Oil exploration in Mannar basin will take time

by Gamini Warushamana

Oil exploration in the Mannar basin has a long way to go and we are today at the very first stage the Director General of the Petroleum Resource Development Secretariat (PRDS) Dr. Niel De Silva said.

Six out of the eight land blocks in the offshore of the Southern Mannar basin are now opened for bidding and will be closed in January next year. The road shows conducted to attract drilling companies were successful and world leading oil companies were interested. This is a positive sign of continuation of the oil exploration in Sri Lanka.

Dr. De Silva, an expert in petroleum geology and petroleum geo physics acquired experience in the field for over 30 years. He completed his MSc and Phd in Canada and has been involved in onshore oil exploration in Canada and off-shore oil exploration in the Gulf of Mexico.

Following are excerpts of an interview with Dr. De Silva.

Oil exploration is a very long, complex and costly process. The bidding document is a complicated one and calls for a lot of information (such as financial and technical capabilities, experience in the field and present projects they are engaged in) about the companies.

They should also provide their work plans with details such as time-frame the surveys they will conduct and the number of wells to be drilled. The Government too has a work plan as a benchmark of evaluation. It is eight years' exploration work and the companies will have to complete some work within the first year, second and so on.

If the companies fail to meet the agreed work plan and time frame the government could terminate the contract and get the land plot back. Profit sharing formulae are also in the bidding papers and it includes revenue and cost projections and sharing.

The government's revenue share increases as revenue increases. Since this is an open bidding this information is fully transparent.

Evaluation of the bidding will be done by a cabinet approved committee and the final decision will be taken by the cabinet. A computer model will be used to evaluate the fiscal regime including royalty, taxes and profit sharing percentage.

Finally the companies that give the best financial and technical benefits to Sri Lanka will be selected. Fugro Data Solutions, a UK based consultancy firm assists the PRDS in this process.

Two land plots that were offered to India and China have not yet been handed over to them. They will be given to the governments of the two countries and discussions are under way to finalise the fiscal regimes and other conditions of the agreements.

Oil exploration has to follow several steps. The first step is surveys to find sedimentary basins. The new chapter of the oil exploration began with two dimension (2D) seismic surveys conducted in 2001 and 2004 which gave positive results.

Now more detailed seismic work is needed to ascertain whether the parameters needed for oil and gas accumulation such as structures with Hydro Carbon (HC) and reservoir rocks. If this survey results are positive more detailed survey's are needed to identify optimum places for oil and gas accumulation to determine the drilling locations.

Once drilling starts one has to evaluate what is in the drill holes. If rock layers with HC are found the quality of the HC, has to be found whether the petroleum is heavy or light. These tests measure the productivity of the HC.

This determines the commercial viability of the HC, the commercial rate it can produce and if the results are positive, the companies will undertake drilling to find out the distribution of HC, where it spreads, how much HC exists and how much they can produce.

If the petroleum found is commercially viable then production can begin. For that the companies should develop production facilities. This is a long and highly technical process. Offshore oil exploration is more complex and costly than onshore exploration. The offshore exploration is over ten times more costly than onshore exploration.

In onshore oil exploration a small oil field could be commercially viable but offshore this may not be possible. Our land blocks are spread from 10-1500 metres in deep water.

Therefore if the oil fields are in shallow water, we will be fortunate and there will be commercially viable petroleum even if the field is relatively small.

Many countries in South East and South Asia have offshore oil and gas systems. This also is an encouragement. However, every exploration work carries a risk. We are remote sensing by analysing data. In the next step drilling has to be done and information sought.

The normal success rate is one in ten drilling and according to data in Sri Lanka a higher success rate can be expected.

The environmental and social issues in the oil industry are very high and from the very beginning mitigative measures should be taken. The oil spill and sea and coastal pollution is one such environment issue.

If the oil exploration is successful an oil boom will create many socio-economic problems as evident all over the world. The industry will need a large number of labourers and the industry would absorb labourers from other sectors too.

The construction of production and storage facilities is huge civil engineering work. However, we can learn from the experience of other countries. For instance, Canada mitigated social issues by setting up large labour camps with all facilities and keeping the labourers away from the community.

gamini@sundayobserver.lk