Petroleum exploration in Sri Lanka began approximately 40 years ago in late 1960s. In 1967-68 Compaigne General de Geophysicque collected approximately 420 km of onshore and 75 km of offshore seismic data on behalf of the Ceylon Petroleum Corporation (CPC or Ceypetco). The Soviets, with their increased interest in South Asia in the 1970s, recorded 4837 km of marine seismic data in 1972 to 1975 along with some onshore data to evaluate the Palk Bay area in the Cauvery Basin under an agreement with the Sri Lankan government. In 1974 Soviets spudded Pesalai 1 on the Mannar Island and drilled to a TD of 2594 m to pre-Cambrian gneiss basement. The well encountered a water-bearing basal Lower Cretaceous sandstone with a small amount of dissolved gas with heavy ends to pentane. Encouraged by the gas show in Pesalai 1, Soviets drilled two more wells nearby, Pesalai 2 and Pesalai 3, but both failed to encounter significant reservoir rocks or a trap. This led to withdrawal of the Soviets from the area.
In 1975 CPC engaged Pexamin Pacific as a consultant to promote exploration in the Sri Lankan portion of the Cauvery Basin. In 1976 Western Geophysical recorded 1947 km of 2D seismic data around the island. Western Geophysical also collected 2829 km of seismic data in Palk Strait and the Gulf of Mannar in 1976. Subsequently, Pexamin Pacific signed a contract with CPC for an offshore exploration block.
Marathon Petroleum farmed into Pexamin's interest in 1976 and drilled two exploratory wells, Palk Bay-1 and Delft-1 in the Cauvery Basin, both targeting horst block plays. Both failed to encounter any hydrocarbons and in 1977, the Marathon -Pexamin group relinquished its interests.
In 1981, Cities Services acquired interests in the Cauvery and the Mannar basins and collected a total of 1556 km of seismic, 1289 km in the Gulf of Mannar and 267 km in Palk Bay. The same year Cities Services drilled Pearl-1, located on the northeast shelf of the Gulf of Mannar. This well was drilled to total depth of 3050 m with no oil and gas shows. The well bottomed in a volcanic sill and is the only well on the Sri Lankan portion of the Mannar Basin to date. On the positive side, the well penetrated an 850 m thick Late Cretaceous basal sandstone unit thereby establishing the presence of significant reservoir rocks in the Mannar Basin.
About the same time ONGC made the PH-9 discovery approximately 30 km north of the India-Sri Lanka maritime boundary in the Cauvery Basin. Encouraged by this discovery Cities Services drilled Pedro 1, the most northerly exploration well in the Sri Lankan waters. The well was drilled to a total depth of 1437 m and failed to encounter any hydrocarbons.
In 1984 under a tripartite agreement between Phoenix Canada Oil Company, Petro-Canada and CPC, Petro-Canada acquired 980 km of 2D seismic data in the Mannar Basin. This is the first comprehensive seismic program in the Mannar Basin. However, no further work was done and by 1984 petroleum exploration work offshore Sri Lanka came to a halt and remained dormant till 2001.
In 2001 under a contract from the Asian Development Bank to evaluate the petroleum potential of Sri Lanka as well as its petroleum administrative and fiscal regime of the University of New South Wales (Newsouth Global Pty Ltd) provided an interpretation report and draft petroleum legislation and a Petroleum Resources Agreement. The latter was coined after the Indian Production sharing Contract (PSC) at that time. Encouraged by the report of the Newsouth Global, TGS NOPEC, a Norwegian seismic contractor with a regional office in Perth, Australia, approached CPC to undertake a speculative seismic program in the Mannar Basin. In 2001 CPC and TGS NOPEC signed an agreement to collect 1100 km of 2D seismic data in the Mannar Basin. The data was acquired in June-July 2001 and a detailed interpretation report was produced by Newsouth Global in 2002 (Newsouth Global 2002) under contract to TGS NOPEC. The report highlighted the petroleum potential of the Mannar Basin and encouraged TGS NOPEC to collected additional 4600 km of seismic in the basin 2005. These two TGS NOPEC data acquisitions provide a modern, high quality 2D seismic data set in the Mannar Basin for exploration companies interested in the area.
From 2002 to 2006 the Government of Sri Lanka and TGS NOPEC made attempts to attract exploration companies to Sri Lankan through road shows at various venues. These efforts were unsuccessful. In 2007 under a Cabinet Decision the government of Sri Lanka bought the Mannar Basin 2D data from TGS NOPEC thereby canceling the exclusive rights that TGS NOPEC had to collect seismic data in the territorial waters of Sri Lanka. Based on this data the Mannar Basin was divided into nine exploration blocks ranging from 3340 to 6640 sq. km. Out of the said nine blocks the Cabinet of Ministers decided to offer three for petroleum exploration under an international licensing round.
In 2007 September the Petroleum Resources Development Secretariat under the President's Office launched the Mannar Basin Licensing Round for three exploration blocks in the Mannar Basin. An extensive marketing campaign was carried out globally with road shows and data rooms in London, Houston and Kuala Lumpur. These efforts were successful in the sense that bids were received for all three blocks with three bids for Block SL2007-01-001, two bids for Block SL2007-01-002 and one bid for Block SL2007-01-003). The Cabinet of Ministers decided that the number of bids received for blocks 002 and 003 are not enough and thus directed the Ministry to evaluate only the bids received for block 001.
The bidders for Block 001 in the Mannar Basin licensing Round consisted of Cairn India Limited, Niko Resources (Cyprus) Limited and Oil and Natural Gas Company of India (ONGC). The bids were evaluated by a technical evaluation committee (TEC) and a Cabinet appointed negotiation committee (CANC) who selected Cairn India Limited as the winning bidder on the basis of the work commitments and fiscal provisions in the bids. On July 07, 2008 the Government of Sri Lanka, through the Minister of Petroleum and Petroleum Resources Development signed a Petroleum Resources Agreement with Cairn Lanka (Private) Limited marking the beginning of petroleum exploration of Sri Lanka after a hiatus of 25 years.