Total SA (FP), Europe’s third-largest oil company, may win a contract from the Sri Lankan government in a month to study the prospect of oil and natural gas deposits deep off the island’s fabled white-sand beaches.
Eni SpA (ENI) of Italy has also expressed strong interest in the blocks located in waters more than two miles deep, said Saliya Wickramasuriya, director general at the Petroleum Resources Development Secretariat, which will give the contracts. Talks are on with Exxon Mobil Corp. (XOM) and India’s Oil & Natural Gas Corp. (ONGC), which have yet to evince interest, he said.
“We have six very large blocks, with very sparse data, that we’re offering on a joint-study basis,” Wickramasuriya said in a phone interview from Colombo. “Apart from the hydrocarbon potential, which is the ultimate objective, it’s also a mechanism for Sri Lankan companies to gain experience.”
Sri Lanka, ravaged by three decades of civil war that ended in 2009, is seeking international help to discover its own wells and shrink the $6 billion it spends annually to import all its fuel needs. Royal Dutch Shell Plc (RDSA) and Exxon were among companies that attended a conference in Colombo this month as the government started its second and biggest oil auction, offering 13 blocks off the northern and western coasts, besides those for joint studies.
“With Sri Lanka on a growth bias, an oil find will really give an additional boost to the economic expansion story,” Bimanee Meepagala, a Colombo-based analyst at the country’s largest private fund NDB Aviva Wealth Management Ltd., said July 23. “Commercial viability will also help stabilize Sri Lanka’s economic fundamentals.”
The winners of the study contracts will have two years to collect data and an option to negotiate a deal with the government for the blocks, Wickramasuriya said. Should a deal fail to be worked out, the government may auction the blocks at the end of the third year, he said.
Total spokesman Vincent Granier declined to comment. An Eni spokesman also didn’t comment, asking not to be identified because of company policy. ONGC Chairman Sudhir Vasudeva and Exxon spokesman Alan Jeffers also declined to comment.
President Mahinda Rajapaksa’s government, which pledged to spend $1 billion annually for at least three years from 2010 on infrastructure, is unlikely to give the contracts for the study blocks to a single company, Wickramasuriya said. The government also reserves the right to nominate a Sri Lankan company as a partner in the blocks, he said.
Cairn India Ltd. (CAIR) established the presence of gas deposits in Sri Lankan waters last year. The company, which is producing oil at India’s largest onshore block, discovered gas in an offshore area in Sri Lanka’s Mannar basin, estimated by the government to hold 1 billion barrels of oil. That’s equal to about 18 percent of India’s proved oil reserves, according to BP data.
Cairn India is conducting further exploration and analysis on the discoveries, Asset Manager Nicholas Whitely said at the conference in Colombo on July 11. The 13 blocks being auctioned are located in the Cauvery and Mannar basins. The Cauvery basin is a geological extension of an area in India off the coast of Tamil Nadu, where Reliance Industries Ltd. (RIL) announced a gas discovery in July 2007 followed by a second find four years later.
Spending to extract the gas and pump it to factories including power stations on land would require as much as $2 billion over the next five years, Wickramasuriya said.
“We don’t expect it to be impossible to meet our entire national requirement from domestic production,” he said. “The first stage is offsetting import cost. The second stage is revenue from exports. We’re already looking at starting to impinge on imports using the Cairn gas.”
President Rajapaksa is seeking to expand the economy at 7.5 percent this year after growth cooled to 6.4 percent in 2012 as demand fell for exports ranging from tea to textiles. The Central Bank of Sri Lanka reduced benchmark borrowing costs in December and May after raising them in February and April last year and letting the rupee weaken to tackle a trade deficit that depleted foreign exchange reserves.
“The big difference between this bid round and the first one is this comes post the Cairn discoveries, so there’s a significant de-risking from that,” Wickramasuriya said. “The economic impact of our own oil and gas will phase in over the next three to four years.”
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