Hunting Geology and Geophysics Ltd. (1985) conducted a photogeological study over 60,000 sq.kms. area of the southern Nepal (Figure 5 ). It has been useful to establish the structures in Siwalik belt.

Terai and Siwaliks have been divided into 10 Exploration Blocks, each of approximately 5,000 sq.kms in area. These blocks were opened for bidding exploration acreage in 1985 for the first time (Figure 6).

Shell Nepal B.V. (1986-90) carried out exploration works in Nepal (Block 10) including geochemical study of seep samples. It has also acquired gravity and seismic survey (over 2,000 line km) in close grid pattern. The company had drilled an exploratory well (TD.3520m) to test the hydrocarbon potential of a seismically defined structure. The hole was dry and did not penetrate up to the basement. The result obtained from the drilling has created a valuable database for the exploration venture.

Since 1982-1992, over 5,000 km of multi-fold seismic data has been acquired. The field survey provides regional seismic coverage of most of the Terai and limited coverage in the Siwaliks (Figure 7). The data has been processed and interpreted by different seismic service agencies. A number of valuable geophysical interpretation reports are available in the Kathmandu Data Centre.

Hence, the presence of oil and gas seeps in western Nepal along with the existing analogous basins of Potwar and Assam, hydrocarbon indications in the Indian wells of Ganga Basin, Comparative geological structure of Wachita with subsurface of West Terai, and similar foothills and plains as of Alberta and British Columbia, lcad us to believe the possibility of hydrocarbon occurrence in this Himalayan country. None the less, a continuous petroleum exploration works by the Indian Oil Companies all along the southern Nepal border and indication of some hydrocarbon occurrences gives an additional information of possibility of oil field in the Nepal side i.e. in Terai and Siwaliks region of Nepal.

Occurrence of Oil and Gas Seeps
There are two areas of confirmed seeps in Nepal (Figure 9), both lying north of the Main Boundary Thrust (MBT).

Muktinath gas seep - an active gas seep has been known since the beginning of historical times in the Muktinath region of northern Nepal. The seep emanates from Jurassic beds in the Tethys facies north of the MCT and for this reason it is thought to have no relation to petroleum possibilities in southern Nepal.

Dailekh oil and gas seeps - in the Dailekh region of western Nepal, at a location 30 km north of the Main Boundary Thrust (MBT), is located a series of seeps which are of major importance in the exploration f or hydrocarbons in Nepal. There are some 45 separate gas seepages, many of which have religious temples constructed over them. The gas seeps are continuously coming out up till now (Plate 1A - Plate 1B - Plate 2A - Plate 2B). The oil seeps are occasional and recorded during the rainy season (Plate 3A - Plate 3B) .

The oil samples and several gas samples were obtained from seep in the Dailekh area. These samples have been analyzed and indicate that this oil and gas has a geological origin from a mature source rock. Chromatograms suggest the oil samples represent light (mature) oil that has been severely biodegraded. The presence of C2 and higher molecular weight gases and their isotopic composition indicate the gases are thermogenic and derived either from a mature source rock or from the cracking of oil, rather than a shallow biogenic source. The proportion of higher homologies (C2 to C5) suggests that the gases were associated with oil.Combining the interpretation of the four analysis implies that the seeps originate at depth and are migrating rapidly to the surface along steep faults in the metamorphic rocks. The most likely ultimate source is a ruptured reservoir in non-metamorphic Paleogene beds underlying the thrusted metamorphic rocks at a shallow depth. These Paleogene beds might have some geological relation with the subsurface palaeogene beds of the south lying Ganga Basin.

The Palaeogene beds along with some other sediment are proved as source rocks in Potwar of Pakistan in the west and in Assam of India in the cast. The geological conditions as in Potwar and Assam does exist in Nepal also. Therefore, Palaeogene and other sedimentary formations in the subsurface of Terai and Siwaliks are potential for the hydrocarbon exploration in Nepal. And the seeps are of importance in the search for oil and gas.

Structural Trapping Mechanisms
The principal play recognized in southern Nepal lies in the Surkhet Group with indigenous source, reservoir, and seal, and with a wide variety of potential trap types(Figure 10). The Paleogene is the imputed source for the Dailekh oil and gas seep area of western Nepal. It is also considered to be a source rock in the Terai and Siwalik of the southern Nepal. Secondary plays, alluded to above, embrace the lower Siwaliks, the Gondwana and possible Upper Vindhyan reservoirs.

The regional seismic grid over most of the Terai and part of the Siwalik Fold Belt has allowed identification of a number of different structural leads. It has allowed identification of a number of different structural trap( Figure 11 ). On the other hand, when Shell acquired their 2000 km. detail grid in Block 10, they were able to identify numerous prospects and leads not previously seen on the regional grid. This same phenomenon is expected to be generally true in the remainder of Nepal because of the similarity in geologic history.

The trapping mechanisms include anticliners and thrust faults developed in the Siwalik Fold Belt and "blind" thrusts developed under the Terai ahead (south) of the Main Frontal Thrust. In addition, under the Terai we can expect structural closures associated with basement controlled faults, graben edge folds and fault closures, draping over pre-existing highs, and stratigraphic traps caused by reservoir pinch out, facies changes, permeability barriers etc. (Figure12).

The limited seismic lines in Siwalik foothills indicate major folds (Figure 13) and thrust faults with substantial potentially prospective pre-Siwalik which is supported by gravity survey and also by surface geology.

Model Petroleum Agreement
This document acts as the basis for bid preparation, evaluation, negotiation and subsequent administration of the Agreement. The Production Sharing Contract (PSC) is well constructed and fair. It recognizes the relatively high risk of exploration ventures in Nepal and make allowances for this fact in the relaxed and attractive terms. Having the Petroleum Exploration Promotion Project (PEPP)/Department of Mines and Geology (DMG) act as the single focal point for all operational, tax and legal questions is a significant advantage.

Some of the advantages of the PSC are the fact that there is no requirement for signature or production bonuses, no stipulated government participation or back-in-right, a substantial amount of cost oil is given, liberal amortization and loss carry forward provisions are in place and all import duties are waived. Repatriation of profits is allowed as in the export of the contractor's share of petroleum. Repatriation can be done in any foreign currency and conversion is guaranteed at market rates. There is no requirement to take partial payment in Nepali Rupees pegged at an artificially low rate.

Source Rock Maturity Basin Modeling
A considerable geochemical work has been done in Nepal. The oil seep of Dailekh in Western Nepal is a high grade, mature, biodegraded crude interpreted to have come from a conventional mature source rock. These hydrocarbon seeps occur in fault trend from metamorphic rocks indicating that source rocks are buried below the thrusts and expelling hydrocarbons.

A modeling study was conducted for three widely separated locations in southern Nepal using a numerical technique, which calculates a one dimensional model of the evolution of sediment compaction and hydrocarbon generation. Input parameters to the model include the thickness, age and lithology of the rocks, a description of the source organic matter and the current and past heat flow or temperature parameters.

Models were constructed for eastern (Biratnagar-1), central (Lumbini) and western (Dhangadi) Nepal. The Shell Biratnagar-1 well was used to calibrate the model for eastern Nepal. In addition, outcrop information and subsurface seismic data were also used. An example of the output is given in Figure 14 which is the burial depth versus maturity plot for Lumbini, central Nepal. It is clear from this Figure that the Suntar, Swat, Melpani and Gondwana units fall within the oil window, whereas the Lakharpata unit is well within the gas generating window.

Conclusions of this basin modelling were that the level of thermal maturity is predicted to be somewhat higher in the west relative to the east for a given stratigraphic interval. The petroleum source rocks that have been identified below the Siwaliks down to the upper part of the Vindhyan, are expected to occur within the oil window at most locations in southern Nepal. Deeper units will be more prospective in the east and shallower units more prospective in the west. The timing of petroleum generation is calculated to be a very recent phenomenon, probably within the last 5 to 10 million years. While the structural deformation which caused trap formation also resulted in the rapid burial of pre-Siwalik units, because of thermal time lag, oil generaiton, expulsion and migraiton are considered to have been contemporaneous with or to have post dated the formaiton of the traps.

The geological and geophysical works carried out by Petroleum Exploration Promotion Project, DMG meets the international standard of oil industry. The database contains over 5000 km of multi-fold seismic reflection data (Figure 7) and a number of valuable geophysical as well as geological reports including an update well data.

The data base is divided into 21 different Data Sales Packages (DSP) from "A" to "U". A General Report, which is a summary document, is available at a price of US$ 5,000.00 per copy. It covers the general aspects of the technical hydrocarbon potential, the fiscal terms and work obligations expected for operations in Nepal. The document contains sufficient detail for a company to make an informed decision about the hydrocarbon potential of the country and furthermore contains a working economic model on 3.5" diskette (either in Excel or Lotus 1 2 3 ) suitable for cash flow sensitivity analyses. Purchase of the General Report is a pre-requisite for companies wishing to purchase other data, visit the Kathmandu Data Centre or to lodge a formal bid for exploratory lands (See Appendix 1- Description and Price Schedule of Available Data).

Petroleum Legislation
There are two sets of enabling legislation which govern the negotiation, the conduct of petroleum related operations and the fiscal treatment of these activities. These are :

Nepal Petroleum Act, 2040 (1983)
This is the broad enabling legislation which permits Government to enter into Petroleum Exploration and Production Agreements, with suitable (international) oil companies ("CONTRACTOR"). The Department of Mines and Geology is designated to administer the application for and negotiation of Petroleum Agreements.

Petroleum Regulation, 2041 (1985) with Amendments
These rules which expand on the Nepal Petroleum Act, established the procedure for bidding, evaluation of bids, negotiations and granting of Petroleum Agreements. It specifies the Department of Mines and Geology as the responsible agency for negotiation of Petroleum Agreements and their administration subject to the Petroleum Act.

A second amendment contemplates the following :

Schedule 2 of the Regulations contains the complete Model Petroleum Agreement, which acts as the basis for bidding, negotiation and administrator of such Agreements

Exploration and Development Cost
There is a good network of roads in the Terai, with important N-S feeder routes into the Siwalik Fold Belt. In the Siwaliks, the roads network is sparse and mobile operations will be difficult. Typically seismic and drilling equipment will have to be imported and with the nearest port facilities some 600 kms. away in India, mobilization and demobilization costs will be a factor.

Exploration costs are comparable with similar operations in other parts of the world. The seismic surveys may cost US $ 4,500 per line kilometer in the Terai and US $ 7,000 per line kilometer in the Siwalik fold belt. Only one well, the Shell er al Biratnagar 1, with a TD of 3,520 m. has been drilled in Nepal. The well was drilled on Block 10 within the Terai and was supplied out of Singapore. A typical 4,000 m. well is expected to cost approximately US $ 8.0 M.

Given a successful exploration program, production facilities will be required. These will likely have to be designed and (partly) built outside the country (India, Malaysia, Singapore, Thailand, Indonesia) and imported by road, air or rail. There is light industry capability for fabricating certain parts of the facilities in Nepal. Of further importance is the fact that there is a large pool of cheap skilled and unskilled labour which will keep the operating costs relatively low.

As discussed in the Introduction, the Production Sharing Agreement recognizes the difficulties of operating in a high risk environment with sparse facilities, and so the financial terms are made more attractive to account for this.