Mannar basin now on major oil radar

Conditions have changed since Cairn India drilled exploratory wells

Conditions for taking forward Sri Lanka’s efforts at exploiting indications of the presence of petroleum and natural gas in the Mannar basin have improved significantly in the last two years according to well informed sources in the international oil industry.

These sources said that when Cairn India drilled three completed exploratory wells between 2011 and 2013, two of the wells, Barracuda and Dorado was believed to contain gas estimated to be 1.8TCF and 300 BCF respectively.

“While they were not commercially viable when oil and gas prices collapsed in 2014, there is a strong possibility they will be at today’s prices. There are technologies that have reduced capital expenditure such as gas-to-wire power generation that help make the economic case for production of these gas finds,” these sources said.

“Cairn India has invested nearly $200 million in Sri Lanka, but it would require an investment of over $1 billion to build production infrastructure. Therefore, it is vital to urgently attract as many investors as possible for exploration and production to maximize benefits to Sri Lanka – especially in light of the global energy crisis and the concomitant energy price increases which has enhanced investor appetite.”

Other sources placed the Cairn investment at $ 250 m. saying it will now cost around $500 m to put in place a subsea completion to produce the smaller prospect. While one must drill to ascertain the actual existence and quantity of resources, seismic studies estimate 9 TCF of gas and several billion barrels of oil in the Mannar Basin, industry sources said.

These volumes could fulfill several decades of the country’s energy needs while potentially saving $6-7 billion p.a. in expenditure on energy. It also opens opportunities for Sri Lanka to earn revenue through Production Sharing Agreements with investors who take 100% of the risk. Mr. Saliya Wickramasuriya, Chairman of the Petroleum Development Authority of Sri Lanka confirmed that the picture had improved since Cairn drilled its first wells and possibilities of the Mannar basin are now on the radar screens of international oil majors.

“There have been external market changes (including price rises) and technology too had become cheaper. Additionally there have been internal improvements to the operating environment and legal framework. We’ve made it more investor friendly,” he said.

Other sources said what is needed now is to prudently fast track the long delayed Mannar Basin M2 block (exploration and production) tender and the commencement of exploration work by the selected bidder for the M1 and C1 July 2019 tender.There is also a need for conducting a marketing campaign to attract further investment while oil and gas prices are at historically high levels, they said.