COLOMBO (EconomyNext) – Cairn India has withdrawn from Mannar Basin natural gas exploration following the global petroleum price slump, and Sri Lanka is to look for other oil companies to drill deposits found by the firm.
Cairn made known their stance on the Mannar Basin gas during talks with the government in Colombo last month, industry sources said.
"Cairn had indicated they are pulling back from exploration worldwide and want to focus on enhancing oil production from their field in Rajasthan, India," an industry source said.
"Because of the current pressure the oil industry is under, Mannar Basin gas production is not a priority for them."
Oil prices have slumped in recent months prompting oil and gas multi nationals to scale back exploration efforts and postpone investments.
The industry sources said the government was still keen on commercialising the natural gas deposits found by Cairn and had in fact included it in the new 10-year national energy plan of the Ministry of Power and Energy.
"But for us it’s a priority and the Sri Lankan government is exploring ways to make that happen," an industry source said.
The government is holding talks with other oil companies to produce gas from the Mannar Basin.
Cairn India itself has offered to help the government find another producer.
In this case it will be able to recover the money it has spent so far on exploration. If not that spending will likely be considered a write-off by the company.
There was no immediate comment from the company.
Cairn Lanka, the Cairn subsidiary registered in Sri Lanka, has not renewed their lease on a warehouse in Colombo Port, a Sri Lanka Ports Authority official said.
The SLPA aims to get the warehouse at Bandaranaike Quay back for use for cargo storage since they have a shortage of warehouse space, he told a forum on the new round-the-clock operations by Customs organised by the Ceylon Chamber of Commerce.
Cairn India announced on March 5 it was cutting spending owing to sharply lower oil prices.
"In light of the current oil price environment, Cairn is taking a proactive approach to capital allocation and shareholder returns," the firm, an independent oil exploration and production company, said in a statement.
"The company will be undertaking projects that are economically viable at current oil prices."
Having spent almost 1.1 billion US dollars in capital spending in the 2015 financial year, Cairn said it has more than halved capex for FY16 from a projected 1.2 billion dollars to 500 million dollars, "while deferring the rest."
The company, which has onshore and offshore oil and gas wells in India, said its management focus is on "reengineering projects and re-negotiating contracts to improve project economics.