Sri Lanka Upstream Petroleum Benefits Report July 2008-March 2014

Transcription

1 PETROLEUM RESOURCES DEVELOPMENT SECRETARIAT Sri Lanka Upstream Petroleum Benefits Report July 2008-March 2014 Benefits Division June 2014 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.

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 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 preeni@prds.lk PRDS Page 2

3 Contents Executive Summery Introduction 1.1 History Petroleum Exploration Activity Update Benefits Associated with the Exploration Activities Socio-economic Impact 2.1 Exploration Expenditure Involvement of Local Suppliers Education and Training Opportunities for Sri Lankan Nationals Environmental Research Employment Opportunities CSR Activities International Relations Picture Gallery 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 CLPL CSR GoSL MEPA PRDS QHSE UOM UOP UGC Central Bank of Sri Lanka Cairn Lanka (Pte) Ltd Corporate Social Responsibility Government of Sri Lanka Marine Environmental Protection Authority Petroleum Resources Development Secretariat Quality, Health, Safety and Environment University of Moratuwa University of Peradeniya University Grant Commission PRDS Page 3

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 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 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 Singaporebased 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 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 PRDS Page 4

5 participation in supply of goods and services by March 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 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 PRDS Page 5

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 March 2014 Petroleum Exploration Activity Signing the Petroleum Resources Agreement (PRA) with CLPL Issuance of Exploration License to CLPL Environmental Impact Assessment Study by CLPL Acquisition of 1750 sqkm of 3D seismic data by CLPL One year long survey to collect metocean data by CLPL Drilling of the 1st Exploration Well "Dorado" by CLPL Drilling of the 2nd Exploration Well "Barracuda" by CLPL Drilling of the 3rd Exploration Well " Dorado North" by CLPL Acquisition of 600 sqkm seismic data by CLPL Drilling of the 4th Exploration Well "Wallago" by CLPL Second Upstream Petroleum Licensing Round by GoSL Work in Progress- GoSL to offer 6 Unexplored Blocks for Joint Studies On Going - Analysis of the economic feasibillity of the Two Discoveries Discovered Gas and Condensate Discovered Gas and Condensate 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. PRDS Page 6

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. PRDS Page 7

8 Exploration Expenditure in USD 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 March Cumulative Exploration Expenditure vs Local Spend, March ,591, Exploration Expenditure 10% 21,974,045 Local Spend Figure 2 : Local Spend by Major Categories CSR, 0.7% Environmenal Fund, 0.6% Bonuses, Taxes & other Fees, 11.7% Sri Lanka Base Office Cost, 3.3% Training, 0.2% Goods & Services local Spent, 83.6% PRDS Page 8

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 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 PRDS Page 9

10 Figure 3 : Annual Direct Service Sub Contractor Licenses Issued by PRDS 60 Service Sub Contractor Licenses issued by PRDS FY Foreign Local Figure 4 : Total Involvement of Local Direct Service Suppliers in CLPL Operation Direct Sub Contractor Licenses issued by PRDS for the Cairn Lanka Exploration Operations From July 2008 to Aug % 77% Foreign Sub Contractor Licenses Issued - 98 LocalSub Contractor Liceses Issued - 29 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. PRDS Page 10

11 The following local companies obtained direct service sub contractor licenses from PRDS for CLPL exploration operations from 2008 to March 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 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 PRDS Page 11

12 ii iii iv v vi 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. 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. 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. PRDS offered assistance to local universities and institutions to conduct petroleum related research studies with the use of PRDS expertise and data. 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. March 22-5, 2010 Three programs 2012 November 19-23, 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 xi xii PRDS conducted awareness sessions on "Petroleum Technology and Business" for undergraduates attached to three universities, Peradeniya, Moratuwa and Ruhuna. 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. 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 2013 November 28, 2013 Annually, PRDS Page 12

13 xiii 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. 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 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 iii 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. 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. March 14, 2012 July 09-12, 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 PRDS Page 13

14 iv v vi vii Officials of PRDS on invitation delivered series of public presentations to raise awareness and understanding on oil and gas industry at various platforms. 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. 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" Director General of PRDS represented Sri Lanka as a speaker at many local and international petroleum conferences and seminars. Half/Full day within November 15, 2012 September 24-25, Short Training Opportunities i ii iii iv v 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. CLPL provided an opportunity to PRDS petroleum geologist to attend a short term staff training program on " Geophysics for Subsurface Professional" in India. 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. 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. PRDS officials conducted an awareness program on " Oil spill response equipments and management" for a group of 30 members of Sri Lanka Coastguard. 10 Days from July25-Aug 05, March 26-29, 2012 May 7-11, 2012 June 20-22, 2011 June 19, Internship Opportunities i ii 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. PRDS offered 15 numbers of Internship placements for local and foreign undergraduates/graduates at PRDS office under the supervision of PRDS qualified staff. Six Weeks from July 01, 2011 Each 1-3 months duration PRDS Page 14

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 Strategic Environmental Assessment of the Cauvery Basin Marine Environmental Baseline Survey within Cauvery & Gulf of Mannar Basin Description and Progress 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 The copy of this report can be obtained from PRDS. 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 each during 2011 and 2013 drilling operations. PRDS Page 15

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 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 ii. Japan Oil, Gas & Metal Corporation iii. Total S.A iv. Esso Australia Pty Ltd 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 ultradeep 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 PRDS Page 16

17 b. Short Training Programs and Capacity Building Workshops c. Second International Offshore Exploration Licensing Round d. Construction of 27 School Libraries in Monaragala District PRDS Page 17

18 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 PRDS Page 18

19 Annex A Annex B PRDS Page 19

20 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 PRDS Page 20

21 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 PRDS Page 21

22 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). ii). 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. 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. PRDS Page 22

23 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). iv). 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. 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%). PRDS Page 23

24 ANNEX C Annual Exploration Local Content Reporting Format Petroleum Resources Development Secretariat Benefits Division - PRDS August 26,2013 www. prds-srilanka.com PRDS Page 24

25 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. PRDS Page 25

26 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 Head Count Work Months Total Sri Lankans Head Count Work Months Remarks Total Note : Company includes the operator, goods/services/vessel & support vessel sub-contractors and any other contractors dedicated to the program PRDS Page 26

27 APPENDIX C Description of the Education/Training Activity Education and Training 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 Type of Technical Assistance Program Technology Transfer Name of Transferee/Beneficiary Progress and Cost APPENDIX E Title of Research/Development Activity Conducted or Sponsored Research and Development Description Progress and Cost APPENDIX F Corporate Social Responsibility CSR Activities Description Progress and Cost PRDS Page 27

28 APPENDIX G Type of Goods and Services Goods and Services Procured in Sri Lanka Goods/Services Provider Contract Number (If applicable) Cost a. G&G Surveys and Studies b. Exploration Drilling c. Appraisal Drilling d. Other Total Notes : PRDS Page 28