Italy

The Petroleum Potential and Licence Terms

Within the selected areas the Company considers there to be the potential for the discovery of oil fields of 50 up to 500 million barrels in size range and gas fields of up to 1 or more tcf.

Italy is a substantial European producer of both oil and gas offering the benefits of having an accessible existing database. There are five major hydrocarbon producing basins, of which the Po Basin and Adriatic Sea have well developed gas infrastructures. Elsewhere, major oil and gas fields are located on and offshore Sicily and in the southern Apennines. Production is from a wide range of geological settings.

Importantly the fiscal and licensing terms in Italy, are considered to be very favourable within our business model as a smaller oil and gas exploration company.

Annual licence rentals are only 5 euro per km²;
Licences can be applied for in any open area at any time, there are no licensing rounds and applications may be for areas as large as 750 km²;
Licences are awarded for an initial six year period, and it can be five years before a firm obligation to drill is required;
The existing regional offshore seismic data is available;
There is a limited production royalty rising to a maximum of only 7% (4% for offshore oil), however no royalties are due on the first annual 20 million cubic metres of gas and 20,000 barrels of oil produced from individual accumulations;
Italian source income is subject to both regional taxes and taxation on corporate profits at rates of up to 35%.

The Company considers that, after the oil discoveries made in the late 1980s, there was an excessive concentration upon the onshore Southern Apennine thrust belt and a virtual suspension of efforts in the southern offshore zones. Many of the prospects being examined lie in 150-700m of water, which in the early 1980s presented frontier level engineering challenges. Such developments are now considered “run of the mill” as the result of advances in sub-sea completion and in-reservoir horizontal drilling technologies.

The relatively recent termination of the ENI SpA (“ENI”) monopoly over the Po Basin at the end of 1997, together with the opening up of the Italian electricity generating market, also presented a good opportunity for the Company to benefit from reworking the existing seismic data. Use can now be made of powerful modern computer processing to quickly reconstruct seismic sections and map prospects. In some areas the shooting of modern offshore 2D or 3D data is expected to confirm and to upgrade the prospects. In essence it is reasonable to believe that new technologies could be utilised to our advantage in returning to old oil discoveries and plays.

The Focus

Italy has a wide range of oil and gas opportunities, but onshore the Northern-ATI joint focus is on the older established oil and gas rich provinces that have been somewhat sidelined over the last decade and more. These regions include the prolific Po Basin gas and oil province and the northern Adriatic - Marche onshore gas basin. The Southern Apennine oil province has been rejected due to both the high cost even for poor quality seismic data and perceived local difficulties. Offshore a major effort has been directed at the under-explored thrustbelt west of Sicily, the more established oil and gas province round to the south and southeast of Sicily, an area in the southern Adriatic covering three old oil discoveries and the offshore Calabrian gas province. In addition one licence is held offshore within the Tiber Delta area to the west of the Colombo-1 gas well.

Fast Track Plan

In order to accelerate the drilling activity and to not have all the licence activities at the same point in the same year a fast track plan has been agreed:

Acquire the seismic necessary to bring several Po Basin shallow gas prospects to drill readiness (Nibbia, Longastrino and Savio);
Conduct the required reservoir engineering and petro-physical analysis of the Giove-2, Medusa-1 and Rovesti-1 wells to determine the case for a re-drill and completion (FR.39.NP and FR.40.NP).
Move towards a 3-D seismic survey over part of the G.R17.NP area west of Sicily sufficient to define prospects for drilling and show that the play concept may be pursued to advantage throughout the licensed area using modern geophysical techniques. This may require bringing in new partners to fund future field activities.
Develop drilling programmes for shallow wells within the Cerasa licence.

Operations

Petroleum Potential and Licence Terms

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