* Bidding round for petroleum exploration licenses for 13 blocks ends September 30, agreements expected to be signed in first quarter of 2014
* Total and Exxon Mobil purchase Sri Lanka’s seismic data set
* ENI, BP, OVL, PVEP, other international majors in discussion with govt on potential future operations in Sri Lanka

April 7, 2013, 7:43 pm


PRDS Director General Saliya Wickramasuriya

By Devan Daniel

The Petroleum Resources Development Secretariat (PRDS) is planning to amend the current Petroleum Resources Act of 2003 in a bid to reduce bottlenecks and improve governance by more clearly separating the functions of regulation, policy formulation and operations. It hopes to be an independent statutory body before the bidding round for 13 blocks on Sri Lankan waters closes this September.

Currently, most issues are handled by a top level committee (Petroleum Resources Development Committee) headed by the Secretary to the President and including the Secretaries to the Ministries of Finance, Defence, Power and Energy, and several other related Ministries.

The challenge is convening meetings of such busy officials regularly enough to deal with the administrative matters assigned to them in the current Act when things get busy, a top official said.

"The old Act is sound and complete, but was drawn up in the absence of the industry itself. Using the provisions of the Act actively over the last few years has revealed several drawbacks in terms of clarity and efficiency with even just one active block, so we have addressed these by proposing new powers and functions, introducing additional definitions, and suggesting a different management approach to several areas. These will create crucial space between regulation, policy and operations, with each component independent and accountable , allowing us to provide efficient and transparent support to the industry," PRDS Director General Saliya Wickramasuriya told The Island Financial Review.

Over the past few weeks, the PRDS opened the country’s second round of bidding for petroleum exploration licenses for 13 blocks located in Sri Lanka’s side of the Mannar Basin and Cauvery basins with roadshows in Houston, London and Singapore. Several other blocks in the east and south waters of the country are on offer for joint studies as well.

Some of the world’s top oil exploration companies have already shown interest in Sri Lanka, especially after two encouraging discoveries by Cairn in the Mannar Basin. Total and Exxon Mobil have recently purchased Sri Lanka’s seismic data set, and ENI, BP, OVL, PVEP, and several other international majors are in discussion with the Government on potential future operations in Sri Lanka.

The final deadline for bids is September 30, 2013. Evaluation of these bids commences on October and the PRDS hopes to notify the winners then. Negotiations for the Petroleum Resources Agreements would commence thereafter in November, and the PRDS hopes to sign agreements by the first quarter of 2014.

"From now, until September, there is a lot of work to be done on our side as well as that of prospective bidders," Wickramasuriya said.

"In the first bidding round, we only looked at work commitment, as in, how much an oil exploration company was willing to invest, when evaluating bids. The signature and production bonuses, royalty and production share, based on an investment multiple, were all fixed. So when Cairn India won their bid in 2007, it was based on their superior work commitment of around US$ 110 million (they have already significantly exceeded this)".

"But subsequent to a detailed Legal and fiscal benchmarking exercise carried out by our business consultants IHS, setting Sri Lanka against two peer groups of selected countries, we realised that introducing more flexibility would make Sri Lanka more competitive. So, we have made changes in the bid format and fiscal model so that oil exploration companies can bid how much they would invest, how much royalty they would pay us,signature and production bonus amounts, a Training Fund, and even a conceptual Local Content development plan.. We have also changed the profit sharing methodology to be based on daily production, for example barrels/day, as opposed to investment multiple, placing emphasis on production rather than cost.. " Another important area of focus for us has been the provision of acceptable pricing formulae for domestic market obligations" Wickramasuriya said.

The second important task for the PRDS to conclude before September is to reprocess 2-D seismic data on the exploration blocks on offer and also acquire airborne high resolution gravity and magnetic data. The Cabinet is expected to finalise the agreements soon allowing the PRDS to engage with companies specialised in these areas. This data will help prospective bidders make a better assessment of the prospects.

The PRDS is also planning a symposium for prospective bidders here in Colombo around May or June. Top officials of the some of the world’s biggest oil companies would be invited to experience the country and interact with officials and top business leaders here.

The proposed amendments to the Act would also pave the way for the development of local petroleum know-how and open up more opportunities for local companies to get involved at every link in the chain, be it backward integration or forwards.

Oil exploration companies are encouraged to employ Sri Lankan contractors at all times. If the service is not available in Sri Lanka, oil companies considering foreign contractors would have to give preference to those foreign companies that sub-contract various functions to Sri Lankan companies. Oil companies are expected to submit a Local Content Development (LCD) plan for review each year.

The LCD plan also entails the employment of at least one Sri Lankan to the global cadre of prospective oil companies in the exploration, development and production phases, a crucial element to build human resources in the country’s infant petroleum industry, which would impart hands-on training and transfer of knowledge and expertise. Also, a maximum number of Sri Lankans have to be employed in local operations for the same reasons. Before commencing exploration activities, successful bidders have to submit a comprehensive plan in this regard to the PRDS.

The PRDS is also investing heavily in to a ten year human resources development plan together with the University Grants Commission.

The University of Moratuwa was recently donated hardware and software worth over a million US dollars by Schlumberger and Cairn Lanka

The PRDS is developing further its data interpretation and modeling capabilities, installing state-of-the-art equipment in its new offices, including a 3-D Visualisation Centre, and providing specialist training and experience to all its staff..

Each stage, exploration, development and production, requires a lot of time and money, even more so when it is in deep water.

But Wickramasuriya is optimistic.

"We know we have hydrocarbon resources in our territorial waters, it is a question of exactly when and where it would be found, and how soon it could be produced."

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