• Doubts whether stability and policy frameworks in place to attract serious investors
• Energy Committee chaired by Minister in final stages of drafting contract for oil exploration

After decades of stalled projects, Sri Lanka is once again pushing forward with plans to tap into its vast offshore oil and gas reserves, valued at an estimated $ 267 billion. 

As the country is yet to recover from the severe economic crisis it experienced a few years ago and as a solution to mounting debt, the Government is moving to finalise contracts for exploration in the Mannar Basin. 

However, concerns persist over whether this will be the long-awaited breakthrough for Sri Lanka’s energy sector or just another stalled initiative in a long history of unfulfilled promises. 

Investors have withdrawn in the past, and political and regulatory uncertainties have repeatedly hindered progress. As officials prepare to call for Expressions of Interest (EOIs) and float tenders, industry experts question whether Sri Lanka possesses the necessary stability, infrastructure, and policy framework to attract serious investment and translate its petroleum ambitions into reality.

The Energy Committee, chaired by Energy Minister Kumara Jayakody and comprising Ministry Secretary Prof. Udayanga Hemapala, Ceylon Electricity Board (CEB) Chairman Dr. Tilak Siyambalapitiya, Ceylon Petroleum Corporation (CPC) Chairman D.J.A.S. De S. Rajakaruna, CPC Managing Director Dr. Mayura Neththikumarage, and Sri Lanka Sustainable Energy Authority (SLSEA) Chairman Prof. Wijendra J. Bandara, is in the final stages of drafting the contract for upcoming oil explorations, The Sunday Morning learns. 

The committee is expected to complete the contract and invite EOIs within the next six months. Additionally, a consultant will be appointed to provide guidance on gas exploration efforts.

History of exploration efforts 

In 2022, the Petroleum Development Authority of Sri Lanka (PDASL) had aimed to reach the final stage of the first set of exploration contracts by the end of the year to tap into the Mannar Basin’s estimated $ 267 billion worth of oil and gas resources.

Sri Lanka’s history of oil and gas exploration dates back to the 1960s. Recent geological studies suggest that three offshore sedimentary basins – the Mannar, Cauvery, and Lanka Basins – contain significant petroleum reserves. Among them, the Mannar Basin, located in the northwest, has a proven working petroleum system with substantial natural gas deposits.

The first natural gas discovery in the Mannar Basin was made in 2011. Since then, two major reservoirs have been identified in the same exploration block, with estimated capacities exceeding 1 trillion cubic feet (TCF) of natural gas and 10 million barrels of condensate. These discoveries have fuelled further interest in both offshore and onshore exploration in the Mannar Basin.

The first major seismic survey in the Mannar Basin was conducted in 1984 under a tripartite agreement between Phoenix Canada Oil Company, Petro-Canada, and the CPC. The study yielded 980 km of 2D seismic data, but exploration stalled by the end of that year and remained dormant until 2001. That year, the CPC and TGS NOPEC signed an agreement to collect 1,100 km of additional 2D seismic data.

In 2007, under a Cabinet decision, Sri Lanka purchased the Mannar Basin 2D seismic data from TGS NOPEC, effectively cancelling the company’s exclusive rights to collect data in Sri Lankan waters. Based on this information, the Mannar Basin was divided into nine exploration blocks, ranging from 3,340 sq km to 6,640 sq km.

Of these nine blocks, the Cabinet of Ministers decided to offer three for petroleum exploration through an international licensing round. In September 2007, the Petroleum Resources Development Secretariat under the President’s Office launched a Mannar Basin licensing round for the three selected blocks.

By 2008, the Government signed a petroleum resources agreement with Cairn Lanka Ltd. However, in 2015, Cairn Lanka, a subsidiary of Cairn India Ltd. (CIL) – one of the world’s leading independent oil and gas exploration companies – withdrew from Sri Lanka, citing a drop in crude oil prices.

Following Cairn Lanka’s exit, then Petroleum Resources Development Minister Chandima Weerakkody and former President Maithripala Sirisena brought in Total – the French oil and gas giant – in 2016 to explore offshore blocks along Sri Lanka’s eastern coast. 

However, Weerakkody’s successor abandoned the project, and by 2019, the Government reopened the ex-Cairn M2 block in the Mannar Basin for development and commercialisation through a limited tender process. Sri Lanka reportedly received three proposals from two consortiums and an operator based in the UK, Southeast Asia, and the Middle East.

In a renewed effort, former Energy Minister Udaya Gammanpila restarted discussions on oil and gas exploration, initiated amendments to the CPC Act, and established the PDASL to accelerate the exploration process. 

He estimated in 2022 that Mannar Basin resources were worth approximately $ 267 billion. According to his projections, even if investors receive a 50% share, Sri Lanka would still retain $ 133.5 billion – a sum that could significantly transform its economy.

Following these claims, questions arose as to why Sri Lanka had delayed the process of attracting investors, especially given the country’s severe foreign exchange crisis, which continues to cause significant public hardship.

Govt. moves 

Speaking to The Sunday Morning, CPC Managing Director Dr. Neththikumarage elaborated on the challenges of oil and gas exploration, stating: “Exploring gas is not an easy task and it is not something that can be rushed or completed within a year. It is a highly technical and capital-intensive process that requires careful planning and execution. 

“Based on global industry standards, it takes a minimum of three years to begin commercially viable extractions, and even then, we are looking at an overall timeline of five years for the entire project to reach its full potential. 

“As soon as this Government assumed power, we made it a priority to accelerate the process, consulting with industry experts to draft a contract that ensures both investor confidence and national benefit. Our target is clear – we will finalise the contract and call for EOIs within the next six months.”

Under the PDASL, the Government has the legal authority to divide offshore and onshore areas into designated exploration and development blocks. 

The Petroleum Resources Act further states: “The ownership of all petroleum data obtained or prepared pursuant to any petroleum operation in Sri Lanka shall be vested in the State, and the management and control of such petroleum data shall be vested with the authority. The authority may issue a licence permitting access to the petroleum data for commercial, educational, or scientific use by any person, subject to the procedure and fees as prescribed.”

When asked whether amendments to existing laws were necessary, Dr. Neththikumarage said: “There is no immediate need to amend the law itself. The existing legal framework provides sufficient authority to move forward with exploration and development. What truly matters is crafting a solid, transparent, and balanced contract that offers investors fair terms while ensuring that Sri Lanka retains control over its natural resources and benefits financially in the long term.”

With the Government accelerating efforts to finalise contracts, secure investors, and move towards commercialisation, Sri Lanka faces a crucial moment in its energy ambitions. Whether this initiative will finally deliver on decades of promises or become yet another missed opportunity remains to be seen.