Italy restricts offshore drilling?

1st Jul '10 by djpreston

10 comments 7066 reads

I have been hearing rumours for a week or so that this was in the offing with the Italian regional govts in particular pushing for the move. Now seeing reports that the Govt has indeed imposed a ban and one that is rather harsher than the rumours had indicated.

This could/will have significant impact on several companies with operations planned offshore Italy, not least Mediterranean Oil & Gas (LON:MOG), Northern Petroleum (LON:NOP) and even Petroceltic International (LON:PCI) where it has the Elsa well coming up.

Extract from the link above:

(ANSA) - Rome, June 30 - Italy is to stop energy companies drilling for oil within five miles of its coast as part of measures to prevent an oil spill like the one wreaking havoc in the Gulf of Mexico, the government said Wednesday.

Environment Minister Stefania Prestigiacomo said the drilling ban will be further extended around protected marine areas to create a 12-mile buffer zone.

Drilling requests for other areas will be subject to extremely stringent environmental impact assessments, Prestigiacomo said, adding that the Cabinet-approved restrictions will also affect applications currently being processed.

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tiswas

1st Jul '10

I think that Elsa is about 7km off shore so probably going to be just about covered by this. Surprised above numbers are quoted in miles and not km.

There has been relentless selling in PCI and this news has obviously not helped. I would have thought that Algeria alone was currently underpinning the sp at higher levels. Any thoughts DJP?

howdidthathappen

Looking a quick look at NOP's acreage on the map. only the as-yet-unawarded d59F.R looks possibly with 5 miles of the coast. I've no idea about protected marine areas.

But the overall picture for offshore drilling in Italy doesn't look great.

chessfou

Some of the blocks in the Sicily Channel seem to fall inside a 12-mile limit (from Isola Marettimo) but most of them seem to be clearly outside it (using the map on p29 of the pdf of the December 2009 analyst presentation).

http://www.northpet.com/files/New_production_presentation_to_analysts_Dec_20098th.pdf

djpreston

Tis

Im a buyer and have been using the sell off.

I just focus on Algeria and the lack of any financial pressure and come up with only one conclusion - this is nuts!

PCI RNS on the subject.

Extract:

Petroceltic International plc (PCI.L) ("Petroceltic" or "the Company"), the independent oil & gas exploration company focussed on the Middle East, North Africa and Mediterranean region, today advises that on 30th June the Italian Minister of Environment, Stafania Prestigiacomo, announced at a conference in Rome that an outline proposed decree to amend the Italian Environmental Code had been adopted by the Council of Ministers that will inter alia prohibit drilling in the Italian seas within 5 miles of the coastline and within 12 miles around the perimeter of protected Marine Parks.

Petroceltic understands that should this restriction be passed into law it will apply to permit applications currently pending and is likely to include Petroceltic's current location for Elsa 2. This well was scheduled to spud in Q4 2010.

Petroceltic are currently seeking further clarification on the process for adopting or rejecting this outline decree and the validity of the application of an immediate restriction to drilling operations.

The Elsa structure straddles the proposed 5 mile restriction and therefore Petroceltic are considering alternative well locations on the structure which are outside of the proposed 5 mile boundary. Petroceltic intend to continue with the existing environmental permitting process, which is at an advanced stage, whilst the implications of the proposed restrictions are assessed.

Should the proposed change to the Environmental Code come into force Petroceltic intends to seek agreement from the Ministry of Industry to suspend any licence timing obligations in order to extend the well spud deadline.

marben100

Any thoughts on whether this ban is likely to be relatively permanent or just until there is more clarity on what went wrong in the GoM and what measures are necessary to prevent a recurrence?

AFAIK none of the proposed drilling is deepwater, so I guess the former outcome might be more likely (at least until the hoo-hah has well and truly died down and the Italian govt gets desperate for oil).

Mark

BobGe

2nd Jul '10

I think that Elsa is about 7km off shore so probably going to be just about covered by this. Surprised above numbers are quoted in miles and not km.

Nautical miles perhaps?

The nautical mile (symbol M, NM, Nm or nmi) is a unit of length corresponding approximately to one minute of arc of latitude along any meridian. By international agreement it is exactly 1,852 metres (approximately 6,076 feet).

RedTedsRoadshow

MOG comment today...

http://www.investegate.co.uk/Article.aspx?id=201007020700106998O

Extract...
Once the decree comes into force, it may apply to permit applications currently pending and may apply to the Company's Ombrina Mare project. MOG will continue to monitor the position closely.

The Ombrina Mare reservoir structure is located within the proposed 5 mile exclusion zone. MOG is reviewing alternative potential well locations outside the 5 mile exclusion zone in case the legislative decree applies to the current platform at Ombrina Mare.

Mirabaud comment this morning on Petroceltic International (LON:PCI) . I bought more yday fwiw as it seems ridiculously cheap based on Algeria alone.

Comment: Italian fears overdone

Wednesday’s move by Italy’s Minister of Environment is just the latest example of heightened environmental concerns among host nations in response to BP’s disastrous Gulf of Mexico oil spill. At this stage, it is difficult to tell for sure if Italy’s proposed decree has sufficient political backing to be passed into law, and if so, how rapidly and widely it will be enforced. However, given the current industry backdrop, and growing political pressure to increase environmental regulation, it seems prudent to assume that planning for the Elsa-2 well will be affected. The good news for Petroceltic is that the current well location (between 4-5 miles offshore) could easily be moved outside the five mile boundary and then deviated to the same down-hole location. Indeed, we believe that most of the Elsa field could be accessed with extended reach drilling technology such as that used to drain the Wytch Farm field in the UK, where some wells are deviated more than 10km offshore. As things stand, our valuation for Elsa remains unchanged at 3.1p/shr (6.2p/shr unrisked) based on a 15

o API heavy oil discovery, with 77 mmbbls gross recoverable (TRACS mid case contingent resources). However, if Elsa turns out to contain light oil, akin to the nearby Miglianico field, it could be worth more than five times that amount.

Overall, yesterday’s share price reaction looks overdone given the facts: in a worst case scenario Petroceltic will incur higher costs associated with deviated drilling and possible delays relating to the Elsa-2 environmental approval process. Besides, the company’s Italian assets have never been attributed much value by the market and the majority of them won’t be impacted by the changes anyway. Consequently, we view the recent bout of share price weakness as an excellent entry point ahead of a busy period of drilling activity and possible Algerian corporate news flow later this year

Odla63

The reaction of the italian govt is impulsive, not well thought and counterproductive. The proposed ban involves 5 Nm from the so-called "base line", where no oil activities (including production) could be carried out. This line coincides almost everywhere to the coastlines, but in gulfsand embayments it is simply a striaight line between the two extremities of the gulf. This means that vast sea regions would be excluded. Furthermore a 12 Nm envelope from any marine and/or coastal area would be included in the ban for any type of hydrocarbons. This is simply stupid. It would wipe out about half of the offshore gas production in the Adriatic and Ionian seas and in the Sicily Channel. It would mean a loss for the state of over 500 million euro per year in royalties and for the private sector several thousand jobs. It is a stupid ban as well: the problem in the Gulf of Mexico is related to a deep high pressure well located in deep waters, while the areas affected by this proposal are all in shallow water and there are no deep targets with high pressure. The govt has been ill advised or not advised at all, and this is very disappointing, but not unusual for Italy. The proposal has to be approved by the Parliament within a specific time frame. I hope they will come to their senses and reject it for good, as this is one of the worst pieces of legislation ever!

Italy restricts offshore drilling?

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Djpreston

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