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Petroleum exploration efforts so far have resulted in the slow emergence of a new industry with progressive benefits through direct fiscal gains and added value through participation and the development of national labour, knowledge, technology, goods, services and research capabilities. The potential of the Mannar and Cauvery basins, along with that of the ultra deep water Ceylon basin that includes part of the Bay of Bengal submarine fan, indicate that efforts should be made to increase exploration activity early for maximum economic benefit. PETROLEUM RESOURCES DEVELOPMENT SECRETARIAT Sri Lanka Upstream Petroleum Benefits Report July 2008-March 2014 Benefits Division www.prds-srilanka.com June 2014

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Petroleum exploration efforts so far have resulted in the slow emergence of a new industry with progressive benefits through direct fiscal gains and added value through participation and the development of national labour, knowledge, technology, goods, services and research capabilities. The potential of the Mannar and Cauvery basins, along with that of the ultra deep water Ceylon basin that includes part of the Bay of Bengal submarine fan, indicate that efforts should be made to increase exploration activity early for maximum economic benefit.

PETROLEUM RESOURCES DEVELOPMENT SECRETARIAT

Sri Lanka Upstream Petroleum Benefits Report July 2008-March 2014

Benefits Division www.prds-srilanka.com

June 2014

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 2

Acknowledgment

The information presented in this report was gathered from the annual Sri Lanka Benefit reports

submitted by Cairn Lanka (Pvt) Ltd, local and foreign service suppliers, the Presidential

Secretariat, University Grant Commission, and the various divisions of PRDS.

This report was prepared by the Benefits division of PRDS under the guidance of Mr. Saliya

Wickramasuriya, Director General of PRDS.

This submission would not have been possible but for the cordial support & cooperation of the

Chairman & members of the Petroleum Resources Development Committee, members of the

Block M2 Management Committee, Cairn Lanka (Pvt) Ltd & it's service providers, staff of The

Presidential Secretariat, PRDS and all the other government agencies, universities and

individuals who were directly and indirectly involved in the upstream exploration program

within the period July 2008 to March 2014.

Lastly, a deep sense of gratitude is expressed for all those who provided information at various

stages of the exploration project over the period concern in completing this task.

Preeni Withanage

Director Benefits

[email protected]

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 3

Contents

Executive Summery 4 - 5

1.0 Introduction

1.1 History 5

1.2 Petroleum Exploration Activity Update 6

1.3 Benefits Associated with the Exploration Activities 6 - 7

2.0 Socio-economic Impact

2.1 Exploration Expenditure 8

2.2 Involvement of Local Suppliers 9 - 11

2.3 Education and Training Opportunities for Sri Lankan Nationals 11 - 14

2.4 Environmental Research 15

2.5 Employment Opportunities 15

2.6 CSR Activities 16

2.7 International Relations 16

3.0 Picture Gallery 17 - 18

4.0 Annexes

Annex A - Petroleum Exploration Bock Map of Sri Lanka

Annex B - Sri Lanka Upstream Petroleum Local Content Guidelines

Annex C - Annual Exploration Local Content Reporting Format

Abbreviations

CBSL

Central Bank of Sri Lanka

CLPL

Cairn Lanka (Pte) Ltd

CSR

Corporate Social Responsibility

GoSL

Government of Sri Lanka

MEPA

Marine Environmental Protection Authority

PRDS

Petroleum Resources Development Secretariat

QHSE

Quality, Health, Safety and Environment

UOM

University of Moratuwa

UOP

University of Peradeniya

UGC

University Grant Commission

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 4

Executive Summery

This report contains the direct and indirect benefits associated with the upstream petroleum

exploration efforts by GoSL within the period commencing July, 2008 ending March 31,2014.

Marking a beginning of a new era, on July 07, 2008 the GoSL entered into a Petroleum

Resources Agreement with CLPL. An exploration license was granted to CLPL for the

exploration block SL 2007-01-001 in Mannar Basin (Annex A). CLPL successfully completed

its first phase work commitment resulting in two successive gas and condensate discoveries in

two of the three exploration wells they drilled in late 2011 and further notified the GoSL of its

intension to enter the second phase of exploration. Commencing activities of the second phase,

they acquired 600 sq.km of 3D seismic data in its block in early March -mid April, 2012 and

drilled their 4th exploratory well in early February 2013. The total exploration expenditure of

CLPL within the period July 2008 to March 31, 2013 was US$ 214 million, of which 10% of

that has been spent in Sri Lanka.

Consequent to the two discoveries by Cairn and the interest shown by several international oil

companies, GoSL decided to stage Sri Lanka's second international offshore exploration

licensing round to offer 13 more blocks in the Mannar and Cauvery basins to investors. It was

launched in Houston on March 07, 2013, followed by road shows in London and Singapore in

subsequent weeks. The bid round was closed on 29th November 2013 and one bid each for three

blocks have been received. Cairn India has bid for a block in Mannar basin while Singapore-

based Bonavista Energy Corp bid for two blocks in the Cauvery basin. The preliminary review of

the bids indicates a very robust work commitment of good quality spelling out a significant

amount of both 2D and 3D seismic and a number of commitment wells, which will go a long

way towards gathering enough data to understand the offshore petroleum potential assets better.

In parallel with efforts to market the blocks available, GoSL engaged in discussions with Cairn

on the potential commercialization of their discoveries. Several discussions have taken place

involving PRDS, Cairn, CEB, CPC and Treasury officials on the modalities of production, and

gas pricing mechanisms. Furthermore discussions are underway to offer several large, ultra -deep

water blocks to suitably experienced and capable operators who qualify, for the purpose of joint

study with GoSL towards identifying long-term hydrocarbon potential.

Those successive developments in the oil and gas activities necessitated PRDS to prepare Sri

Lanka Upstream Petroleum Local Content Guidelines and make them effective from March

2013. The Guidelines are mainly focused on developing a skilled workforce, procuring optimal

supplies and services domestically, improving the livelihood of needy communities and

enhancing Sri Lankan professional capabilities and competencies.

During this period, much emphasis was placed on developing local content, specifically to

ensure the promotion and progression of local goods & services, and build capacity in the

education & training sectors. PRDS & Cairn Lanka organized several events with a view to

providing awareness and opportunities for the local suppliers to prepare themselves for deeper

participation in the upstream petroleum industry resulting in an increase of 23% of local

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 5

participation in supply of goods and services by March 2013. According to CLPL annual

benefits reports, within the period of 2008-March 2013, they have spent USD 18 million to

procure goods and services from Sri Lankan suppliers and recorded as the highest percentage

83.6% of the local spend.

Cairn Lanka provided advance training opportunities to GoSL officials and university trainers

engaged in the oil and gas sector to enhance their knowledge in some complex oil and gas

technical areas related to petroleum geology, geophysics, drilling and HSE. PRDS and Cairn

took many efforts to strengthen the educational sector in view of catering to the future potential

human resources requirement in the oil and gas sector in Sri Lanka. Those efforts were mainly

focused on providing internship opportunities both locally and foreign, short training programs ,

public awareness programs and assistance for academic research.

In addition PRDS and UGC were instrumental in facilitating the need to establish oil and gas

related undergraduate and postgraduate degree programs in the local universities. In view of that

PRDS jointly with University Grant Commission organized a two days residential workshop in

early January 2013 with a view to prepare a strategic plan to build the competencies and the

capacities of the academic sector to be progressive with the future oil and gas development

activities in Sri Lanka. CLPL along with few other local service providers provided the bulk of

support to make this event a success.

In summary, the Carin's exploration program has resulted the slow emergence of a new industry

with progressive benefits to Sri Lankan economy in terms of direct fiscal gains such as bonuses,

taxes, annual funds for research, data sales and other fees and levees; and added value through

participation and development of nation labour, knowledge, technology, goods, services and

research capabilities. Apart this program has proved that Sri Lanka has a working petroleum

system in the Mannar Basin and also added very important data to country's exploration data

bank.

1.0 Introduction

1.1 History

Hydrocarbon exploration efforts in Sri Lanka began in late 1960s. This exploration work has

shown that two prospective offshore sedimentary basins situated in Sri Lanka namely the

Cauvery and Mannar basins. Seven Exploration wells were drilled within the period 1970 - 1980.

Those efforts have established the presence of significant reservoir rocks in the Mannar Basin.

Opening a new era for exploration, in 2001 GoSL acquired 5700 lkm of high quality 2D seismic

in the Manna Basin. This encouraged the GoSL to pass the petroleum resources Act No: 26 of

2003 and established the petroleum resources development secretariat to administer all the

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 6

upstream petroleum operations in Sri Lanka. In 2007 GoSL took a strategic step and launched its

first licensing round in 2007 and awarded one exploration block to CLPL, a subsidiary of Cairn

India. The GoSL entered into a Petroleum Resources Agreement(PRA) with CLPL in July 2008

and an exploration license was granted in October 2008 for a span of an eight year exploration

period comprising of three phases of three, two and three years respectively.

1.2 Petroleum Exploration Activity Update, July 2008 - March 2014

1.3 Benefits Associated with the Exploration Activities

The benefits associated with this Petroleum activities are comprised of direct fiscal benefits to

the state and local content benefits to the entire society and economy. The direct fiscal benefits

arising from the petroleum activities in favour of state take such as royalty, profit share,

national participation share, bonuses, taxes, fees and other levees have a significant impact on

the host country's economy. The local content referred to as the extra value added to the entire

society and economy of the host country through participation and development of local labour,

goods, services, technology, livelihood of needy communities, knowledge & skills and research

capabilities are equally playing an important role to socio-economic development of the host

country.

Petroleum Exploration Activity

Signing the Petroleum Resources Agreement

(PRA) with CLPL

Issuance of Exploration License to CLPL

Environmental Impact Assessment Study by

CLPLAcquisition of 1750 sqkm of 3D seismic data by

CLPLOne year long survey to collect metocean data

by CLPLDrilling of the 1st Exploration Well "Dorado"

by CLPLDrilling of the 2nd Exploration Well

"Barracuda" by CLPLDrilling of the 3rd Exploration Well " Dorado

North" by CLPLDiscovered Gas and Condensate

Acquisition of 600 sqkm seismic data by CLPL

Drilling of the 4th Exploration Well "Wallago"

by CLPL Second Upstream Petroleum Licensing Round

by GoSLWork in Progress- GoSL to offer 6 Unexplored

Blocks for Joint Studies On Going - Analysis of the economic feasibillity

of the Two Discoveries

2013 2014

Discovered Gas and Condensate

2008 2009 2010 2011 2012

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 7

Recognizing the value of progressive local participation at successive stages of the petroleum

operations, the GoSL of Sri Lanka included benefits provisions in the petroleum agreements and

work contacts with a special reference to Upstream Petroleum Local Content Guidelines issued

by PRDS effective from March 2013 (Annex B). Given below is a summary of local content

expectations emphasized in the above documents.

Minimal recruitment of Sri Lankan employees, who may be deployed globally to acquire

experience with the primary aim of replacing expatriates.

Maximum recruitment of Sri Lankan nationals to carry out national operations and tasks

Local capacity building along the channels of education and technology directed towards

knowledge enhancement and expertise development, in order to raise the level of intellect

and competence of the local workforce, which may eventually allow such individuals to

work on par with the well trained and experienced global workforce.

Engagement of more Sri Lankan professionals and companies in sector-specific joint

research and development programmes and studies.

Facilitation of domestic industry growth and expansion by encouraging the purchase and

usage of goods manufactured and supplied locally.

Prioritizing the services of local service providers, as the most preferred channel of

service generation to be incorporated in all sector related tasks.

Enhancing and improving the living standards and livelihood of needy Sri Lankan

communities by carrying out meaningful CSR programmes.

Encouraging collaborative initiatives for investment generation within Sri Lanka mainly

by necessitating the establishment of partnership based work programmes.

At the inception, every contractor identified as an eligible partner prepared for investing in local

off-shore Petroleum exploration operations and projects, requires to submit a comprehensive

Local Content Development(LCD) plan outlining the favorable outcome of benefits associated

with education, training as well as other categories, which the nation at large may eventually be

able to derive during various stages of the undertaken operations. However, in compliance with

such targets set at the outset, the contactor should subsequently submit a report containing all

accomplished benefits to Sri Lanka in the prescribed Local Content Reporting Format given in

annex C.

2.0 Socio-economic Impact

This section provides a more detailed picture of the impact of upstream petroleum activities on

socio-economic development of Sri Lanka over the past few years. The GoSL's effort to develop

the petroleum E&P industry through foreign direct oil and gas contractual investments has

resulted in , or contributed to, the development of wide range of local supply (specially

shorebase logistics services inclusive of air and sea transportation services), employment ,

education, training, technology and research. A detail analysis of the benefits extracted and

complied from the annual benefits statements provided by CLPL and GoSL for the period

commencing July 2008 ending March 31, 2014 are presented in the sections below.

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 8

2.1 Exploration Expenditure

The total exploration expenditure of CLPL over the period, July 2008 to March 31, 2013 was

US$ 214 million, of which 10% of that total was spent in Sri Lanka. The figure 1 below shows

CLPL annual exploration expenditure and their commitment towards local content development

over the entire period concern . The figure 2 shows the local spend expenditure summary

categorized by major activities. It indicates that the highest portion of the local spend, 83.6% is

spent to procure local goods and services and the rest was shared among training commitments,

base office, CSR, bonuses, taxes, other fees and environmental research.

Figure 1 : Cumulative Exploration Expenditure vs Local Spend ,July 2008 - March 2013

Figure 2 : Local Spend by Major Categories

214,591,348

21,974,045 0

50000000

100000000

150000000

200000000

250000000

Exploration Expenditure Local Spend

Exp

lora

tio

n E

xpe

nd

itu

re in

USD

Cumulative Exploration Expenditure vs Local Spend, March 2008-2013

10%

Goods & Services local Spent, 83.6%

Training, 0.2%

Environmenal Fund, 0.6%

CSR, 0.7%

Bonuses, Taxes & other Fees, 11.7%

Sri Lanka Base Office Cost, 3.3%

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 9

2.2 Involvement of Local Suppliers

Initially the local participation in supply contracts was very minimal, but with time there was a

remarkable improvement in local participation in oil and gas projects and more over a great

enthusiasm among local suppliers to enter into this industry. The participation varied annually

(Figure 3) depend on the type of petroleum activity taking place at the time concern. The

awareness campaigns, public seminars, short training sessions and networking events launched

by PRDS and CLPL in consultation with chambers opened doors for more interested local

suppliers to enter to this industry resulting 23 % (Figure 4) of local direct sub contractor

participation in CLPL exploration activities within last three years. In addition to that there were

many small scale suppliers engaged in providing minor services to those direct local and foreign

service suppliers.

It is a mandatory requirement to obtain a service sub contractor license from PRDS to operate in

Sri Lankan waters and this has resulted a collection of LKR 12.5 million to PRDS as the license

fee for all the licenses issued for the period 2008 to March 2013. The following major service

licenses were secured by the local direct suppliers within the period concern. These service

licenses together with other minor local goods & services supplies such as local travel,

accommodation, equipments, material, etc have contributed about US $ 18 million to the Sri

Lankan economy ( Figure 2).

1. Environmental Monitoring

2. Environmental Impact Assessment (EIA)

3. Maintenance of IT Infrastructure

4. Air Logistic Servicers

5. QHSE Equipment

6. Ambulance Services

7. Cleaning & Forwarding Services

8. Cut & Weld Facility in Sri Lanka Block

9. Manpower Staffing Services for Local Sri Lanka Nationals

10. Shorebase Management Services

11. Storage Yard

12. Supply of Fuel

13. Supply of Water

14. Supply, Installation and Commissioning of IT Infrastructure and Associated Services

15. Visa Processing and Associated Services

16. Well Insurance for Drilling Programme

17. Strategic Consulting, Business Facilitation & Coordination

18. Transport of explosives

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 10

Figure 3 : Annual Direct Service Sub Contractor Licenses Issued by PRDS

Figure 4 : Total Involvement of Local Direct Service Suppliers in CLPL Operation

A wide range of local companies listed below were engaged in one or more of the above

services. Working for this demanding international industry have increased their confidence,

credibility and ambition, leading few companies to their having success outside the Sri Lankan

operations entering into to global oil and gas market. Their involvement have commonly

benefitted them to diversify or expand their existing industry, hire new personnel , train

personnel, set-up officers, warehouses & other facilities, acquire new equipment, improve

technical capabilities, and implement QHSE practices in par with global oil and gas industry.

0

10

20

30

40

50

60

2009 2010 2011 2012 2013

Service Sub Contractor Licenses issued by PRDS FY 2009 -2013

Foreign Local

77%

23%

Direct Sub Contractor Licenses issued by PRDS for the Cairn Lanka Exploration Operations From July 2008 to Aug 2013

Foreign Sub ContractorLicenses Issued - 98

LocalSub ContractorLiceses Issued - 29

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 11

The following local companies obtained direct service sub contractor licenses from PRDS for

CLPL exploration operations from 2008 to March 2014.

1. Allianz Insurance Lanka Ltd.

2. DMS Electronics Pvt Ltd.

3. Dockyard General Engineering Services

4. GAC Shipping Ltd.

5. Hayleys Energy Services Lanka (PVT) Ltd.

6. Lanka IOC PLC

7. Lanka Marine Services Pvt Ltd.

8. National Aquatic Resources Research and Development Agency (NARA)

9. Noordeen Hadjiar (Pvt) Ltd.

10. SGS Lanka (Pvt) Ltd.

11. Sri Lanka Insurance Co Ltd.

12. Sri Lanka Shipping Co. Ltd.

13. TATA Communications Lanka Ltd.

14. VSR Consultants (Pvt) Ltd

2.3 Education and Training Opportunities for Sri Lankan Nationals

Local companies, academics, students and individuals were immensely benefitted from the

education and training opportunities that have resulted from the Cairn's growing exploration

activities in Sri Lanka over the past few years. PRDS and CLPL were instrumental in organizing

and sponsoring the programs under five focus areas; Develop Petroleum education in local

universities, Develop local business, Increase public awareness, Short term training opportunities

and internship placements. During this period much emphasis was placed on developing the

petroleum education in local universities with a view to providing background and opportunities

for the local undergraduates to prepare themselves for deeper participation in the emerging local

and global petroleum industry. In this context, CLPL played an appreciable role in providing

training opportunities to GoSL officials and academic trainers to enhance their knowledge in

some complex oil and gas technical areas related to petroleum geology, geophysics, drilling and

HSE aspects. In addition PRDS and CLPL extended their assistance to local undergraduate and

graduates to carry out their research using the petroleum data owning to past exploration work.

Given below the list of education and training initiatives taken by CLPL and GoSL over the

period concern.

2.3.1. Develop Petroleum Education in Sri Lanka

i CLPL Sponsored a graduate student of University of Sri Jayawardenapura

to carry out a Geophysics Research M. Phil titled “ Interpretation of

Gravity Anomalies over the Southern Continental Shelf of Sri Lanka". LKR

1.4 million to complete the project inclusive of a monthly stipend to the

research student.

30 Months

from September

2010

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 12

ii CLPL conduced a short training program on “Introduction to Petroleum

Geology, Geophysics and Drilling” at university of Moratuwa for a group of

15 academic trainers. Dr. Nigel Banks of Geosciences delivered the course.

March 22- 5,

2010

iii PRDS provided assistance to CINEC Maritime campus to conduct three

short training sessions on " Oil and gas Exploration and Production

Techniques". Officials of PRDS delivered the course.

Three programs

2012

iv PRDS conducted a five day Training Program on " Fundamentals of Log

Interpretation" for a group of 20 trainers of the universities. Mr. Joe

Johnston of Fugro Data Solutions delivered the course.

November 19-

23, 2012

v PRDS offered assistance to local universities and institutions to conduct

petroleum related research studies with the use of PRDS expertise and data.

2011-1014

vi PRDS facilitated two graduates attached to University of Moratuwa and

CBSL to pursue their doctorial and post doctorial studies in Japan using

petroleum data collected during the exploration programs.

2012-15

vii PRDS jointly with UGC organized a two days residential workshop on "

Competency Building and Capacity Enhancement in the Emerging Oil and

Gas Industry in Sri Lanka". About 100 participants representing local and

foreign universities, institutions and private sector attended.

January

07- 08,

2013

viii CLPL donated a LKR 1.3 million hardware unit (workstation and

accessories) to UOM to support install petroleum software.

December,

2013

ix PRDS jointly with UGC and CLPL organized a two days workshop on "

Capacity Building in Petroleum Science & Technology in Sri Lankan

Universities" followed by an educational visit to identify the critical skill

gaps in the petroleum education in Sri Lanka and prepare a plan to achieve

them. A group of 30 comprising six universities and three institutions

attended.

Oct 22-23,2013

x PRDS conducted awareness sessions on "Petroleum Technology and

Business" for undergraduates attached to three universities, Peradeniya,

Moratuwa and Ruhuna.

2013

xi Schlumberger Oil Field Services, a leading international oil and gas service

company in collaboration with PRDS organized a Technology Day to

introduce Schlumberger oil & gas software solutions. They donated the

software solutions to two universities , UOP and UOM that supports to

geological, geophysical and petro-physical interpretation and modeling

under Schlumberger Corporate University Relations Program.

November 28,

2013

xii Schlumberger Oil Field Services provided the opportunities for the Sri

Lankan undergraduates to take part in Ocean Competition which is

organized by them annually amongst the students of various prestigious

universities in India, Bangladesh and Sri Lanka to showcase their creative

Annually,

2012-2014

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 13

ideas and domain knowledge in the form of plug-ins (.NET based

applications) developed using Ocean* framework (~Microsoft.NET)

addressing E & P industry challenges. An undergraduate from UOM

participated for this competition in 2012 and gained immense exposure and

experience about E&P software and applications. PRDS encourages and

facilitates local undergraduates to take part in these competitions held

annually.

xiii CLPL conducted a five day Training Program on "Basin Analysis and

Prospect Generation" at university of Peradeniya. A group of 18 comprising

university trainers and senior officials of GoSL institutions attended the

program. Dr. Carol Hopkins of Robertson UK delivered the series of

lectures.

March 3-7,

2014

ix PRDS facilitated local undergraduates to take part in the SPE STAR

scholarship program that support those pursuing degrees related to the oil

and gas industry until completion of the degree for which awarded, up to a

maximum of four years. Three undergraduates from UOM and UOP applied

for this scholarship scheme.

2014

2.3.2 Develop Local Business

i CLPL conducted an oil and gas business partnership meeting in Sri Lanka

for local business leaders to increase local participation in their operational

service contracts.

September 06,

2012

ii PRDS jointly with National Chamber of Commerce conducted a seminar

on " New Business Opportunities related to Oil and Gas Exploration in Sri

Lanka" . About 200 business leaders attended.

March 14, 2012

iii PRDS with the assistance of local service providers organized the first Sri

Lanka Upstream Conference 2013 followed by series of business

networking events. About 250 participants comprising reputed global oil and

gas operators and service companies, local business community, GoSL

institutions, educational institutions, foreign companies and interested

individuals attended.

July 09 -12,

2013

2.3.3. Public Awareness Campaign

i PRDS jointly with Institution of Engineers Sri Lanka conducted a public

seminar on " Current Status of the oil and gas industry in Sri Lanka"

March 20, 2012

ii PRDS with the help of Heyleys Energy Services conducted a two days

workshop on "Introduction to Modern Petroleum Production Technologies"

for a group of 40 key stakeholders comprising GoSL, industry and

academia engaged in oil and gas activities.

June 14 to 15,

2012

iii PRDS jointly with CBSL organized a one day awareness session on "

Petroleum Geology for non Geologists".

September 11,

2012

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 14

iv Officials of PRDS on invitation delivered series of public presentations to

raise awareness and understanding on oil and gas industry at various

platforms.

Half/Full day

within 2012-

2014

v PRDS organized a presentation on " Global Local Content Development

Initiatives in the Oil and Gas Sector and Adaptation to Sri Lanka". IHS

Global Inc. delivered the presentation.

November 15,

2012

vi Director Benefits of PRDS represented Sri Lanka as a speaker at the Global

Local Content Summit held in London to deliver a presentation on " A Look

at Petroleum and Local Content Development in Sri Lanka"

September 24-

25, 2013

vii Director General of PRDS represented Sri Lanka as a speaker at many local

and international petroleum conferences and seminars.

2008-2014

2.3.4. Short Training Opportunities

i CLPL provided a familiarization training session to PRDS safety engineer

on health, safety and environment related to petroleum operations at Cairn's

facility in India.

10 Days from

July25-Aug 05,

2010.

ii CLPL provided an opportunity to PRDS petroleum geologist to attend a

short term staff training program on " Geophysics for Subsurface

Professional" in India.

March 26 -29,

2012

iii CLPL provided an opportunity to PRDS Petroleum Geophysist to attend a

short term staff training programs on " Seismic and sequence stratigraphy

for play prediction and basin analysis" in India.

May 7-11, 2012

iv CLPL provided a short training session to PRDS and MEPA officials at

Carin's facility in India on "Oil Spill Response information" as a part of

emergency preparedness prior to Cairn's first drilling campaign.

June 20-22,

2011

v PRDS officials conducted an awareness program on " Oil spill response

equipments and management" for a group of 30 members of Sri Lanka

Coastguard.

June 19, 2012

2.3.5. Internship Opportunities

i CLPL offered one paid summer internship placement to a postgraduate

student of Kelaniya University to compile, analyze and report the data

collected from a Sri Lanka oil and gas market survey.

Six Weeks

from July 01,

2011

ii PRDS offered 15 numbers of Internship placements for local and foreign

undergraduates/graduates at PRDS office under the supervision of PRDS

qualified staff.

Each

1 -3 months

duration

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 15

2.4 Environmental Research

In fulfillment of the commitment towards Environment Protection CLPL has contributed USD

25,000 annually to the Environment Fund maintained by the GoSL of Sri Lanka to support

environmental research by the GoSL. The following environmental research projects were

carried out or planned for using this fund accumulated to USD 125,000 during the period

concerned.

Figure 7 : Environmental research projects carried out utilizing the Environmental Fund

Research Title Description and Progress

Strategic Environmental

Assessment of the Cauvery

Basin

Following a public tender notification this study was awarded

to EML Consultants PVT Ltd at a cost of LKR 1.7 million.

The scope of the project was to collect existing environmental

data in the area, identify the knowledge and data gaps,

evaluate environmental impact of the associated petroleum

exploration activities and recommend measures to minimize

any adverse effects. This study was commenced in May 2011

and completed in May 2012. The copy of this report can be

obtained from PRDS.

Marine Environmental

Baseline Survey within

Cauvery & Gulf of Mannar

Basin

Work is in progress to conduct an island wide Marine

Environmental Baseline Survey. Expression of Interest were

invited from suitably qualified companies and individuals to

Conduct the above survey for the following study areas;

i. Sensitive coastal and marine habitats study

ii. Marine Mammal Study

iii. Metrological and oceanographic(metocean) study

iv. Resource Survey

2.5 Employment Opportunities

The past exploration activities had very poor impact on employment generation in the oil and

gas sector of Sri Lanka owning to very minimal and limited activities confined only to one

block of the whole basin. There were very few( about 60) permanent positions engaged in

exploration activities related to regularity, technical, logistics, management, etc. and most of

them were attached to the government regulatory agencies, CLPL local office and service sub

contractors. There was a remarkable improvement in short term mobile positions close to

drilling operations, that has given rise to about 100 - 150 each during 2011 and 2013 drilling

operations.

Sri Lanka Upstream Petroleum Benefits Report, July 2008-March 2014

PRDS Page 16

2.6 CSR Activities

CLPL signed a MOU with GoSL to construct 27 school libraries in Monaragala district and have

completed all 27 libraries by March 2014. According to their last annual benefit statement, they

have spent about US$ 145,000 by March, 2013 for this library construction project.

2.7 International Relations

On the international relations front, several reputed national oil companies(NOCs) and

International Oil Companies(IOCs) held discussions with the Government on potential

exploration and business investment collaboration. The following oil companies purchased US$

1 million 2D seismic data package of the Mannar Basin. In addition there were small quantities

of data purchases by few other oil companies depend on their requirement and interest.

i. Cairn Lanka (Pvt), Ltd - 2008

ii. Japan Oil , Gas & Metal Corporation - 2009

iii. Total S.A - 2012

iv. Esso Australia Pty Ltd -2013

Apart, the MOU signed in between the PRDS and MPRC (Malaysia Petroleum Resources

Corporation) on October 11, 2012 paved the way for Malaysian investors to collaborate with

their Sri Lankan counterparts to seek possible business opportunities in the oil and gas sector of

Sri Lanka. Also some large IOCs have shown a keen interest to conduct joint studies in ultra-

deep water areas which have not been explored so far. Discussions are underway to offer several

large, ultra -deep water blocks to suitably experienced and capable operators who qualify, for the

purpose of joint study with GoSL towards identifying long-term hydrocarbon potential.

3 Event Picture Gallery

a. Field Visits to Drill Ships

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b. Short Training Programs and Capacity Building Workshops

c. Second International Offshore Exploration Licensing Round

d. Construction of 27 School Libraries in Monaragala District

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e. Awareness, Training and internship assistance programs PRDS facility

f. Awareness and Training Sessions for the Business Leaders

g. First Sri Lanka Upstream Oil and Gas Conference

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Annex B

Annex A

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Sri Lanka Upstream Petroleum Local Content Guidelines

1. Introduction

The Petroleum Resources Act No. 26 of 2003 is the governing legislation for petroleum

exploration and development in Sri Lanka. The Petroleum Resources Development

Committee (PRDC) established under this Act is responsible for implementing the

provisions of this Act, and the Petroleum Resources Development Secretariat (PRDS),

headed by the Director General, is responsible for the administration and regulation of all

exploration and production activities in Sri Lanka.

These Guidelines have been prepared by the Director General, PRDS for the purpose of

adding extra value to the economy through capacity building of national human resources

and technological advancement of the country through the participation of international

Contractors/ Operators in upstream petroleum operations in Sri Lanka.

To achieve the above purpose, these Guidelines are mainly focused on developing a skilled

workforce, procuring optimal supplies and services domestically, improving the livelihood

of needy communities and enhancing Sri Lankan professional capabilities and

competencies.

2. Objectives

As the regulatory and administrative authority of the Sri Lanka upstream petroleum

industry, the PRDS aims to achieve the following three main objectives in improving Local

Content:

1. Ensure maximum employment opportunities for Sri Lankan nationals in all areas

and during all phases of upstream petroleum operations.

2. Improve local capacity building through education, training, knowledge and technology transfer aimed at increasing local competence levels to those expected by the international petroleum industry. 3. Encourage local stake holders to invest in various activities of upstream petroleum operations and thereby increase the capabilities and competitiveness of the domestic business community in the sector.

3. Implementation

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To implement the above objectives, the PRDS requires that every Contractor, Operator, Sub Contractor, alliance partner and other foreign entity involved in any oil and gas projects, operation and activity in Sri Lanka; 1. Consider local content as an important element of their overall project development and management philosophy for project execution.

2. Submit an annual Local Content Development (LCD) plan, for review and approval

by the PRDS, outlining planned local goods and services sourcing, employment,

education, training, and R&D opportunities earmarked for Sri Lankan nationals, and

initiatives to uplift the livelihood of needy communities, not later than 6 months

from the Effective Date of the relevant PRA or other agreement, and within thirty

(30) days from the beginning of each subsequent financial year. The specific

provisions to be followed are given in Sections 4.a to 4.c below.

3. Submit a verifiable Local Content report outlining the progress in utilising Sri Lankan resources during the preceding Financial Year, within sixty (60) days of the end of each financial year, in a prescribed format with agreed metrics.

Every Investor participating in a licensing round is required, under specific terms of a Bid Inviting Document, to develop and submit a conceptual Local Content Development Plan based on the Guidelines as part of the bid package. At the evaluation of bid proposals, a weighting will be allocated to the proposed local content improvement and enhancement in line with evaluation parameters specified in the Bid Inviting Document, and the submitted plan shall form part of any agreement subsequently entered into.

4. Areas of Focus

a. Employment and Training Every Contractor, Operator, Sub Contractor, alliance partner and other foreign entity involved in any oil and gas projects, operation and activity in Sri Lanka shall; i) Consider recruiting a minimum number of permanent Sri Lankan

employees who may be deployed globally to gain experience in the industry, and thereby increase the number and level of technical and managerial Sri Lankan staff in-country over the exploration, development and production phases with a view to progressive replacement of expatriates.

ii) Employ Sri Lankan nationals for Sri Lankan operations to the maximum extent possible, making allowance for additional training that may be required to build local competence to the level required

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to meet generally accepted international standards, and always encourage its Sub Contractors to act in the same manner. iii) Submit, for acceptance and approval by the PRDS, an Activity Specific Employment and Training Plan before the commencement of any petroleum activity that involves a considerable number of personnel at any stage of the project, which shall include: a) Hands on Training/internship opportunities with the breakdown of the skills needed. b) Employment opportunities in support of clauses (i) & (ii) above. c) A time frame for the opportunities listed in (a) and (b) above to enable members of the Sri Lankan work force to prepare themselves for such opportunities d) Anticipated skill shortages in the Sri Lankan workforce iv) Make an annual contribution to the Petroleum Training Fund maintained by the PRDS, and contribute in kind where possible to the various training programmes that may be coordinated by the PRDS from time to time.

b. Knowledge and Technology Transfer Every Contractor, Operator, Sub Contractor, alliance partner and other foreign entity involved in any oil and gas projects, operation and activity in Sri Lanka; i). Shall, where beneficial to national development, and at the request of the PRDS, negotiate in good faith Technical Assistance agreements with the PRDS, setting forth the terms by which the technical assistance partner may render technical assistance and make available industry proven tools and techniques of a proprietary nature for use in Sri Lanka by the PRDS. The issues to be negotiated in such technical assistance agreements may include, but not be limited to, licensing issues, royalty conditions, confidentiality restrictions, liabilities, costs and methods of payment. ii). May, if suitably qualified, carry out research programmes in acreage yet unallocated on a production sharing basis, within the framework of a Joint Study agreement. More details of such activities can be obtained from the PRDS.

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c. Local Goods and Services Every Contractor, Operator, Sub Contractor, alliance partner and other foreign entity involved in any oil and gas projects, operation and activity in Sri Lanka shall; i). Give preference to the purchase and use of goods manufactured, produced or supplied in Sri Lanka provided that such goods are offered on terms equal to or better than imported goods with respect to timing of delivery, quality and quantity required, price and other terms; ii). Give preference to Sri Lankan services or service providers, if such services are available in Sri Lanka or can be obtained through Sri Lankan service providers, provided that such services are offered on terms equal to or better in respect of timing of delivery, quality and, price compared to foreign service providers. iii). Give preference to foreign Sub Contractors who utilise Sri Lankan goods and services to the maximum extent possible, where direct Sri Lankan providers or suppliers are not available. iv). Not award contracts solely on the basis of lowest price. Where a Sri Lankan local service provider or company has the capacity to provide tendered goods or services, such service provider or company shall not be disqualified provided their price does not exceed the lowest bid price by more than ten percent (10%).

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ANNEX C

Annual Exploration Local Content Reporting Format

Petroleum Resources Development Secretariat

Benefits Division - PRDS

August 26,2013

www. prds-srilanka.com

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INTRODUCTION

This document is designed to provide an operator engaged in petroleum exploration activities,

including geophysical, geotechnical, drilling, etc., in Sri Lanka with guidance for the preparation

of the annual Local Content Report which is required under a Petroleum Resources Agreement

and the Sri Lanka Upstream Local Content Guidelines(March 2013 by PRDS).

The operator is required to outline the progress of the Sri Lankan Resources utilized in the

preceding financial year and include the following information as applicable:

a brief description of the exploration activities including time periods during which the

activities occurred;

a total annual local content expenditure summary categorized by major activities.

Appendix A outlines the PRDS's suggested reporting format;

an employment summary, reported in work-months, for the Contractor and all Sub

Contractors dedicated to Sri Lanka exploration program. Appendix B outlines the PRDS's

suggested reporting format;

a summary of education and training provided or sponsored. Appendix C outlines the

PRDS's suggested reporting format;

a description of technical assistance programs provided or facilitated. Appendix D

outlines the PRDS's suggested reporting format;

a description of research and development activities conducted or sponsored. Appendix

E outlines the PRDS's suggested reporting format;

a summary of activities connected with Corporate Social Responsibility as an expression

of goodwill of the operator or any other dedicated to the program. Appendix F outlines

the PRDS's suggested reporting format; and

a listing of activity specific goods and services acquired in Sri Lanka including associated

actual expenditure. Appendix G outlines the PRDS's suggested reporting format;

The annual Local Content Report should be prepared on a financial year basis and should be

submitted to PRDS within sixty(60) days after the end of each Financial Year.

This reporting format guidance will be administered by PRDS, and may be revised from time to

time.

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APPENDIX A

Annual Local Content Expenditure Summary

Activity Expenditure ($)

Goods and Services

Training & Education

Research & Development

Base Office in Sri Lanka Cost

Technology Transfer

Corporate Social Responsibility

Bonuses/Fees/Levis/Taxes paid to Sri Lanka

Contribution to Training Fund

Contribution to Environment Fund

Any Other

Total Local Spend

Total Contract Cost

% Local Spend

APPENDIX B

Annual Employment Summary - Dedicated to Sri Lanka Exploration Program

Company Category

Total Employees

Total Sri Lankans

Remarks

Head

Count

Work

Months

Head

Count

Work

Months

Total

Note : Company includes the operator, goods/services/vessel & support vessel sub-contractors

and any other contractors dedicated to the program

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APPENDIX C

Education and Training

Description of the Education/Training

Activity

Numbers trained in each

program(if applicable) Cost

a. Internship Opportunities offered

b. Training Programs conducted or

sponsored

c. Other educational Assistance

activities conducted or sponsored

APPENDIX D

Technology Transfer

Type of Technical Assistance

Program

Name of

Transferee/Beneficiary Progress and Cost

APPENDIX E

Research and Development

Title of Research/Development

Activity Conducted or Sponsored Description Progress and Cost

APPENDIX F

Corporate Social Responsibility

CSR Activities Description Progress and Cost

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APPENDIX G

Goods and Services Procured in Sri Lanka

Type of Goods and Services Goods/Services

Provider

Contract

Number (If

applicable)

Cost

a. G&G Surveys and Studies

b. Exploration Drilling

c. Appraisal Drilling

d. Other

Total

Notes :