--Continued progress with permitting applications at Rivara --Positive early results from Fiume Bruna --New prospect mapped at Ksar Hadada --Interim loss before taxation: £296,984 (2006: £259,876) --Liquid resources at March 31, 2007: £3.29 million
Statement of Executive Chairman Grayson Nash:
In reporting the progress made by Independent Resources Group in the six months to March 31, 2007, I would like to begin by recalling the severe gas supply problems that have in recent winters afflicted the Italian energy sector. Shareholders are already well aware that with its planned underground storage facility (UGS) at Rivara in the Po Valley, Independent Resources has positioned itself to become a key player in Italy's gas storage market. The painful winter disruptions to gas supplies experienced by Italian consumers have served to underscore how crucial this role is set to become.
During the period, the Company continued to make steady advances towards the planned development of Rivara, and also moved forward with its separate coal bed methane work at Fiume Bruna near the town of Grosseto on the north-western coast. We can also report good progress in Tunisia, where we are managing the early stages of an exploration reappraisal for our license partners at Ksar Hadada – close to entry points on the Trans-Mediterranean and Greenstream gas pipelines.
The work undertaken by your Board during the period was set in the twin context of both the urgent demand for new gas storage facilities and supplies in Italy, and the equal need to comply with Italy's stringent environmental and planning regulations. The Company has spent a great deal of time and effort ensuring that it acts to deliver its key Italian projects in a timely fashion. At the same time, we are also paying full attention to the complexities of Italy's regulatory and political systems, at all levels of government.
Italy's Ministry for Economic Development has identified the lack of sufficient gas storage as one of the primary reasons for the dramatic supply problems of recent winters. The system found itself under duress as a result of its inability to respond to what are now becoming predictable surges in winter demand. Past emergency measures put into effect by the Government to maintain the generation of electric power have included the combustion of highly-polluting heavy fuel-oil. Yet even then, the country consumed more than 20% of its vital strategic gas reserves - reserves that are intended to cope with a catastrophic system failure rather than a cold winter.
The requirement for additional storage capacity is clear enough in that context alone. The most recent gas survey from the International Energy Association, Security in a Globalizing Market to 2015, also separately makes a very compelling case for the rigidities that characterize Italy's gas market to continue over the medium term at least. The country's traditionally high energy prices reflect a scarcity of meaningful price competition, an incompletely-liberalized market structure, and persistent infrastructural bottlenecks all along the gas supply chain. Over 80% of Italy's gas travels several thousand kilometers to reach markets that are now heavily dependent on gas for heating and power. A healthily-balanced gas supply system, such as that in the United States, provides gas storage capacity equivalent to around 20% of consumption. Yet Italy's dominant gas storage operator Stogit, a division of ENI, reported in early April that while demand for Italian storage capacity had risen to 14.2 billion cubic meters (bcm), the amount actually available was only around 8.4 bcm. Even with the planned development of IRG's Rivara project, which is expected to provide working gas capacity of up to 3.2 bcm, the Italian system will remain a long way from the ideal target of 20% coverage. The prospect of prolonged and acute infrastructural stress is becoming increasingly real.
Against this backdrop, we are continuing to steer the Rivara UGS through the complex "VIA" permitting process, striving to ensure that the project meets the requirements of all of the stakeholders involved, at local, regional and national level. The VIA is similar in many ways to the UK's planning process and is designed to create public exposure as a means of ensuring that planned projects are compliant with environmental and regulatory requirements and viable within those parameters. It is a process that is inevitably time consuming, but one that is taken very seriously by the Directors as part of a procedure that we believe is not only necessary, but good and just. As a result, there has been some slippage in our planned timing. We remain confident, however, that our progress towards gaining the permits remains on course. As the press reported in February, Government representatives have indicated publicly that a decision would be made this year. We will be providing an update on progress later in the year.
We remain equally confident that Rivara is set to become a vital and reliable centerpiece for Italy's security of supply. Not only does it sit at the central point in the Italian gas system, it is also located at what is likely to become the hub of the Southern European "gas motorway." The world-class turnkey contractors we expect to engage to develop the project have indicated they will probably need five years to develop a commercial operation from the end of the permitting phase. While the Board would expect to reduce that time, we accept it as a responsible estimate at this stage.
Throughout the half year, the Company also continued – as is still the case – to receive approaches from major integrated and non-integrated gas majors keen to become key participants in Rivara. We will continue to review such offers and are not excluding the possibility of an early-stage strategic partnership. The Company recognizes that a strategic partner would enhance its own resources, freeing it to allocate them more evenly across all of its projects.
It is also pleasing to report encouraging progress at the site of our other current Italian project, the coal bed methane (CBM) prospect at Fiume Bruna near the town of Grosseto. Following a successful stratigraphic drilling, coring and sampling program during 2006, the analysis of the samples obtained is nearly complete. On the basis of the data collected and interpreted to date, we are confident that the project may prove commercially attractive. The indications are that in-place CBM resources are in the range of 107 to 215 billion cubic feet. This is in line with our expectations at the time of bringing Independent Resources to AIM.
Just as at Rivara, moreover, we have received approaches both from potential trade partners and financial institutions interested in financing the development of Fiume Bruna, and we continue to consider the options being offered to us.
Also in line with our policy at Rivara, we are taking a careful approach to local environmental and planning requirements, and have already filed an environmental impact assessment under the appropriate environmental review process. At this stage, this is a significantly lighter requirement than at Rivara since the application covers only the first seismic and the next set of wells. Even so, we remain fully aware of the need to meet the required procedures at each step of the way, and we are hoping to win this important initial approval very soon. With that in mind, we are now planning for the acquisition of new seismic data and the drilling of the next well on the permit, so that we can move ahead without delay as soon as the Exploration Permit is signed. Our intention is to put the new well on a long-term flow test before drilling any follow-on wells.
At Ksar Hadada, our 7,000 square kilometer exploration project in Tunisia, we continue working on the re-mapping and re-interpretation of the hydrocarbon potential on behalf of our license partners. It is again pleasing to announce that this has so far resulted in the identification of an additional major prospect, bringing to four the number now delineated. We are hopeful that, with work still underway, others may be added to this tally. We are particularly encouraged by the fact that all of the prospects identified to date have producing analogues both in Tunisia and in nearby areas of Libya.
We have also over the past few months carried out a successful seismic and well data swap with Storm Ventures, the operator of the license area to the south of Ksar Hadada, and believe this has greatly enhanced our ability to map some of our major prospects.
As with our Italian projects, we remain aware of the potential value of partnerships, and are currently in discussions on a potential farm-in to our interest. If it proceeds, a multi-well drilling campaign would be expected to form part of the associated work program and could commence toward the end of this year.
In summary, despite the slippages created by our necessary involvement in the Italian permitting process at Rivara, the Board believes the advances achieved across our range of projects during the half-year represent important progress towards the realization of our commercial potential. We shall during the course of the second half continue to raise our profile within the London investment community as a company operating in the right sector in the right place at the right time. We also look forward with confidence to presenting shareholders with further positive news during the months ahead.
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