Cairn India signs oil exploration agreement with Sri Lanka

08 July 2008

Following its sucessful bid Cairn India yesterday signed a petroleum resources agreement with the government of Sri Lanka for an exploration licence to explore for oil and natural gas in the of the first of eight oil blocks of north-western Mannar Basin. Sri Lanka has eight exploration blocks in the Mannar basin, two of which have already been assigned to China and India.

ONGC, which was offered the block nominated to India, said in September it was not interested in the assigned block, due to low prospectivity and because Sri Lanka wanted a large signature bonus.

Sri Lanka, which  had an oil import bill of $2.49 billion in 2007, is keen to exploit its oil resources.

The Indian arm of Britain's Cairn Energy Plc, said it siged the agrement with Sri Lanka's minister for petroleum and petroleum development resources, A H M Fowzie in Colombo yesterday. Cairn Energy PLC currently holds a 65 per cent shareholding in Cairn India Limited.

Cairn India will invest $100 million for the first phase of oil exploration through a newly established wholly-owned subsidiary, Cairn Lanka (Private) Limited, which would hold a 100 per cent participating interest in the block. The first phase of exploration is for three years, during which cairn plans to get seismic data before drilling three wells.

The Sri Lamkan government says that its seismic data has projected  over one billion barrels of oil in the area although  is confident that commercial production can commence from 2010, though no reserves have been proven, yet.