Cairn India to begin phase 2 of oil exploration today

Reuters: Cairn India will start the second phase of its Sri Lankan oil exploration program today with the drilling of a fourth well and will decide the commercial viability of the project by 2014, a company official said on Thursday.

Success in the project for the unit of London-listed Vedanta Resources Plc would mark a significant step in Sri Lanka’s efforts to reduce its dependence on imported fuel.

The island nation produces no oil and its oil import bill was $ 4.6 billion in 2011. Since the end of a three-decade war with Tamil separatists in May 2009, the Government has tried to reinvigorate oil and gas exploration.

Cairn India has the rights to drill in one of eight blocks in the offshore Mannar basin. China and India have been offered one each, which they have yet to accept, while the remaining five are expected to be tendered later this year.

Cairn has already concluded the first phase in Mannar basin, discovering gas and condensate in two out of three wells drilled, although their commercial viability has yet to be determined. A third well was plugged and abandoned as a dry hole in December 2011.

The fourth well, named Wallago, is located 22 km off the Sri Lankan western coastal town of Kalpitiya.

“Fourth well drilling will commence around 1 February,” Sunil Bharati, Cairn India’s Head of Corporate Affairs and Communication who was in Colombo, told Reuters.

“We think it will be completed within 35-40 days, if everything goes well and there is no equipment failure.”

Cairn has spent $ 150 million for the first phase, more than the estimated $ 112 million, Bharati said, adding investment in the second phase could be more than that of the first phase.

Seismic work done earlier by Norway’s TGS Nopec Geophysical Co ASA showed some potential in the northern Cauvery Basin, which on the Indian side has producing wells, and in a basin off the island’s southern coast.

The Sri Lankan Government has said the seismic data shows the potential for more than one billion barrels of oil under the sea in a 30,000 sq km area of the Cauvery basin.

Russia’s natural gas monopoly Gazprom and Malaysian State oil company Petronas have held talks with Sri Lanka on potential exploration, and Vietnam and Sri Lanka signed a deal on oil and gas cooperation in October 2011.