Introduction to Independent Resources
Independent Resources plc was incorporated in June 2005 in the UK to consolidate a number of promising oil and gas projects that the founding directors -- Grayson Nash, Stephen Staley and Roberto Bencini - have been developing for several years.
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 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 2013.
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, 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.
Independent Resources has also filed an application for a second potential gas storage facility at Canton in northern Italy, with a nominal capacity of 1.5 bcm. This application awaits completion of the feasibility studies at Rivara. No other parties are entitled to compete for the Canton facility in the meantime, and provided the commercial viability of Rivara is established, Canton could prove to be an additional valuable asset for the company.
Coal Bed Methane
The proposed Fiume Bruna coal bed methane (CBM) project is located in Tuscany. It 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.
CBM technology is a method of producing commercial volumes of natural gas from coal deposits. CBM extraction is currently less common in Europe than it is in the United States, where CBM accounted for over 7% of all the natural gas produced in 2000 and 10% in 2005. To retrieve the methane which is absorbed within the coal, wells are drilled into the seam, and water contained within cracks in the coal seam is pumped out. This creates a pressure differential between the bottom of the wells and the surface, allowing the gas to desorb and flow towards the wells where the methane is extracted, dehydrated, compressed and piped to market.
The Fiume Bruna permit area includes the village of Ribolla, where coal was mined for more than a century. After a peak in production of 270,000 tonnes per year during the Second World War, it declined until 1954 when the mine was abandoned following a major explosion.
Potential recoverable gas reserves from Fiume Bruna are estimated at 92 BCF or 2.63 BCM. The Rivara UGS facility will give the gas produced from Fiume Bruna valuable added options including storing it there until winter when gas prices are typically higher.
Independent drilled Italy's first CBM well in 2006/7, is planning to acquire new seismic data, and drill the first of more wells later this year. The company has received the relevant Regional environmental approvals to allow it to execute the next phase of its planned work programme, and shortly expects confirmation of this by MSE.
Enhanced CBM recovery
Independent Resources is initially focusing on conventional CBM recovery at Fiume Bruna, but the company believes that there may be opportunities in the longer-term to apply Enhanced CBM technology to increase recoverable reserves by a further 62 bcf or 1.8 bcm.
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 world expert on CO2 sequestration, and the company believes that the geology of Fiume Bruna offers significant commercial potential in the medium and longer term for both enhanced CBM recovery and 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 would enable the company to generate additional revenues from emission credit trading activities.
Tunisian oil and gas acreage
Independent Resources holds a 40 per cent interest in the Ksar Hadada exploration permit covering an area of approximately 5,600 square kilometres onshore south-east Tunisia. The permit was renewed in April 2008 for a further term of three years. The main geological targets are fractured Cambro-Ordovician quartzite reservoirs, which have proven to be very productive in Tunisia and in neighbouring Libya and Algeria where several large oil and gas fields have been discovered. In addition the Silurian Acacus Sandstone, highly productive across the Libyan border, is believed to be prospective in the permit area.
As a result of the extensive remapping work undertaken by Independent over the last months existing prospects have been better defined and several significant prospects have been identified in the Ksar Hadada permit area - Sidi Toui, Oryx and South Salah in the Cambro-Ordovicain and two Acacus prospects. 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. Recent analysis of the well results indicates the presence of a live hydrocarbon column.
Recoverable volumes for Sidi Toui (main plus subsidiary blocks) are estimated to be 166 million barrels of oil plus 114 billion cubic feet of gas, both Pmean.
Oryx, which is structurally similar to Sidi Toui, is estimated to have a potential Pmean recoverable resource of 59 million barrels of oil and 40 billion cubic feet of gas. Oil from nearby wells is sweet and light at 42° API.
South Salah is estimated to contain a recoverable Pmean resource of 25 million barrels of oil plus 17 billion cubic feet of gas in the permit area.
The two Acacus prospects, named Antelope and Gazelle, are estimated to respectively hold recoverable resources of 69 million barrels oil plus 46 billion cubic feet gas and 30 million barrels oil plus 20 billion cubic feet of gas.
In addition to these prospects a further substantial Cambro-Ordovician lead has been identified and named Kasbah Leguine.
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. The market continues to grow and this poses special and growing challenges to ensure Italy's security of supply.
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, domestic production is declining and imports are expected to account for more than 90 per cent of consumption by 2015.
Gas consumption is mainly concentrated in the north of the country, with two thirds being consumed in the winter months. Italy's gas storage infrastructure, while extensive, is coming 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.
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 and security of supply.
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 operators 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 take-or-pay constraint, 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, BSFS, MBA (43) 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.
Stephen Staley, Managing Director
Dr Stephen Staley, FGS, MBA (48) has a strong track-record as a petroleum geophysicist and an energy developer. In 1986 he joined Conoco and worked on a number of important European exploration, development and production projects. Later, as a Vice President of Cinergy Global Power, he led the successful acquisition of major upstream gas assets and utilities, and the development and construction of major energy infrastructure projects internationally. He is the founder and Managing Director of Derwent Resources Ltd, a UK-based energy project management and consulting company, and built and marketed Derwent's own oil and gas portfolio to a UK-listed oil company. He has provided commercial and technical advice to energy companies active in North Africa, sub-Saharan Africa and China, including Petroceltic International.
He is a Fellow of the Geological Society and a member of the Petroleum Exploration Society of Great Britain, the European Association of Geoscientists & Engineers, the Association of MBAs and The Arctic Club. He co-led several scientific expeditions to the high Arctic where he studied local geology and the effects of global warming on glacier systems.
Roberto Bencini, Technical Director
Dr Roberto Bencini, FGS (52) 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, MBA, FCA (60) 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. He is based in Rome.
Alan Thomas, Non-executive Director
Alan Thomas 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.