--To undertake a joint technical study to define the area of a natural gas field (the "Field") that appears to extend from Grove's San Marco Permit and Casale Cocchi Application into ENI's San Potitio Concession. The Field will be known as Longanesi; --Concurrently with completion and agreement of the study negotiate and execute a Pre Unification Agreement; and --Proceed with unification of the Field.
The joint technical study is scheduled to start at ENI's offices in Milan on 8 January 2007 and the technical teams will endeavor to complete the study within one month and thereafter prepare a report for each Party's respective board approval. The study will define the area of the Field, the volume of gas in place and provisional allocations of equity interests. In the event that the technical teams do not agree on these matters an independent expert will be engaged to make the necessary determinations, including each Party's initial participating interest.
Timing of first production will, primarily, be a function of when the New Concession application and field development plan is lodged and approved pursuant to Italian law and respective corporate approvals as required by each Party. It has been agreed that ENI will be appointed Operator and will be responsible for the approval and regulatory process and that each Party will have the right to market its own gas.
Development of the Abbadesse/Longanesi field has been delayed because Italian law requires that natural resources be exploited in the most efficient manner; resulting in the Italian Ministry of Economic Development directing ENI and Grove to pursue joint development of their respective gas reserves.
Grove's Abbadesse-1 discovery well was completed as a production well in 2005. Testing of Abbadesse-1 recorded aggregate gas flow rates in excess of 15 million standard cubic feet per day or approximately 2,560 barrels of oil equivalent per day on the basis of a 6,000:1 gas to oil conversion ratio. ENI's Longanesi-1 well was drilled in January 2006 approximately 1,100 meters to the west of the Abbadesse-1 well and achieved similar test results from common multiple zones appearing to confirm the extension of the Abbadesse gas accumulation into ENI's San Potito license. It is believed that this is one of the most significant finds within the Po Valley in recent years.
The wells are within 10 kilometers of the existing San Potito gas plant and infrastructure. Initial development planning envisages modernization of and upgrades to part of the San Potito gas plant and construction of new pipeline infrastructure connecting the existing completed wells and future wells to the gas plant, which it is believed, will avoid delays that would otherwise be required to permit and build a new gas plant.
While the New Concession will carve out a portion of the San Marco Permit and the Casale Cocchi Application, Grove will continue to maintain a 100% interest in the rights and obligations of the balance of the area, which should still be in excess of 70,000 acres surrounded by approximately 1 Tcf of gas discovered by ENI.
Wolfgang Zimmer, President, stated: "Production from the Abbadesse/Longanesi field will be the most significant achievement in Grove's formative years. Cash generated from Abbadesse will provide a solid financial base to fund ongoing exploration programs in Europe and the Mediterranean Margin as well as to mature our other important projects. Grove expects to realize multiple benefits from co-operation with ENI including economies of scale, greater purchasing power, experience and expertise as an Italian operator and most importantly an optimized development plan using existing infrastructure."
Glenn Whiddon, CEO, commented: "This agreement is a major milestone for Grove and having ENI as an operator is a major plus. Whilst the delay in approval has been unfortunate; it is due to the significance of the discovery and the fact that it straddles three concessions. The agreement with ENI establishes a procedure for resolving these issues and we look forward to our partnership going forward."
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