India's Cairn to invest 100 mln dlrs to explore oil in Sri Lanka

Cairn India, a unit of British exploration firm Cairn Energy Plc, plans to invest 100 million dollars to explore oil and natural gas deposits off Sri Lanka's coast, officials said Monday.

Spread over three years, the investment includes conducting further seismic studies and drilling three wells off the island's northwestern coast of Mannar, Cairn India's chief financial officer Indrajit Banerjee told reporters here.

"Oil and gas exploration is a risky business and success is not always guaranteed. We plan to do more seismic studies because as of now we don't know what's down there," Banerjee said.

Sri Lanka, which imports all of its oil needs, offered three blocks to investors after seismic surveys showed oil deposits along the Gulf of Mannar close to neighbouring India.

Block two, an area that covers around 3,400 square kilometres (1,360 square miles) off Mannar, was offered to Cairn in June after a competitive bidding process.

"The Mannar basin has not been explored in Sri Lankan waters and as such represents a frontier petroleum province," Banerjee said.

Cairn has been in South Asia for more than a decade and has developed a good understanding of the region's geology, Banerjee said.

Banerjee added the company has made over 40 oil and gas discoveries to date in India, including the Mangala discovery onshore in the deserts of Rajasthan, which has an estimated total oil in place of 3.7 billion barrels.

Sri Lanka's north and east has seen heavy fighting over the past three decades as separatist rebels push to carve out a separate homeland for minority Tamils from the majority Sinhalese community.

Fighting has intensified since January, when the government pulled out of a Norwegian-brokered ceasefire with the Tamil Tigers.

"We have taken the security aspect into consideration in our bid. And the government has told us that the area is out of danger," Banerjee said.

Petroleum minister A.H.M. Fowzie said the government will provide adequate security when Cairn's project gets off the ground in six months.

"We can provide enough security for the project," Fowzie said.

Besides Cairn, India's state-run ONGC Videsh and Canada's Niko Resources bid to explore block two.

Sri Lanka has already allocated two other blocks to the governments of India and China.

Fowzie said Cairn deposited a one-million-dollar cheque with the Sri Lankan government during Monday's signing ceremony.

The island spent just under three billion dollars in 2007 importing oil and Fowzie expects the fuel bill to climb to four billion dollars this year.

Over 35 years ago, overseas companies explored areas off Sri Lanka's northwest coast, but failed to find any oil and gas reserves worth exploiting commercially.

Source: AFP