Large oil reserves a fallacy- oil expert - point of view

By Dulip Jayawardena

I read with interest the editorial of The Sunday Times FT on March 9 headlined ‘Experts in oil exploration’. I also read an interview given by the Minister of Petroleum Resources to another local newspaper where he says he is confident that “the first barrel of oil produced from Sri Lanka will arrive in the world market by 2010.”

The three companies that have sent in six bids for the three blocks are ONGC Videsh, a wholly owned subsidiary of ONGC India, Cairn India and Niko Resources of Cyprus where the parent company is in Calgary, Canada.

It appears that the Central Bank and the Petroleum Resources Development Secretariat (PRDS) headed by a Sri Lankan naturalized in Canada are building their own team of experts to advise and carry out operations in the Exploration and Production (E&P) of oil and gas in the off shore Mannar Sub Basin of the more larger Cauvery Basin that stretches along the eastern off shore area of India in a south west direction.

I would like to expose the fallacy of those in authority in assuming that we have a large reserve of oil and gas with only some initial seismic surveys carried out earlier by TGS NOPEC. It is reported that a total of only 3500 seismic line km were done and the government purchased the data for US $ 8.5 million. TGS NOPEC sold the data most probably on Block 1 and 2 to ONGC that initially rejected Block 1 due to the poor prospectivity and the signature bonus of US$100 million.

The interest in off shore oil and gas in Sri Lanka was revived in 2002 after Dr Ray Shaw from the University of New South Wales Australia and team leader of the ADB Sri Lanka Project reinterpreted the earlier data in the light of the recently acquired 2D seismic data by TGS NOPEC. Further this team concluded “that the area holding the best potential in the off shore Sri Lankan region is the Gulf of Mannar basin” The interest in the Mannar basin was also kindled by a test well about 30 km north of Mannar within Indian waters of the Cauvery basin that produced 1488 barrels per day.

Accordingly the target area for exploration and the demarcation of the eight blocks in Sri Lanka is based on the assumption that the Mannar Sub Basin of the Cauvery Basin will contain oil and gas.

I would now like to elaborate on the exploration activities of ONGC in the Cauvery Basin.

The Cauvery Basin covers a total area of 250,000 sq. km both on land, near shore and deep water. Out of this only 25,000 sq km on land and 30,000 sq km off shore have been subject to detailed exploration.

The exploration in the Cauvery Basin commenced in 1958 by ONGC and the first wild cat well was drilled in 1965.The exploration was not successful up to 1977 in spite of drilling 18 exploratory wells on 12 prospects and hydrocarbon shows were only in two.During 1977 – 1984 a reassessment of the Basin was done. These efforts were a success with two oil-bearing prospects and one gas prospect up to 1988.

The ONGC up to 2007 has drilled 430 and 68 wells on land and off shore and discovered 31 oil and gas deposits of which five are off shore. The reserves established are 56 million tones of oil and 73 billion cubic meters of gas.

The Minister of Petroleum Resources has gone on record that the “Mannar Basin contains 2 billion barrels of oil” only on the 2D seismic data! This figure is four times the reserves on the Indian side of the Cauvery Basin! Further the figure for the Mannar Basin has been given without a single exploratory drill hole!!!

I would also like to point out that there is a severe shortage of deep water off shore rigs worldwide and there will be serious delays in commencing exploratory drilling. According to the Model Petroleum Resources Agreement (MPRA), exploration shall commence within six months from signing and the minimum work programme will be eight contract years in three phases with extensions for 1 ½ years. Each phase includes exploratory drilling and the targets will not be met due to the shortage of rigs. In fact India is contemplating issuing a moratorium on off shore drilling activities. Accordingly it is uncertain as to when drilling will commence in Mannar basin and the Technical Evaluation Committee should get firm commitments from the companies on the commencement of drilling. Further there is also a shortage of seismic vessels and even 2D and 3D seismic surveys may be subject to severe delays.

The attention of the Minister of Petroleum Resources and his expert advisors is drawn to the fact that the exploration in the Cauvery Basin by India commenced in 1958 and it took nearly 30 years to strike an exploitable oil or gas deposit.

It is really a fallacy to assume that Sri Lanka could develop an oil or gas reservoir in one and a half years!

I also wonder whether the six bids received by the companies are serious knowing the various shortfalls on rigs as well as vessels for seismic surveys. In conclusion I reiterate that the entire exploration for oil and gas is political rhetoric.

It is best that the government should be more pragmatic taking India as an example. India was successful in building ONGC from scratch due to the untiring efforts and foresight of K.D. Malawiya the Union Minister of Petroleum after he convinced Prime Minister Jawaharlal Nehru to put India on the global oil map in early 1950s. Today ONGC ranks first in E&P companies in Asia.

The writer is retired Economic Affairs Officer, United Nations, ESCAP and our special columnist on oil issues. He can be reached at fasttrack@eol.lk.