Following its sucessful bid Cairn India yesterday signed a petroleum resources agreement with the government of Sri Lanka for an exploration licence to explore for oil and natural gas in the of the first of eight oil blocks of north-western Mannar Basin. Sri Lanka has eight exploration blocks in the Mannar basin, two of which have already been assigned to China and India.

ONGC, which was offered the block nominated to India, said in September it was not interested in the assigned block, due to low prospectivity and because Sri Lanka wanted a large signature bonus.

Sri Lanka, which  had an oil import bill of $2.49 billion in 2007, is keen to exploit its oil resources.

The Indian arm of Britain's Cairn Energy Plc, said it siged the agrement with Sri Lanka's minister for petroleum and petroleum development resources, A H M Fowzie in Colombo yesterday. Cairn Energy PLC currently holds a 65 per cent shareholding in Cairn India Limited.

Cairn India will invest $100 million for the first phase of oil exploration through a newly established wholly-owned subsidiary, Cairn Lanka (Private) Limited, which would hold a 100 per cent participating interest in the block. The first phase of exploration is for three years, during which cairn plans to get seismic data before drilling three wells.

The Sri Lamkan government says that its seismic data has projected  over one billion barrels of oil in the area although  is confident that commercial production can commence from 2010, though no reserves have been proven, yet.

The agreement stipulates a 15-per cent stake in exploration for a yet to be established national oil exploration company, and a minimum of 12.5 per cent to a maximum of 60 per cent tax from net profit depending on the revenues.

The Block SL 2007-01-001 which is offshore North West Sri Lanka and covers approximately 3,000 Km2 in water depths of 200 metres to 1800 metres was awarded to Cairn India in the recent Sri Lanka bid round. The work programme includes proposals to acquire 5,000 kilometres (km) of 2D, 1,000 km2 of 3D seismic and drill three wells in the initial three years of the eight year exploration period.

Indrajit Banerjee the chief financial officer and executive director of Cairn India, said ina  statement, ''Cairn India is delighted to be awarded the exploration licence by the Government of Sri Lanka. The Mannar basin has not been explored in Sri Lankan waters and as such represents a frontier petroleum province. The company has extensive experience in the region and will aim to work with all stakeholders as it embarks on its exploration programme.''

In India, of the 700,000 bareels of oil that the country currently produces, Cairn India produces 50,000 bpd from the Ravva field on the east coast that it operates. It is  currently focused on exploration and production where it has a working interest in 15 blocks, two of which produce hydrocarbons and one is under development.

The company holds material exploration and production positions in west India and east India along with new exploration rights elsewhere in India and Sri Lanka.

Cairn India says this focus on India has already resulted in a significant number of oil and gas discoveries. In particular, Cairn made a major oil discovery (Mangala) in Rajasthan in the north west of India at the beginning of 2004. More than 20 discoveries have been made in Rajasthan block RJ-ON-90/1.

In Rajasthan, Cairn India operates Block RJ-ON-90/1 under a Production Sharing Contract (PSC) signed on 15 May 1995. The main Development Area (1,858 km2), which includes Mangala, Aishwariya, Saraswati and Raageshwari; is shared between Cairn India and ONGC, with Cairn India holding 70 per cent and ONGC having exercised its back-in right for 30 perc ent. A further Development Area (430 km2), including the Bhagyam and Shakti fields, is also shared between Cairn India and ONGC in the same proportion.

The Operating Committee for Block RJ-ON-90/1 consists of Cairn India and ONGC.