The Web Sri Lanka In Focus

Thursday 31 January 2008

Three firms bid for S.Lanka oil exploration

By Shihar Aneez

COLOMBO, Jan 31 (Reuters) - Sri Lanka has received six tenders from three foreign companies for oil exploration in its northwestern offshore Mannar basin, the island's petroleum resource minister said on Thursday.

"We have got six tenders. They are from Cairn India (CAIL.BO: Quote, Profile, Reserch), ONGC Videsh (ONGC.BO: Quote, Profile, Research) from India and Nico Resources from Cyprus," Minister A.H.M. Fowzie told Reuters.

"All three companies have bid for the first block, while Cairn India and Nico Resources have bid for the second block. The third block has received only one bid from Nico Resources."

The first block is the smallest out of the three with 3338.1 square kilometres, while the third block is the largest with an area of 4126.5 square kilometres.

Sri Lanka has eight exploration blocks in the Mannar basin, three of which are to be given for exploration once the government decides on a successful bidder.

Two have been assigned to China and India on nomination basis. The government plans to delay bidding on the last three blocks to get higher revenue.

Oil and Natural Gas Corp (ONGC), which was offered the block nominated to India said in September it was not interested in the assigned block, citing low prospectivity and the fact that Sri Lanka was asking for a big signature bonus.

The Sri Lankan government later said it would negotiate with ONGC for a new oil block. The outcome of the negotiation has not yet been revealed.

The bidding process was closed on Thursday and the government expects to select the best three bidders by April 2008 and to start the oil exploration process by August.

The non-oil producing nation expects its first commercial crude oil production by 2010.

Prior to the bidding, the Sri Lankan government had said oil exploration licences would be awarded to firms that can provide most advanced technological and economic benefit to Sri Lanka.

A 35 percent tax from net profit, 10 percent royalty fee of annual production revenue, and allowing the planned National Oil Exploration Company to invest 10 percent in exploration activities were the conditions put forwarded by the government.

Signature bonds, production bonds, and profit sharing ratio are to be considered in selecting the best three bidders.

Roadshows to attract investors were held in London, Houston and Kuala Lumpur in September last year.

The government says seismic data shows more than a billion barrels of oil lie under the sea off Sri Lanka's northwest coast, though no reserves have yet been proven.

If proven, the reserves would be a major boost for the war-torn country, which produces no oil and imported $2.2 billion worth in the first 11 months of 2007.

Source: Reuters