Parliament updated on Cairn’s oil drilling venture

Tuesday, 26 March 2013 00:11 - - {{hitsCtrl.values.hits}}

By Ashwin Hemmathagama Our Lobby Correspondent

Doubts over the success of the agreement entered into with Cairn Lanka Ltd., which is entrusted with oil exploration activities in the Mannar Basin, were raised last week in Parliament by UNP MP Buddhika Pathirana.

Revealing the terms of the agreement signed between the Government of Sri Lanka and Cairn Lanka, a subsidiary of Cairn India Ltd., Minister of Water Supply and Drainage and Chief Government Whip Dinesh Gunawardena stated that all exploration, development and production costs were borne by the contractor.

“At the execution of the contract, the contractor has to pay the Government US$ 1 million as signature bonus and on the first commercial production US$ 50 million as production bonus. The exploration period is for eight years containing three phases and the minimum financial commitment of the contractor for each phase is agreed. This work commitment includes acquiring and reprocessing of data and drilling of wells – three during the 1st phase, one during the 2nd phase and the final well at the last stage.”

“Once production is commenced the contractor has agreed to pay 10% of the production as royalty to the Government every month. The contractor can recover 100% of its exploration and development cost and 70% of the total production shall be utilised for cost recovery; the balance production will be shared between the contractor and the Government. Profits and gains of the contractor are subject to Government taxes.

“The Government can form a national oil company and obtain 15% participating interest of the contractor. Measures are agreed on environment protection and the contractor has to contribute to an annual environmental fund. The Government of Sri Lanka will hold the title to all petroleum data acquired by the contractor. Until the Government share of production can meet the total national demand, the contractor has to sell its share to the domestic market in order to satisfy national demand,” explained Minister Gunawardena.