Crude oil with made in Sri Lanka label?:

Government gives solid start to dream project

H.L. Kak

The Sri Lankan Petroleum Development Ministry, according to media reports, has received six bids from three foreign companies for oil exploration in its northwestern offshore Mannar basin.

This marks the successful start of Sri Lanka's first ever bid round. This is a really great achievement given the barriers they had to overcome. The disadvantages are all too obvious high country risk due to the war, the proximity of these offshore blocks to past sea battles, virgin/unproven territory label, etc. ONGC's decision to question the petroleum prospects publicly and pull out of the block granted through a government-to-government deal while the bidding was taking place also added further problems.

The NELPS 4 round in India and other bid rounds in resource rich South America were all far bigger and much more lucrative and tiny Sri Lanka was competing with them for attention and investment.

The PRDS and the ministry have battled against tremendous odds and fought courageously and brought about this success and they deserve our praise and admiration. I have personally been to Sri Lanka to meet the ministry officials and the Director General of Petroleum. I must admit the fact that I was amazed to witness the dedication and the determination of Minister Fowzie and also the expertise and industry knowledge of the DG Neil De Silva.

I also attended the road shows which followed and all the events were conducted in a well organised and professional manner. The early indications I got certainly assured me that the upstream industry of Sri Lanka was in safe and capable hands.

However, the tender process is still not over and it is still too early to celebrate. Now that they have received some serious bids from reputed players in the region, they will have to evaluate these bids in a transparent way and make the awards to the deserving bidders as per the agreed timetable. There will be all kinds of vested interests trying to delay or derail this process.

The ministry and the PRDS authorities should continue to stick to the timetable and maintain the excellent professionalism so that the credibility of the tender process and the petroleum regulatory authorities could be maintained.

This confidence is vital to bring more investments to Sri Lanka in the E&P sector. Otherwise the current enthusiasm will die a natural death without any fruits just like the exploration work government managed to do way back in partnership with the then Soviet Union.

This is all the more true and even the free block given to a Chinese petroleum company through a preferential government to governmenbt deal almost as year back is yet to see any serious exploration work.

By far Canada based Niko Resources seems to be the company that has shown the strongest interest in the Sri Lankan bid round.

Niko was the first North American oil company to invest in India and it was involved in India's largest ever gas find estimated at 14 trillion cubic feet. This admired Canadian company has bid for all three blocks and according to reliable sources it has committed to invest US$340 million.

Niko is closely followed by Cairns Energy India which recently shifted its head office from Chennai city in Tamil Nadu state to New Delhi. According to press reports Cairns has bided for 2 blocks and committed to invest USD 200 million. Cairns India is a subsidiary of Edinburgh based Cairn PLC and it has a good track record.

Last bidder is Indian government owned ONGC and it has bid for only one block. ONGC's decision to pull out of the block allotted to it through a sweet heart deal negotiated by the Indian Government may have created some hard feelings and I hope the Sri Lankan tender board would be magnanimous enough to ignore these bad vibes and look at the bid on its own merits.

In this century economic prosperity and energy security are two vital goals pursued by almost all the nation states and the Sri Lankan government has gone beyond dealing with day to day firefighting and made a strategically important move to initiate this tender process.

When India started bid rounds to attract foreign oil companies there was strong opposition from the leftist politicians and accusations of a sell out of national interest.

But then the Indian government did not relent and it went ahead with the tender process and did what it could to maintain the credibility of the process.

That is the way the government of India managed to develop the petroleum resources in India. In spite of a steep increase in demand for petroleum, India has managed to continue to produce one third of its petroleum needs locally. There are many such inspirational examples all over the world.

I am sure there will be controversies and sell out theories, but the decision-makers in Sri Lanka are highly knowledgeable and are quite capable of dealing with such vested interests in a very professional way.

Oil exploration by nature is a very difficult industry to succeed and the risks are very high. There are far more failures in this industry than success stories. Furthermore, this type of deep-sea exploration is far more expensive than shallow water or onshore exploration work.

Therefore, in my opinion the bidders/investors who are willing to pioneer E&P work in Sri Lanka are taking a huge risk amounting to almost a gamble and I am sure the general public in Sri Lanka would wish them well.

(The writer is a Geoscientist by profession, Ex-General Manager (Geology) on ONGC with more than 40 years experience in the oil industry.)