Four offshore blocks covering nearly 34,000 sq km, two previous discoveries, estimated reservoir capacities exceeding one trillion cubic feet (TCF) of natural gas and 10 million barrels of condensate, and more than four decades of seismic and drilling information are among the assets Sri Lanka is putting before international energy companies in its latest attempt to unlock the petroleum potential of the Mannar Basin.
Unlike when Sri Lanka first ventured into offshore petroleum exploration several decades ago, the question today is no longer simply whether hydrocarbons could exist beneath its waters.
Previous exploration and drilling in the Mannar Basin have demonstrated the presence of a working petroleum system and resulted in natural gas discoveries. Yet, despite the accumulation of geological evidence and several attempts to attract international companies, Sri Lanka has never progressed to commercial oil or gas production.
The latest effort is therefore testing a different question: whether the data accumulated over decades, combined with previously confirmed discoveries and changing global demand for natural gas, can finally provide international energy companies with a sufficiently attractive case to invest and drill.
34,000 sq km back on the table
The Government, through the Petroleum Development Authority of Sri Lanka (PDASL), formally launched the Sri Lanka Licensing Round 2026 (SL2026-01) on 25 August, offering four offshore exploration blocks in the Mannar Basin to qualified international energy companies.
Together, the blocks cover almost 34,000 sq km of offshore acreage.
The Mannar Basin is regarded as Sri Lanka’s most established offshore petroleum basin, largely because previous exploration has already demonstrated a working petroleum system. The licensing round therefore does not offer investors an entirely unknown geological frontier.
Ceylon Petroleum Corporation (CPC) Managing Director Dr. Mayura Neththikumarage told The Sunday Morning that one advantage of the latest initiative was the availability of information accumulated through previous exploration efforts.
He said that earlier drilling and exploration data had subsequently been subjected to further analysis, resulting in a more comprehensive dataset and plan. That could prove crucial in a sector where deciding whether to drill an offshore exploration well involves substantial financial exposure.
While geological data cannot eliminate exploration risk, a stronger understanding of the basin can help potential operators determine where to focus further studies and whether the prospects justify the cost of drilling.
Reprocessing decades of data
Sri Lanka took a further step towards improving the investment proposition in January this year, months before launching the licensing round.
On 10 January, the country entered into a service agreement with Eastern Echo FZE to reprocess existing data covering the offshore West Mannar Basin. The arrangement involves reprocessing the data, creating ExploreCube products, and marketing and licensing the information.
The significance of the exercise lies in converting information accumulated through previous exploration campaigns into material that can be reassessed by prospective investors using more recent analysis and interpretation.
Sri Lanka’s petroleum exploration history stretches back to the 1960s. Early seismic work was carried out on behalf of the CPC, while further offshore and onshore data were gathered during the 1970s.
The first comprehensive seismic programme in the Mannar Basin followed in 1984 under a tripartite arrangement involving Phoenix Canada Oil Company, Petro-Canada, and the CPC.
Petro-Canada acquired approximately 980 km of two-dimensional seismic data in the basin. However, exploration subsequently came to a halt and remained largely dormant until 2001. That year, the CPC and TGS-NOPEC entered into an agreement to collect another 1,100 km of 2D seismic data in the Mannar Basin.
In 2007, the Government acquired the Mannar Basin 2D dataset from TGS-NOPEC, after which the basin was divided into nine exploration blocks ranging from approximately 3,340 sq km to 6,640 sq km.
Three were subsequently offered for exploration through an international licensing round.
Drilling changed the picture
A more significant turning point came in 2008, when the Government signed a Petroleum Resources Agreement with Cairn Lanka Ltd., a subsidiary of Cairn India.
Unlike seismic surveys, which help identify geological structures and prospective areas beneath the seabed, exploratory drilling provides direct evidence of whether hydrocarbons are actually present.
Cairn’s programme produced Sri Lanka’s most significant petroleum exploration results. The country’s first natural gas discovery was made in the Mannar Basin off the northwestern coast in 2011.
Exploratory drilling eventually resulted in two discoveries from the same block, with estimated reservoir capacities exceeding one TCF of natural gas and around 10 million barrels of condensate.
These discoveries confirmed what decades of seismic work had sought to establish – the existence of an active petroleum system in the Mannar Basin.
However, discovery did not translate into production. Cairn Lanka exited its Sri Lankan operations in 2015 amid the decline in global crude oil prices, leaving the discoveries undeveloped.
Subsequent governments attempted to revive offshore exploration through other international players and licensing initiatives. French energy company Total was brought into offshore exploration efforts during the administration of former President Maithripala Sirisena, while the former Cairn M2 block was later reopened for development and commercialisation.
None of these initiatives ultimately resulted in commercial production.
Gas could change investor equation
The nature of the Mannar discoveries could, however, be more relevant to investors today than during some previous exploration drives.
Dr. Neththikumarage said that earlier exploration initiatives had tended to place greater emphasis on crude oil, while Sri Lanka’s prospective areas appeared to hold greater potential for natural gas. According to him, increasing international interest in natural gas has consequently created a more favourable environment for Sri Lanka to market its offshore potential.
This distinction is significant because the commercial attractiveness of an offshore discovery is determined not only by what is underground, but also by energy demand, prices, development costs, infrastructure, regulatory conditions, and the ability to monetise the resource.
The Government is not expected to bear the exploration and development expenditure under the latest initiative. Instead, selected companies will be required to finance their respective programmes.
Dr. Neththikumarage said that the Government could therefore not estimate at this stage how much investment the licensing round could attract, as the amounts would depend on the work and development plans proposed by participating companies.
The proposals would also be evaluated according to the benefits offered to the Government, including financial commitments such as signature bonuses and guarantees.
From exploration to production
Another element authorities believe distinguishes the current process from some earlier attempts is that it is designed to provide a pathway beyond the initial exploration stage.
Dr. Neththikumarage said that the process would involve three stages – acquisition, development, and production – with successful companies ultimately able to progress towards commercial production.
“Once this project is done, they will have access to commercial production,” he said.
The licensing round has already commenced and is expected to continue into next year, giving prospective companies time to examine the available information and formulate their proposals.
Dr. Neththikumarage further noted that only a limited number of companies worldwide possessed the technical and financial capacity to undertake projects of this nature. However, inquiries have already been received following the initiative, while interest has also been shown by major companies.
He said that the CPC was seeking to maintain transparency by directing interested parties through the formal licensing process. Even after an investor is selected, drilling would not immediately mean production.
The initial period would involve exploration drilling, evaluation, and observation before a discovery could potentially proceed towards development and production.
Asked how long it could take before Sri Lanka saw its first production, Dr. Neththikumarage said that the current expectation was three to five years, although successful exploration could potentially shorten the timeframe.
“We expect it to take three to five years to start the first production,” he said.
The data and the drill will decide
Sri Lanka has been here before: licensing rounds have been launched, international companies have entered, wells have been drilled, discoveries have been announced, and governments have repeatedly spoken of the economic potential beneath the Mannar Basin.
What is different in 2026 is the volume of information now available to prospective investors.
Sri Lanka is offering acreage backed by decades of seismic information, previous exploratory drilling, two discoveries, evidence of a working petroleum system, and data now being reprocessed and marketed specifically to international explorers.
However, the existence of data – even promising data – does not by itself establish whether a petroleum discovery can be developed commercially.
That determination will depend on what prospective companies see in the reprocessed information, the exploration commitments they are prepared to make, the commercial terms offered by Sri Lanka, and ultimately what future drilling establishes beneath the seabed.
After decades spent asking whether the Mannar Basin holds petroleum, Sri Lanka has at least part of the answer.
The question facing Licensing Round 2026 is whether the evidence is strong enough to persuade an international operator to put its capital behind the data – and drill.
Source:The Morning.lk
