Sri Lanka hopes to join the natural gas producing nations club soon, after initiating talks with Cairn India on a sales agreement, which, once finalized, will lead to production from the company’s offshore blocks, according to an official with a government agency.

“We would like to be able to finalize a heads of agreement [with Cairn India] within this year,” Saliya Wickramasuriya, director general of the Petroleum Resources Development Secretariat, said.

“If talks with Cairn succeed and a price of mutual agreement is reached, we are looking at production around 2017-2018,” he said in an interview on the sidelines of the 19th Asia Oil Week upstream conference in Singapore.

Cairn India holds a 100% stake in block SL 2007-01-001, which is located in the Mannar Basin off the east coast of Sri Lanka. The company has made two gas discoveries -- Dorado and Barracuda -- in the block so far.

“This is a sub-Tcf discovery ... It is marginal and the only way we can make it commercial is by matching the need to the capacity,” Wickramasuriya said, referring to the size of Cairn’s two discoveries.

The gas will be supplied to Ceylon Electricity Board’s power plants, which currently run on imported fuel oil and gasoil.

Wickramasuriya said the price will be project specific and he expects it to be “high” given that this is the first gas project off the shores of Sri Lanka.

“It will be a floating price agreed mutually between the government and Cairn on the basis of their cost of production and the cost benefit to us of import substitution,” he said, adding that it would be somewhere between Cairn’s “lift cost and our import cost.”

GOVERNMENT IN TALKS WITH TOTAL ON ULTRA-DEEPWATER BLOCKS

Sri Lanka is also in talks with two majors, one of which is France’s Total, on joint study agreements for the country’s ultra-deepwater blocks, Wickramasuriya said.

Sri Lanka in August invited bids from international oil and gas companies to explore six ultra-deepwater blocks not in the current -- its second -- licensing round.

Sri Lanka launched the second upstream licensing round in March, offering 13 blocks in the Cauvery and Mannar basins.

The blocks will be awarded on a joint-study basis and be determined according to experience and capability as well the company’s plans.

Under the joint-study agreement, the winning company will be required to gather data, process and interpret it for two years, and then discuss potential next steps with the Petroleum Resources Development Committee.

“The benefit to us from making these six ultra-deepwater blocks available ... is that it will give us a parallel pipeline of activity [alongside the blocks offered in the licensing round],” Wickramasuriya said.

“One of the things that we have learned is that in order to bring prices down and lift competitiveness, we have to increase activity ... We have to open up different avenues,” he said, adding that a JSA for ultra-deepwater blocks is one such avenue.

NEW PETROLEUM LICENSING ACT ALMOST READY

The country has almost finalized a new petroleum licensing bill and will be implementing it before the end of this year, Wickramasuriya said.

The new act incorporates changes recommended by a study conducted by the Petroleum Resources Unit together with consultant IHS.

“The study took six months and was very exhaustive,” he said.

Under the new act, Sri Lanka will simplify the pre-qualification process; make it easier for people to purchase Sri Lankan data; make bid evaluations faster; and will have new, more investor friendly fiscal terms.

Blocks awarded under the current licensing round will follow the new petroleum act.

The bid deadline for the 13 blocks offered in the Cauvery and Mannar basins in the second licensing round is in late November and the country expects to award contracts by the end of the first quarter of 2014.

Sri Lanka held its first licensing round in 2007, in which three blocks were offered, but only one awarded -- block SL 2007-01-001 in the Mannar Basin to Cairn India.

The country currently does not produce any oil or gas and relies on imports to meet all its hydrocarbon needs. It imports around 2 million mt/year of crude oil. - Platts