By Amy McLellan
Shares in Northern Petroleum surged more than 10 per cent in Thursday morning trading after the AIM-quoted E&P announced it had farmed out one of its Italian permits to Shell. This is a coup for the AIM small cap – although long time holders will know it’s not the first time Northern has struck farm-out terms with Shell in Italy – and brings some welcome newsflow to a portfolio that has lain dormant for far too long.
Unlike the previous deal with Shell, which concerned one of Northern’s permits off Sicily, a transaction that came to naught when the supergiant declined to drill an exploration well, this farm-out involves the onshore Cascina Alberto permit in the prolific Po Valley. Cascina Alberto was formally awarded to Northern last summer after many years of being stalled at the application stage.
The involvement of Shell is telling: this was an ex-Eni project that attracted Enterprise Oil as farm-in partner in 2000 with Enterprise interested in the Gattinara prospect that it saw as a potential look-alike of the large Villafortuna-Trecate oilfield some 25 km to the southeast. Shell, of course, later bought up Enterprise Oil and will consequently have insight into the thinking behind the prospectivity of these lands.
Northern has agreed to farm-out an 80 per cent stake in return for a useful US$850,000 cash payment and an exploration carry worth up to US$54 million. Shell will carry Northern through a seismic shoot up to US$4 million and an exploration well up to a cap of US$50 million. Shell will also retain a pre-emptive right over Northern’s remaining interest in the Cascina Alberto permit should there be corporate or asset deals – a sign of the times.
Northern’s CEO Keith Bush hailed the deal, saying it “demonstrates the value inherent in Northern’s Italian asset portfolio”.
Of course, the deal is dependent on Italian approvals, which never seem to come quickly for Northern. The hope is this gets signed off quickly – and here the presence of Shell may assist – so £5 million market cap Northern gets its cash injection and this project can start to build momentum on the ground.
Investors will now be hoping that this deal is followed by other farm-outs across the company’s sizeable portfolio in Italy. There is a lot of potential here – particularly in the Adriatic – but Northern has struggled to make traction: perhaps 2015 will be the year that turns around.Shares in the company were up 11 per cent at six pence by mid-day.