Northern announced an update to its preliminary examination, dated July 2, 2010, of the environmental proposals as first detailed in a posting on the official Ministry of the Environment web-site in late June 2010 and attributed to Environment Minister Stefania Prestigiacomo. Legislative Decree 128/10 came into force with effect from August 26, 2010.
In summary, Legislative Decree 128/10 ("the Decree"):
The new legislation covers liquid hydrocarbons activities within five nautical miles of the coast baseline and all hydrocarbon activities within twelve nautical miles of a marine or coastal protected area. The majority of Northern's permit areas are further offshore.
Acting in consideration of the above, the specific updates covering the effects of the Decree upon the Group's activities in each of the areas offshore Italy are outlined below.
Southern Adriatic (permits and applications)
The Decree has no impact upon the established reserves held within Northern's two permits or the exploration prospectivity of the Southern Adriatic as a whole.
No communications have been received from the Ministry of Economic Development or the Ministry of Environment regarding either of these awarded permits.
In respect of the permit applications, Northern has successfully submitted amendments to reshape part of application d149D.R-.NP to the extent to which it fell within the zone covered by the Decree, while three further applications, namely d61F.R-.NP, d71F.R-.NP and d72F.R-.NP which were marginally affected, have been slightly modified by the Ministry of Economic Development in order to stay clear of the zone covered by the decree. The remaining applications, namely d60F.R-.NP, d65F.R-.NP and d66F.R-.NP remain totally unaffected.
West of SicilyThrust Belt (permits and applications)
For the six permit area closest to the Tunisian boundary there is a minor effect in terms of area upon only one of the six blocks, being the eastern part of G.R20.NP. Northern continues to evaluate that the prospectivity of the permit area remains untouched, while the interpretation of the Decree still remains unclear as far as awarded permits. No communications have been received from the Ministry of Economic Development or the Ministry of Environment regarding any of the awarded permits.
An application to suspend permits G.R17.NP, G.R18.NP and G.R19.NP has been made by the partners as part of a prudent license management process for the entire West of Sicily Thrust Belt area.
Northern has successfully submitted amendments to reshape application d25G.R-.NP to the extent to which it fell within the zone covered by the Decree, while the Ministry of Economic Development has slightly modified the shape of application d362C.R-.NP to exclude a small area that was intersecting the restricted zone. Application d21G.R-.NP is substantially affected by the restrictions introduced, but as of today no communications have been received from any Ministry regarding this block. The remaining application d26G.R-.NP remains totally unaffected.
Sicily Channel (permits and applications)
There remains no effect upon permit C.R146.NP and the adjacent application d351C.R-.NP, which contain the very large Vesta prospect.
Permit C.R147.NP, which is located north of Pantelleria Island and in close proximity to the recent ADX Energy Lambouka discovery, remains affected by areal extent, but four identified prospects are within areas of the license that remain unaffected and only two prospects fall within the restricted zone. However the interpretation of the Decree still remains unclear as far as awarded permits. No communications have been received from the Ministry of Economic Development or the Ministry of Environment regarding the C.R146.NP and C.R147.NP permits.
Permits C.R146.NP and C.R147.NP have also been successfully suspended at Northern's request as a prudent license management measure.
Closer to the coast of Sicily, the Company has four further applications.
Northern's previous interpretation of the impact on application d358C.R-.EL was that the area of greatest interest would not be materially affected. However the Operator of this application, a subsidiary of Petroceltic International ("Petroceltic"), has recently received a letter from the licensing authority (the Ministry of Economic Development) rejecting this application. Both Northern and Petroceltic disagree with the Ministry of Economic Development's interpretation of aspects of the Decree that have given rise to the rejection decision, and the Operator is considering an appeal against this decision, as is an applicant's statutory right.
Northern has successfully submitted amendments to reshape application d29G.R-.NP to the extent to which it fell within the zone covered by the Decree. Application d347C.R-.NP is substantially affected by the restrictions, but no communication from the Ministry of Economic Development or the Ministry of Environment has been received as of today, and therefore no action has been taken regarding this block. The remaining application d30G.R-.NP remains totally unaffected.
Ionian Sea (applications)
The greatest effect to Northern of the Decree remains in this area, as previously reported.
The new legislation excluded most of the area of two preliminary awards d59F.R-.NP and d64F.R-.NP, and following a period of consultation with the Ministry of Economic Development, Northern has now received notification rejecting these applications. Northern disagrees with the Ministry of Economic Development's interpretation of aspects of the Decree that have given rise to the rejection decision, and has immediately instructed its Italian legal counsel to appeal against these decisions, as is our statutory right.
Two further applications, d63F.R-.NP and d75F.R-.NP are also substantially affected by the restricted zone, but no communication from the Ministry of Economic Development or the Ministry of Environment has been received as yet, and therefore no action has been taken regarding these blocks. Application d77F.R-.NP is marginally affected by the restricted zone (less than 1% of the area of the application), and the area covered by application d78F.R-.NP is completely unaffected. As yet, no communication from the Ministry of Economic Development or the Ministry of Environment has been received. However both these applications are within the area where liquid hydrocarbons exploration has been banned and Northern has therefore submitted work program modifications aimed at refocusing the exploration on these blocks to gas only, in order to progress the application process.
Impact on Permit Awards
Given the lack of advance consultation by the Ministry of Environment with the licensing authority in advance of the initial announcement of this initiative, one of the immediate responses of the licensing authority was, in the absence of legislation, to place a moratorium of the award of new offshore permits. Northern's plans for a 2D seismic survey in Q4 of last year were as a consequence postponed. As of 30 June 2011, one year on, no new offshore permits have been issued since these proposals were first announced.
Derek Musgrove, Managing Director of Northern, commented, "I believe that, Northern has not been badly affected save in the Ionian Sea, which is not one of our most significant core areas. We have always conducted our offshore operations with due consideration to marine parks, sensitive coastal areas and the environment in general, and this will remain a priority.
"One 2D and two 3D seismic surveys are in planning for the second half of 2011 on our Southern Adriatic permits. This will allow not only for the progression of the Rovesti and Giove oil discoveries, which holda combined 53.2 million barrels of probable reserves, but also enable the de-risking of the significant exploration potential within these two permits.
"I am hopeful that further permit awards in the Southern Adriatic may soon be forthcoming. Should this be the case then Northern would expect to start planning additional seismic activity shortly thereafter.
"We continue to focus much of our human resources towards progressing the Southern Adriatic, the West of Sicily Thrust and Fold Belt where we are partnered with Shell, and the Sicily Channel and Ionian Sea areas. Our objective remains to enter into agreements to bring new partners into these areas."
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