By Stewart Dalby
In March we wrote that the AIM quoted E & P Northern Petroleum appeared to have pulled off a coup by bagging Shell for a farm in for one of its Italian permits. We added at the time the caution that, of course, the deal was dependent on Italian approvals, which never seem to come quickly for Northern; or for that matter other foreign operators in Italy.
Moreover, it is not the first time Northern has struck farm-out terms with Shell in Italy, which proved abortive. Recently, however, earlier in May, Northern announced that the deal had gone through. This brought some welcome news flow to a portfolio that in Italy had lain dormant for too long. It did no harm to the share price either. The shares in the company rose 11 per cent on day of the announcement to 6p.
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”.
Since the news shares the shares have come back to close at 4.75p last Friday. The climate fort small cap oil and gas E&Ps is still poor, despite the recent oil price rise. But 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.