Prospex Energy PLC, the AIM quoted investment company focused on European gas and power projects, is pleased to provide an update from the Selva Malvezzi production concession in Italy following the announcements made at the AGM of Po Valley Energy Limited ("PVE") (ASX: PVE) on 29 May 2024.
Po Valley Operations Pty Limited ("PVO"), a wholly owned subsidiary of PVE is the operator of the Selva Malvezzi Production Concession, and has a 63% working interest, while Prospex has the remaining 37% working interest.
Q1/Q2 2024 Highlights
· The Podere Maiar-1 well at Selva ("PM-1") has continued to perform consistently during Q1/Q2 2024, reaching gross cumulative production of 20.61 MMscm (7.63 MMscm net to Prospex) and generating revenue of €2.6 million for Prospex by 26 May 2024.
· Average daily gross production from PM-1 remains steady at a rate of 78,000 to 80,000 scm per day.
· Gas sold at a premium to the Title Transfer Facility ("TTF") gas price generates more than £6,100 per day in free cash flow (net to Prospex).
· Lifting of the inherent hydrocarbon exploration and extraction restrictions on the Plan for the Sustainable Energy Transition of Eligible Areas ("PiTESAI") has led to increased access for activities on the Selva Malvezzi Concession.
· East Selva may now be drilled from an optimum location, no longer requiring a highly deviated well thereby reducing risk and cost.
· Improved regulatory environment and geopolitical landscape in Italy is leading to a reform of the permitting process and schedules now resulting in the application to permit four wells on the concession targeting increased future revenues.
Mark Routh, Prospex's CEO, commented:
"In the first half of this year we have seen a significant change in the regulatory environment in Italy. The annulment of the areas which were restricted for hydrocarbon exploration and extraction activities (the "PiTESAI") has resulted in a reform of the permitting process and the related environmental impact assessments. Another benefit of the relaxation of the 'PiTESAI' restricted areas is that the East Selva prospect may now be drilled from an optimum location no longer requiring a highly deviated well, meaning lower cost and lower risk.
"We will continue to support the operator as it advances activities to facilitate the development drilling programmes at Selva Malvezzi with the target of converting the contingent resources at Selva North and Selva South and the prospective resources at East Selva and Riccardina into proved, developed and producing reserves in the near term."
Selva Malvezzi Production Concession
Gross gas production from the Selva field (PM-1 gas well) in the Selva Malvezzi Production Concession reached a cumulative 9.8 million standard cubic metres ("MMscm") (3.6 MMscm net to Prospex) by 31 December 2023, generating revenue of €1.3 million for Prospex in 2023. By 26 May 2024 this has increased to a cumulative 20.61 MMscm (7.63 MMscm net), generating revenue of €2.6 million for Prospex. After a period of testing and commissioning, the PM-1 well is now consistently producing gas at a steady rate of 78,000 to 80,000 scm per day (gross).
The TTF gas price to which the gas sales agreement with BP Gas Marketing is linked, has risen because of external factors. The Joint Venture sells the gas at a premium to the quoted TTF price and is currently generating over £6,100 per day in free cash flow (net to Prospex).
There has been a significant shift in the political and regulatory landscape in Italy. In the first quarter of 2024 the Italian government's Energy Decree, designed to encourage Italy's energy security, was introduced. This included measures to strengthen the security of natural gas supply which is highly encouraging for the domestic gas production sector. The Ministry of Ecological Transition was renamed to the Ministry of Environment and Energy Security in October 2022. This has all resulted in one of the most favourable government and regulatory environments in Italy ever seen, as the country aims to reduce its reliance on Russian natural gas and imports.
Also in the first quarter of 2024, the Regional Administrative Court of Rome annulled the PiTESAI. The former PiTESAI, restricted hydrocarbon exploration and extraction activities in Italy and its repeal is anticipated to improve further drilling opportunities at Selva Malvezzi. Whilst this annulment created a period of uncertainty in the first half of 2024, the new conditions have created possibilities to fast-track the approvals for all of the discoveries and prospects in Selva Malvezzi, which could ultimately bring more wells into production more quickly than originally envisaged. PVO's team in Italy is working closely with the Ministry in Rome to understand and assess these new opportunities for the concession.
These developments have caused the operator to reassess the optimal outcome for the Joint Venture in the next few years by capitalising on the window of opportunity created by the current Italian geopolitical environment and higher gas prices.
As a result, instead of seeking Ministry approval under the former PiTESAI to drill the smaller Selva North and South fields from a common pad following a limited 2D seismic campaign, the operator is now actively pursuing more ambitious plans to submit applications to drill the larger East Selva and Riccardina prospects as well as Selva North and Selva South. In addition, the East Selva prospect may now be drilled from an optimum location no longer requiring a highly deviated well. The Ministerial Authorities have advised to file all Environmental Impact Assessments on the concession at the same time, so applying now to drill all four wells is expected to avoid delays.
By including the permit applications to drill the East Selva and Riccardina prospects at the same time as Selva North and South, the end result should ultimately be increased cashflow from the concession.