ADX locks in strategic high-quality Italian gas exploration permit

Seven years after first revealing its plan to chase quality gas exploration opportunities in the Sicily Channel, off the western tip of Sicily in Italy, ADX Energy has been awarded a long-awaited exploration permit, which was stalled because of a moratorium on issuing new exploration leases.

Through a 100 per cent-owned Italian subsidiary Audax Energy, ADX has accepted the exploration permit, covering 346 square kilometres in the highly prospective Sicily Channel.

The Italian Ministry of Environment and Energy Security approved the permit under a new condition allowing only for gas exploration and after running health checks on Audax’s bank balance, and technical and organisational nous.

A formal agreement is expected by March after consultations with key local authorities.

According to the company’s analysis of existing 2D seismic data, the permit offers an impressive prospective resource of 369 billion cubic feet (Bcf) of gas spread across five promising targets. With some of these targets featuring stacked reservoirs with excellent porosity, the project suggests a compelling “bang for buck” scenario of low-cost exploration coupled with the potential for significant returns.

Historical drilling in the area, including wells by energy giants ENI and Shell, have confirmed the presence of “sweet” natural gas in shallow reservoirs ranging from 700 metres to 1300 metres deep.

The permit is close to existing proven gas fields and provides potential access to the Transmed pipeline running from North Africa to its point of entry at Mazara Del Vello in western Sicily.

ADX chief executive officer Paul Fink The government’s decision to focus on natural gas production has come as a welcome development for ADX. We are also encouraged about the potential of the d363C.R–.AX licence to deliver significant future gas resources, especially in light of the recent gas price developments and considering Italy is the second largest gas consumer in Europe after Germany.

Although the company’s current work to ratify the permit under the new gas-only condition restarted in 2022, the saga reaches back further.

In efforts to reduce carbon emissions in 2019, the Italian government suspended all onshore and offshore exploration activities for hydrocarbons, including ADX’s permit which had been awarded a year earlier.

But with the advent of European sanctions imposed on Russian hydrocarbons after its invasion of Ukraine, several European countries were forced to look for alternative sources of gas such as LNG imports from the United Arab Emirates and the United States.

Against a backdrop of ever-growing energy demands, Italy’s new pro-gas development and centre-right government led by Prime Minister Georgia Melone was equally keen to bolster its energy security and, in particular, pursue an opportunity for home-grown clean gas - which subsequently led to a decision to drop the moratorium on oil and gas exploration.

Clean gas is a hydrocarbon gas that limits carbon dioxide and methane emissions under higher European Union environmental standards and attracts higher gas prices.

Italy’s energy landscape has shifted since 2022, favouring domestic gas exploration projects.

ADX says the good tax terms, when coupled with high gas prices in Europe currently at €50(A$83) per megawatt, make the project economics appealing. These terms include a modest 10 per cent royalty and a 29 per cent effective tax rate.

Recent success at Italian energy-giant ENI’s nearby Argo-Cassiopea gas project underscores the region’s prospectivity. Two fields are now producing gas with almost 360Bcf in reserves sitting as stacked reservoirs in similar Miocene-Pliocene sands.

Moving forward, ADX plans to acquire some historical 2D seismic data from ENI which covers its permit before investing in more detailed reprocessing and new 3D surveys to harden up resource estimates and pinpoint additional prospects.

Joining the ranks of mega oil companies such as ENI, Shell and Total in tapping into Italy’s untapped energy resources, ADX is opening up a new frontier for itself in Europe to complement its existing and highly successful gas-producing fields in Upper Austria.

As Europe struggles to build and stabilise energy security after the Russian invasion of Ukraine, the Sicily Channel project appears to offer an important opportunity for ADX to deliver a cleaner, locally sourced gas supply.

Is your ASX-listed company doing something interesting? Contact: matt.birney@wanews.com.au