb 07, 2008 (LBO) – The response for Sri Lanka's off-shore oil exploration offer was satisfactory considering block sizes and risks, the island's top petroleum development official said,
Sri Lanka received bids from three regional petroleum companies for three offshore blocks in the Mannar Basin despite the difficulties and risks involved, said Neil De Silva, director general of petroleum resources development.

None of the oil majors bid and this was probably because of the comparatively small size of the acreage on offer and the unexplored nature of the region.

"Look at south Asia, especially India, a huge country with discovered resources and so many parcels on offer," de Silva told LBO in an interview. "Generally, you don't find the oil majors there."

Regional Focus

He said oil majors were generally not present in south Asia.

"Looks like the majors get attracted to areas where oil has been found and there are proven reserves like Angola, Brazil and the North Sea."

However, de Silva said, more interest might be generated if the initial exploration does succeed in striking oil.

"I hope, if we make discoveries – and I think we have potential - then the majors might look very carefully at us. Give us three to five years."

De Silva said it would take another two years to start test drilling with the companies first having to do more seismic surveys.

The government said last week that three firms, mainly regional players focusing on India and south Asia, submitted bids for exploration blocks off the north-west coast.

These were ONGC Videsh, Cairn India, and Niko Resources of Cyprus.

ONGC Videsh is a subsidiary of state-owned Oil and Natural Gas Corporation, India's largest oil and gas company.

Cairn India, is owned by London-listed Cairn Energy, the biggest foreign petroleum operator in India, both onshore and offshore.

Canada-based Niko Resources is exploring for and producing petroleum and natural gas in Canada, India and Bangladesh.

Small Blocks

De Silva said the terms and conditions of the licenses were similar to that in the region and that he was happy with the bids that have been received. Russia made exploratory drills in the 1970s.

"Look at how we started. We had no oil exploration for 25 years. Companies had shown no interest at all. No discoveries, very little data, and the risks involved given the country situation.

"With that background we called bids for three blocks – very small areas compared to the usual licensing rounds. Furthermore, Sri Lanka's continental shelf is very narrow and you quickly get deep water where exploration is very expensive.

"Despite that we got three bids."

Sri Lanka is offering 10,000 square kilometers for exploration compared with around 65,000 sq km in 10 blocks offered by Angola in bids closing in March and India's roughly 170,000 sq km in 57 blocks.

This meant there are more opportunities for major oil companies to find oil elsewhere where the acreage is bigger.

"We were fighting a battle to attract exploration and we succeeded," de Silva said.

The blocks would be awarded to the bidders only if the bids meet government requirements.

There are two parts to the licensing round.

Under the terms of the exploration licenses companies will get blocks for eight years in three phases and can proceed to new phases only after fulfilling their work in the previous phases.

The bidders have submitted guaranteed work programmes that include two and three dimensional seismic surveys and drilling exploration wells.

The second aspect of the licenses cover the manner in which profit would be shared if oil is struck and would depend on which firms offers the most money to the government.

Corrected/Updated

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READER COMMENT(S)
2. U Kulasinghe Feb 08
Cities Services (CITCO Sri Lanka) drilled a wildcat (exploration well) which was a dry hole in 1982, after the last round of licence awards
1. Dulip Jayawardena Feb 08
I posted comments on this subject on two occations but it did not appear on LBO Blog.Dr. Neil De Silva is not the only top Sri lLnkan official exposed to the international oil industry.

there are two major factors that attract an oil company to come into a deep water frontier region and these are geological prospectivity and political stability.Both these are negative and no oil major will look at Sri Lanka until these factors improve.

If one is to study the historical background of oil exploration in India from 1866 the main reason why no international oil companies were not interested and sent in bids was the terms offered such as the Govt. policy where the National Oil Companies (NIOs) were to hold some equity upto 30 per cent and the high corporate tax initially placed at 50 per cent.

For Dr. De Silva's information oil majors showed a keen interest in India's exploration ioff shore as well as on land after 1991 where the present Prime Minister Mr. Manmohan Singh was the Finance Minister.introduced the liberalized economic policy.nearly 15 years after Sri Lanka introduced such a policy.

The Directorate General of Hydrocarbons was set up in 1992.Action was taken to train officials in all aspects of exploration as well as establishing a competitive regulatory framework where the the domination of the two National Oil Companies (NIOs) namely ONGC and OIL ended.

The New Exploration Licensing Poilcy (NELP) in India was approved by the Government of India (GOI) in 1997 which provided a number of attractive fiscal and contractual terms to foreign companies.

NELP also eliminated the award of exploration blocks to NIOs on a nomination basis and they were required to compete with the foreign companies.If Dr De Silva cares to study the development of award award of exploration blocks from NELP 1 to NELP 6 he would realize that India is refining the fiscal and contractual terms for major players to come.

However the majors have stayed away not due to the lack of prospectivity or political stability but due the srrong competitive nature of the NIOs such as ONGC ONGC Videsh OIL and IOC which are strong in both upstream and hydrocarbon

However some oil companies (junior to major) have initially come on their own and after successful sitikes have formed JVs or registered in India as separate entities. Upstream hydrocarbon development by NIOs and their JVs are dominant factors in such activity particularly upstream development in neighboring countries such as Myanmar Nepal and Bangladesh.The main reason why majors do not want to come to this area is because India could easily outbid them in the south Asian region.

Now I would like to comment the statements attributed to the Minister of Petroleum Resources Development and reported by LBO.He had earlier stated that the prospects in the off shore blocks tendered were 1 billion barrels of oil and over 100 companies showed an interest.

The Official Government News portal has quoted his secretary that 200 offers were received.It was upto Dr.Neil De Silva to correct these speculative and erroneous statements without misleading the public specially the laymen. Dr. De Silva has now stated that you have to wait for two years to find out whether we have commercially exploitable oil deposits

Further the Government should inquire as to how many officials have been trained by the PRDS since it was established and what their programme for training? How many officials went abroad on Road Shows and training programmes apart from the Director General who is a contract official and a Canadian citizen?

For the Director General's information India has invited offers for 57 exploration blocks under NELP 7 where the closing date is 11 April 2008.Out of this 19 are deep water blocks (over 400 meters) 9 shallow water blocks and 29 on land blocks.

Bangladesh has called for offers for 27 blocks where the government needs to address the maritime boundaries with India and Myanmar where both countries are accused encroaching into its territorial waters.

What Dr. De Silva fails to realize is that India is a dominant player in upstream oil development worldwide and will not allow majors to come into the south Asian Indian Ocean.It has strong ties with Norway and Britain as well as USA for technology transfer specially in deep water exploration .

I have been trying to access the model PSC finalized by Sri Lankan authorities but it is not in the public domain.However India has placed all documents on the internet and anyone could access them.It shows the lack of transparency as in all other matters of public interest in Sri Lanka.

Dr. De Silva should not try to compare what is happening in Angola and give reasons why the majors did not bid but take immediate action to formulate a effective training programme for his Secretariat.

And a competitive PSC > He should address the problems related to maritime boundaries and the extended continental shelf under the Law of the Sea.

LBO should not think the Dr.De Silva is the last word on this subject but should open its Blog to constructive criticizm by peope who have been at least exposed to tjhe international oil industry.

You should inquire why Dr.De Silva was silent when the Minister of Petroleum Resources and his Secretary made unfounded statements such as the reserve of 1 billion barrels of oil in the Gulf of Mannar and that oil will flow in 20010.

Why are politicians and other decision makers hoodwinking the masses?If the government wants to honestly encourage oil exploration it should clean up its own stables and not allow politics to interfere.As a retired United Nations Officer who has worked for 15 years in the Asia Pacific region in about 25 countries including East Timor and Viet Nam I realize that the Government of Sri Lanka acts with a lot of retoric and invariably these projects which need long term gestation periods will fiizzle out when there is a change of administration.

I have personal experience earlier on the Phosphate Project which was killed by politicians and scientists who had no experience at all I hope oil exploration will not end in a similar fashion.For the information of Dr.De Silva ONGC Videsh is vigorously pursuing upstream oil exploration in three countries I had worked namely Viet Nam ,Myanmar and East Timor with resounding success.

Lastly have been following the oil exploration programme since the Russians were here in the 1970s and lately after the PRDS was formed and could boldly state that I am very disappointed with what has happened.