Introduction to Independent Resources
The company's business model is highly integrated and distinctive for a new oil and gas enterprise. Its core activities are the development of a major underground gas storage facility, together with upstream assets in Italy and North Africa. The directors believe that the potential for integration and leverage between these storage, exploration and production projects provides the foundation on which to build a profitable, relatively low-risk, high-value business.
The directors believe its assets and strategy lend themselves to select partnerships and acquisitions which would allow the company to capitalize on its base and grow with confidence.
Independent Resources is also seeking to secure additional oil and gas resources in the Mediterranean region and elsewhere in Western Europe, consistent with its asset-backed marketing strategy. Developing and monetizing energy assets require patience and a long-term perspective, but can be very rewarding.
Assets and activities
Rivara underground gas storage facility
Independent Resources plans to construct a large underground storage (UGS) facility by storing natural gas in a deep, naturally fractured reservoir in Italy's Po Valley. The Rivara project has been granted a provisional long-term concession by Italy's Ministry of Economic Development (MSE) which is subject to completion of a satisfactory environmental impact assessment and final approval by MSE. MSE and Italy's gas markets regulator (AEEG) are eager to encourage new gas storage capacity in the country to alleviate the well-documented deficit in this sector of the gas supply chain which is a matter of public interest. The company expects to complete this approval procedure in the near term.
Underground natural gas storage is a common feature of almost all gas delivery systems and has been used for many decades. It is a well-understood process that is environmentally benign and involves a low-impact physical profile.
Rivara's working capacity is estimated at approximately 3.2 billion cubic metres (bcm), which would make it one of the largest gas storage facilities in Italy and in Europe. The company anticipates that it will be developed in a commercial partnership, using long term project finance.
The company currently expects to develop Rivara in stages, with the first stage coming on stream in 2015. The project company, ERG Rivara Storage srl, already includes the 15% equity participation of ERG Power & Gas, the power & gas subsidiary of ERG S.p.A, a leading Italian energy business. Independent Resources has traditionally been open to Joint Ventures as a means to both unlock and add value in the short term.
The key potential benefits of the Rivara storage facility are:
- the large capacity of the structure
- its unique geological features not only allow for faster injection and withdrawal than conventional gas storage facilities, but for constant peak gas deliverability throughout its annual operational cycle
- its potential to go a long way towards closing Italy's current storage deficit and meeting the growing demand for gas storage capacity in Italy
- its geographical location, in-market and close to a trunkline intersection on the transcontinental "gas highway" and likely future gas trading "hub"
- its strategic value in enabling the company to negotiate equity interests in North African gas fields supplying Italy.
Unconventional gas
Reservoir rock for unconventional gas ranges from coal beds which contain gas adsorbed into the solid matrix of coal to organic-rich sedimentary rocks, called carbonaceous shales, where the gas is adsorbed within the organic matter and it is present in the micro-porosity and in the cleat space of this low permeability rock. Unconventional gas collectively includes mainly coal bed methane (cbm) and shale gas. Natural gas production from organic-rich shale formations, known as “shale gas,” is one of the most rapidly expanding trends in onshore US oil and gas exploration and production today. It refers to gas held in relatively tight reservoirs where the permeability of the reservoir rock is low enough to require stimulation to achieve sustained gas flow. The development of technology that has allowed for cost-effective use of horizontal drilling and multi-stage hydraulic fracturing allows an area to be developed with substantially fewer wells than would be needed if vertical wells were used.
Ribolla Basin Shale Gas Play
The Ribolla Basin Shale Gas project was originally proposed as a more limited coal bed methane (CBM) project within the company’s Fiume Bruna license located in Tuscany. The Ribolla gas-saturated coal and shale basin is currently interpreted to extend beyond the Fiume Bruna license and well into the company’s Casoni license to the south. The Fiume Bruna license was awarded to a subsidiary of Independent Resources by the Italian government in June 2005, subject to an environmental impact assessment procedure and final approval by MSE (Ministry of Economic Development), which was subsequently awarded in August 2008. The Casoni exploration license remains subject to its environmental impact assessment procedure which is pending.
The Fiume Bruna Exploration Permit consists of an area totalling 247 km2 located in southern Tuscany, Central Italy, lying entirely onshore. The Permit area contains the second most important coal mining area in Italy, exploited from 1839 to the late 1950’s. The Ribolla coal is a low-sulphur sub-bituminous coal of Miocene age. The Ribolla mine was notorious for the frequent methane inflow and consequent explosions. The mine closed a few years after the large methane explosion of May 1954 that caused 43 casualties, the worse mining disaster ever in Italy. The Casoni Exploration Permit consists of an area totalling 187 km2 and is located just to the south of the Fiume Bruna block, entirely onshore. The prospective area covered by both licenses is characterized by plains and includes cultivated fields.
IRG drilled and cored Italy's first CBM stratigraphic borehole in 2006, and measured gas content and gas adsorption characteristics in coal and carbonaceous shale. The gas was found to be thermogenic. During 2008-2009 Independent recorded a total of 66 km of 2D seismic and drilled FB 1 well in August 2009. In addition, a large number of vintage boreholes, available from the past mining activity, have been used to construct a regional depositional model of the Ribolla basin and beyond. This allowed IRG to map a thick gas-bearing carbonaceous shale sequence, consistently located immediately above and below the main coal seam. The FB 2 well (target zone present at a depth of 340 m, 1100 ft) was subsequently drilled to test the coal’s productivity in the shallow part of the basin, where the coal and the gas shale were found to be saturated with gas. A hydraulic fracture job coupled with ceramic proppant, designed to enhance productivity, was followed by a seven weeks production test.
The Fiume Bruna project has heretofore been described in terms of a relatively shallow Coal Bed Methane (CBM) play but recent analysis, a new depositional model, and well results indicate that this organic-rich basin is more extensive and likely more productive at depths averaging 1,000 meters (3280 ft). The extent of the deeper part of the basin is interpreted by gravity anomalies, and by available offshore seismic sections located immediately to the SW of the Casoni block. This analysis has allowed IRG to map and analyze this laterally-persistent gas-bearing carbonaceous shale sequence, consistently located immediately above and below the main coal seam.
The Casoni and Fiume Bruna blocks cover more than 450 km2 (111,000 acres) and contain more than 140 km2 (35,000 acres) of potentially productive area with a coal plus gas shale sequence at an average depth of 1000 m (3280 ft). The depositional model and the measured data indicates in the entire area an interval of coal and gas shale more than 9 m thick on average, with an average gas content of 4.7 m3/t (152 scf/ton) and an average density of 1.41 g/cm3.
The Company has upgraded its previously-announced gross prospective estimates of in-place gas and recoverable gas to 2C Contingent Resources of 8.6 BCM (300 BCF) and 4.6 BCM (160 BCF), respectively. These figures now include both the Fiume Bruna and Casoni blocks. This represents an improvement of the gross figures, not only due to the addition of the Casoni license area but also the use of a more appropriate average gas content of the rock based on extensive measurements. The upgrade from Prospective Resources, as it was previously reported, to Contingent Resources, arises from successfully flowing natural gas to surface and is pursuant to the SPE-PRMS guidelines which the Company uses for its resource estimates.
Enhanced recovery from coal seams
Independent Resources is initially focusing on conventional coal and shale gas recovery from the Ribolla basin, but the company believes that there may be opportunities in the longer-term to apply Enhanced CBM technology to significantly increase recoverable reserves.
Enhanced CBM recovery involves the injection of CO2 into a coal bed, resulting in the liberation of additional methane which would otherwise remain trapped in the formation.
CO2 sequestration
There are many ways in which CO2 emissions can be reduced, such as improving the efficiency of power plants or by switching from coal to natural gas. These steps alone, however, will not achieve the required reductions in CO2 emissions. It is increasingly recognised internationally that the capture and long-term storage (or "sequestration") of CO2 in suitable geological formations could play an important part in solving this problem. Geological sequestration is able to remove huge volumes of CO2 from the biosphere, while many renewable energy projects reduce emissions by only small amounts.
Independent Resources' technical director Roberto Bencini is a recognized world expert on CO2 sequestration, and the company believes that the geology of the Ribolla basin offers significant commercial potential in the medium and longer term for both enhanced recovery from the coal seams and subsequent CO2 sequestration. CO2 injected into the coal seams would remain attached to the coal after it has helped flush out the methane. Significant volumes of CO2 are emitted from a nearby geothermal power station, and the productive use of this CO2 could enable the company to generate additional revenues from emission credit trading activities.
Tunisian oil and gas acreage
Following a recent farm-out, Independent Resources now holds a 18.97 per cent interest in the Ksar Hadada exploration permit covering an area of 5,608 square kilometres onshore south-east Tunisia. The permit was renewed in April 2008 for a further term of three years. The primary targets on the Ksar Hadada block are Cambro-Ordovician quartzites and the Silurian Acacus Sandstone. Several large oil-prone prospects have been mapped; these are sourced by the Silurian Tanezzuft Shale, which is the main source rock for North Africa and the Middle East. Recent light oil discoveries in the Cambro-Ordovician immediately to the south of the block in the adjacent Remada Sud permit have now validated the potential of the Ksar Hadada prospects. Across the border in Libya very high oil production rates have been achieved on test from multiple Acacus wells, providing added attraction to the Acacus play on Ksar Hadada. In addition, significant shale oil prospectivity remains to be mapped and tested.
As a result of the extensive remapping work undertaken by Independent and Petroceltic International plc over the last few years, existing prospects have been better defined and recently several significant prospects have been identified in the Ksar Hadada permit area - Sidi Toui, Oryx and South Salah in the Cambro-Ordovician quartzites. The Gazelle prospect, in the Silurian Acacus sandstone, has recently commanded additional attention. The Sidi Toui structure is formed by a large three-way dip closed fault block and a subsidiary block, with top seal provided by the overlying Ordovician Jeffara and Silurian Tanezzuft shale. It was originally explored in the 1950s with the limited technology available at that time. Two exploration wells were drilled - the first encountered oil, and the second was dry. Subsequent seismic data showed both wells were poorly located - the first clipped the flank of the structure the second missed it altogether.
In 2004, the current permit operator, Petroceltic, drilled a third well into the Sidi Toui structure, but the rig had to be released to another operator before the well could be fully tested. Subsequent analysis of the well results indicates the presence of a live hydrocarbon column.
Pmean Gross Prospective Recoverable Resource Estimates (MMbbls), prior to execution of the 2010 Drilling Programme, for Sidi Toui (main target, plus subsidiary blocks) are currently estimated to be 161 million barrels of oil. Oil from nearby discovery wells is sweet and light at 42° API.
Oryx, which is structurally similar to Sidi Toui, is estimated to have a potential Pmean recoverable resource of 47 million barrels.
South Salah is estimated to contain a Pmean recoverable resource of 8 million barrels of oil within the permit area.
The current main Acacus prospect, named Gazelle, is estimated to hold Pmean recoverable resources of 31 million barrels oil. In addition to these prospects a further Cambro-Ordovician lead has been identified to the north-west of the Sidi Toui structure and named Kasbah Leguine.
Lastly, given its depth under large areas on the block, the Silurian hot shale is an obvious exploration target for shale-oil, but its extent and potential remains speculative at this stage.
ETAP has approved the farm out of a 51% interest in the exploration permit to Petroasian Energy (Tunisia) Limited, resulting in a carry of up to US$14.5m in favour of the Joint Venture for a defined seismic, drilling, and testing work programme currently underway. 103km of new seismic data have been acquired and processed and two wells are on schedule to be drilled during the summer of 2010. A Joint Venture office has been established in Tunis to support and manage this programme.
Any confirmed discovery on the block would be followed-up by a revised Competent Person report, the objective of which would be to provide updated insights into potential recoverable reserves of hydrocarbons from the permit.
The Italian natural gas market
Italy has the third-largest gas market in Europe, with consumption of 85 billion cubic metres (bcm) in 2007, of which almost a third was used to generate electricity. Although the recent economic slowdown has negatively impacted both volumes and spot pricing, the market is expected to resume growing and this poses special and growing structural challenges to ensure Italy's security of supply and market development.
The International Energy Agency (IEA) estimates that by 2015 gas demand in Italy could reach 100 bcm, with about 40 bcm being consumed in the power sector and 90 per cent of all new generating capacity being gas-fired. Italy's MSE has a growth scenario approaching 108 bcm in 2015. At the same time, Italian domestic gas production continues to decline and imports are expected to account for more than 90 per cent of consumption by 2015.
Gas consumption is mainly concentrated in the northern half of the country, with two thirds being consumed in the winter months. Italy's gas storage infrastructure, while extensive, has come under increasing strain as a result of this seasonality, demand growth and dependence on imports, and the country experienced its first major "gas blackout" during a spell of severe cold weather in March 2006.
In addition, despite some efforts to change this, Italy’s gas market remains structurally fairly primitive, with a relatively small, non-diversified and static spot market. Ample commercial storage has a tendency to foster vibrant and transparent gas markets involving many participants and this is one aspect for which the gas regulator is providing incentives to change.
Independent Resources' Rivara project is the country's largest potential new storage project, and could play a key strategic and commercial role in solving Italy's gas deliverability constraints, security of supply, and market development.
Commercial opportunities from gas storage
Gas storage to meet additional demand during cold weather generally takes two forms: seasonal storage enables delivery of a large volume of gas over an extended period of time to ensure supply/demand matching throughout the winter; while peak-shaving storage makes it possible to deliver extra gas over a short period of time to cover needle peaks.
Storage can also provide a cost-effective alternative to further investment in gas transportation facilities. Installing peak-shaving storage capacity at the extremities of the existing pipeline system reduces the need for additional or larger pipelines.
Research indicates that the introduction of supply competition along with unbundling of pipeline transport in the US, the UK and other countries has led to the development of a significant commercial role for gas storage. Storage facilities are being increasingly used to generate revenue from location- and time-based arbitrage, for example. Storage users take advantage of swings in spot prices by selling gas at high prices and buying at low prices.
These transactions benefit market participants and consumers through greater availability and more efficient pricing of natural gas. A similar unbundling of gas-related activities is now under way in Italy following the enactment of the Letta Decree in 2000.
Independent Resources believes that the Rivara underground gas storage facility will open up a range of valuable commercial opportunities including gas balancing, gas trading and mitigating long-term take-or-pay constraints, as well as enhancing the country's security of gas supplies.
With a potential capacity of 3.2 bcm, Rivara could become one of Italy's largest and highest-performing gas storage facilities that would complement the country's current and projected future storage supply. It will be capable of storing both the company's own production and that of other gas producers and suppliers.
As well as being a major strategic asset in its own right, Rivara could also provide important leverage for the acquisition of additional value-adding E&P assets in the Mediterranean region as it provides a vital key to the high-value Italian gas market for producers outside Italy.
The management team
The directors of Independent Resources have extensive and complementary experience in both technical and commercial aspects of the energy industry - particularly in the Mediterranean region. Key areas of expertise represented on the board include oil and gas exploration and development, reservoir management, gas trading, carbon dioxide sequestration, and project financing.
Grayson Nash, Executive Chairman
Grayson Nash (1964), BSFS, MBA is a specialist in the commercial and financial aspects of energy markets. He was responsible for managing acquisition programmes and establishing joint ventures on behalf of Mirant Corporation (an NYSE-listed company) in Europe, and for long-term energy trading with Southern Company Energy Marketing in Atlanta. As Commercial Director of Parsons & Whittemore, New York, he was involved in investment origination and execution projects in Europe and Africa on behalf of an in-house private equity fund. He has worked in the US, France, Hong Kong and China, and is now based in Milan.
Roberto Bencini, Technical Director
Dr Roberto Bencini (1955), FGS is a petroleum geologist and explorationist with senior technical experience in Italy and Africa. In 1985 he joined Lasmo plc and was involved in exploration and production programmes in Italy, Algeria, Libya and other parts of North Africa. He served in the Lasmo Rome office for many years, eventually becoming Chief Geologist and later Business Development Adviser. Mr Bencini was Technical Integrator for the Weyburn CO2 storage project in Canada - the largest research project of its kind in the world - is on the roll of oil and gas and CO2 storage Experts of the European Commission, and served as CO2 storage adviser to the President of INGV.
He is a member of the Society of Petroleum Engineers, the Geological Society of London (Chartered Geologist) and the American Association of Petroleum Geologists where he has recently been Team Leader, Italy, and Delegate, European Region. He is based in Rome.
Tim James, Financial Director
Tim James (1948), MBA, FCA has extensive experience in arranging multi-million dollar project financing. His experience spans many countries including France, Algeria, Portugal and the US. He has held board-level positions in various companies including Parsons and Whittemore (France) SA, and Porter & Haylett Ltd and First Choice Marine Inland Waterways Division in the UK.
Alan Thomas, Non-executive Director
Alan Thomas (1948) is a Chartered Accountant with over 30 years experience in the oil and gas sector, including more than 15 years at stockbroker Kitcat & Aitken as partner responsible for oil and gas sector research and 9 years in senior management positions in Kuwait Petroleum International. He was Finance Director of Wham Energy plc until its acquisition by Venture Production plc and was appointed Finance Director of Bramlin Ltd, an AIM natural gas company, in 2007. He has held several non-executive directorships over the years, mainly in the oil and gas sector. He is currently based in the UK.