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NPC should have a say in Cairn India over Mannar Basin

| by Pearl Thevanayagam

(May 03, 2014, Bradford UK, Sri Lanka Guardian) Mannar comes under the purview of NPC (Northern Provincial Council) and it is incumbent on chief minister C.V.Wigneswaran to concentrate on the natural resources of the NE to preserve them and make sure the government does not squander it and become a pawn in the game India plays to cut itself a big pie off the newly discovered gas and oil deposits.

India’s dispute with Katchchathivu and the fishermen’s right to Indian Ocean’s bounty should make Sri Lanka wary of India’s encroachment on Sri Lankan’s natural resources.

There is great potential for Mannar to become a veritable source of oil and gas for the future and this should not be treated lightly. India should be held at arm’s length and prudence and careful scrutiny as to its intentions would protect our newly discovered oil.

Then there is the question of livelihood of Mannar fishermen who would be deprived of fishing rights in the basin due to oil exploration activities and the environmental impact on its geography.

Cairn with its base in Scotland had many botched oil explorations and its history of dried oil wells makes it a questionable venture.

The Telegraph reports that shares in oil explorer Cairn Energy have been hit this year by an Indian tax dispute and a dry well off Morocco. However, Questor is keeping faith with the FTSE 250-listed oil explorer as the investment case was always a high risk exploration play.

Cairn focuses on oil and gas exploration in frontier regions and has eschewed a big role in the running of wells once the oil is flowing. The business model for Cairn is that once oil discoveries are made and developed they are then sold off and the cash returned to shareholders.

The Indian tax dispute stems from one of Cairn’s largest ever oil discoveries onshore in India. The company sold a majority stake in Cairn India, to Vedanta resources in 2010, and then returned $3.5bn (£2.1bn) to shareholders last year.

The deal was structured to minimise the tax bill and Cairn also retained a 10pc sake in Cairn India, valued at around $1bn. In January the Indian tax man came calling to discuss income tax assessments for the past seven years.

Edinburgh explorer Cairn Energy has made its first gas strike in Sri Lanka through its Indian subsidiary. The offshore well was the first to be drilled in the country for 30 years. Cairn India made the discovery after drilling almost a mile down offshore in the Mannar Basin, Sri Lanka.
Simon Thomson, chief executive, Cairn Energy said: "Cairn is delighted with this frontier exploration discovery, the first well in Cairn India's three well drilling programme in Sri Lanka."

Cairn Energy is in the process of selling off 30% of its 52% stake in Cairn India to the Vedanta Resources and recently won shareholder and Indian government approval for the deal. The company's focus has moved to Greenland since it announced it was reducing its stake in its Indian unit.
However, it has had a number of disappointments after turning up several dry wells.

Cairn India will get one more exploratory block in Sri Lanka and will sign within a month a pact to sell commercial gas to power plants, a first in the island nation’s history, India's Business Standard reports.

Saliya Wickramasuriya, Director-General of the Petroleum Resources Development Secretariat (PRDS), told Business Standard, 'There were only two bidders for the current round of auction. Cairn India bid for M5 block in Mannar and Singapore-based Bonavista bid for Cauvery blocks C2 and C3. Both the bids are good and have high work-up plans. As there are no competitors, once the technical process is over, we would finalise and sign it (the agreement) by March.' PRDS oversees petroleum exploration and production-related activities in Sri Lanka.

Cairn India holds a block in the Mannar basin expected to start gas production by 2017-18. It had won the block in Sri Lanka’s first licensing round, in 2007, after competing with OVL and Niko Resources of Canada. Cairn had made two gas discoveries there.

The company would also sign within a month a deal for gas supply to three power plants. This would be the first such deal in Sri Lanka’s history.

Wickramasuriya of PRDS said: 'Our power sector is in the process of finalising a deal for linkage from the Cairn’s field, which would start production from 2017-18.' The pricing of gas from the block was likely to be import-linked. 'We are looking into the cost of production. As there is zero infrastructure, the cost of gas would be high,' Wickramasuriya added.

Cairn had discovered two successive gas and condensate deposits in the Dorado and Barracuda wells in the Mannar basin. According to reports, the sites had reserves of around 74 million barrels of oil equivalent. Cairn’s shares declined 1.23 per cent on the BSE, to end at Rs 326.45 on Wednesday.
Sri Lanka’s second licensing round had closed on November 29, with only Cairn and Bonavista submitting bids. The companies had bids for 13 offshore exploration blocks. Exxon Mobil Corp, Royal Dutch Shell, France’s Total, ONGC Videsh and Eni of Italy were interested in the initial rounds, but had backed out later.

(The writer has been a journalist for 25 years and worked in national newspapers as sub-editor, news reporter and news editor. She was Colombo Correspondent for Times of India and has contributed to Wall Street Journal where she was on work experience from The Graduate School of Journalism, UC Berkeley, California. Currently residing in UK she is also co-founder of EJN (Exiled Journalists Network) UK in 2005 the membership of which is 200 from 40 countries. She can be reached at thevanayagampearl@yahoo.co.uk)

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