True story of recovering oil from Sri Lanka's Mannar Basin

By Reuters


Sri Lankan President Mahinda Rajapaksa on Sunday said natural gas has been found off the Indian Ocean island nation in the Mannar Basin, in a well Cairn India Ltd. said required more exploration to see if it is commercially viable.

Cairn, a subsidiary of London-listed Cairn Energy Plc , said the find was Sri Lanka's first confirmed hydrocarbon discovery.

"Explorers have informed me that they have found a gas deposit in the seabed," presidential spokesman Wijayananda Herath quoted Rajapaksa as saying to an audience in the hill city of Kandy.

Cairn Lanka, a subsidiary of Cairn India, has one of eight blocks in the Mannar Basin and began drilling in August.

It struck a 25-metre hydrocarbon column showing primarily gas with "other liquid hydrocarbon potential" in the CLPL-Dorado-91H/1z wildcat well, drilled at a water depth of 1,354 metres (4,442 feet).

"Further drilling will be required to establish the commerciality of the discovery," Cairn said in a statement.

In 2007, the government gave one Mannar block each to India and China, but neither has drilled. The remaining five blocks are to be awarded by tender.

"We are optimistic that this will be commercially successful," Petroleum Industries Minister Susil Premajayantha told Reuters. "Now with this discovery, we can get good competition and offers for the remaining five blocks when we go for tendering."

Interest in the blocks has grown, but most operators have been happy to let Cairn try its luck before making any commitments while the government smooths an erratic oil and gas regulatory regime, diplomats following the exploration in Sri Lanka have told Reuters.

It is unclear whether the find will affect terms of a deal by London-listed miner Vedanta Resources to take a majority stake in Cairn India.

Sri Lanka's government has said seismic data shows the potential for more than 1 billion barrels of oil under the sea in a 30,000 sq km area of the Mannar Basin, off the island's north western coast.

Sri Lanka produces no oil and is dependent on imports, which cost it $3 billion in 2009. Since the end of a 25-year war with Tamil separatists two years ago, the government has tried to reinvigorate oil and gas exploration.

American and Russian companies from the mid-1960s to 1984 explored the Cauvery Basin off the northern shore, but only traces were found and no commercial oil was produced.

Violence onshore from Sri Lanka's civil war with the Tamil Tigers ended offshore exploration there.

There are nearly 30 operating wells on the Indian side of the Cauvery Basin, and Calgary-based Bengal Energy Ltd. has exploration rights for 1,362 sq km there. Sri Lanka is hopeful that success will be reflected on its side of the field.

There is also speculation that Sri Lanka's eastern coastal shelf has major oil and gas potential, but there is no seismic data yet to back it up. (Additional reporting by Devidutta Tripathy in New Delhi; Writing by Bryson Hull. Editing by Jane Merriman)