Bids submitted by three global petroleum companies to explore oil in the Mannar Basin will be evaluated within three months, Petroleum Resources Minister A. H. M. Fowzie sai.

"We are in the process of appraising the proposals", he told the The Island.

"This is an investment which demands billions of rupees", he noted. "It’s an enormous task".

Bids for the Sri Lanka Mannar Basin Bid Round 2007, as it was officially termed, closed at 12 noon on January 31, 2008.

The three international bidders are the Canadian blue chip NIKO Resources, ONGC Videsh and Cairn India.

With the evaluation in progress, the awarding of the tenders could be expected to be announced by the end of April 2008, authoritative sources said.

"With oil exploration work scheduled to commence in August this year, the first barrel of oil could be expected by 2010", the Minister said. "But, it all depends on the success rate".

Only NIKO Resources, a Canadian oil company listed in the Calgary Stock Exchange, has made bids for oil exploration in all three offshore blocks, Fowzie said.

With wide oil exploration experience in India, Pakistan, Bangladesh and Thailand, Niko Resources was also the sole bidder for the 4,126.51 sq. km Block 003, the largest amongst the three demarcated sites in Sri Lanka’s northwestern coast under this multi-million dollar project.

Block 001, which is 3,338.10 sq. km. in size, had attracted bids from all three bidders, NIKO Resources, ONGC Videsh and Cairn India while ONGC Videsh opted out of the 3,572.08 sq. km. Block 002, which left only two contenders (NIKO Resources and Cairn India) to vie for the award, official sources said.

NIKO’s Vice President Keith Rawlinson who was in Sri Lanka to submit the bids said his company is "committed to spend what it takes to get the oil out".

Industry officials have advocated the awarding of the three offshore blocks to a single bidder to ensure economies of scale and the effective use of the committed funds as the exploration sites are very small.

Oil exploration is a high risk investment which offers only a 10% success rate which is also not guaranteed, they pointed out.

"That’s right, it’s a very big risk", Minister Fowzie acknowledged. "There is no guarantee on returns".

Asked how big the investment for the three blocks was, he replied,

"I don’t have the exact figure, but I can say it runs to billions of rupees".

A knowledgeable industry source placed the investment at more than US$ 150 million per block.

"It is a difficult proposition because the oil company awarded the job will have to drill 2,600 metres below the sea bed", he asserted.

Neighbouring India has so far awarded more than 400 Blocks both onshore and offshore, but of them only four currently produces oil/gas, industry sources explained.

The prospect of finding oil reserves in Sri Lanka will come as a big relief to the government which spends more than US$ 2 billion per annum on petroleum products.

Sri Lanka’s oil and gas exploration began approximately 40 years ago with the acquisition of the first offshore seismic reflection survey by Compaigne General de Geophysicque (CGG) performed on behalf of the Ceylon Petroleum Corporation (CPC) in 1967.

Well drilling in the region occurred during 1974 and 1981. Although hydrocarbons shows have been encountered as the result of drilling, no commercial exploitation has occurred. Recent successes in neighbouring basins, in India, have reinvigorated interest in the offshore of Sri Lanka. This is further justified when the results obtained from recent seismic acquisition programs in the Mannar Basin in 2001 and 2005 are taken into consideration. - SP