Mitsui & Co. acquires a part of Total's Interest in an onshore oil field in Italy
Mitsui & Co., Ltd. has reached an agreement with Total E&P Italia S.p.A ("Total"), a group company of Total S.A, to acquire Total E&P Energia Italia S.r.l which owns a 25% participating interest in the Tempa Rossa onshore oil field in the Gorgoglione concession in Italy through its newly established subsidiary Mitsui E&P Italia A S.r.l ("MEPIT"), the company reports. The sale and purchase agreement was signed on March 18, 2013. The transaction will be completed after fulfilling certain conditions, including the approval of the Italian government. Total will remain as operator with a 50% participating interest.
Tempa Rossa is an onshore oil field located in the Potenza province of Italy's southern state Basilicata. Its original oil in place is estimated to range between 6 to 10 billion barrels, which makes it the largest proved and undeveloped onshore oil field in Western Europe. The oil storage layer to be developed is one of the thickest in the world, comprising about 2,000m. To date, six exploratory wells have been drilled, followed by long-term production tests, which all confirmed good level of productivity. Total has been the operator of this concession since 2002. In July 2012, it has declared a final investment decision together with its partner Royal Dutch Shell plc ("Shell") and development work has been commenced.
The total development costs of the concession (100% of the project) are estimated to be approximately 1.6 billion Euros (approx. 200 billion Yen, including sunk cost). Production of crude oil and LPG is planned to commence in 2016. In addition to a lump sum consideration, MEPIT will bear its share of the development costs based on its participating interest incurred after the Effective Date. The recoverable reserves of the entire project are estimated to be approximately 440 million barrels of oil equivalent, with an estimated peak daily production rate of approximately 50,000 barrels of crude oil and approximately 240 metric tons of LPG. MEPIT's corresponding share is anticipated to be recoverable reserves of approximately 110 million barrels of oil equivalent, and production of approximately 13,000 barrels of oil equivalent per day at peak production.
The project is Mitsui's first acquisition of an interest in natural resources in Italy. It is part of the company's plan to acquire crude oil and natural gas assets in the European region, following the participation into the Polish shale gas exploration activity in 2011 and the acquisition of oil and gas producing assets in the U.K. North Sea in 2012. While the decline in production rate for an oil field tends to be relatively fast in general, this project is expected to continue production and generate income for over 50 years and is expected to become a core asset in Mitsui's energy business in the region. Given its huge original oil in place, there is also upside potential in reserves by improving the oil recovery rate further in the future. Furthermore, Mitsui expects to further build upon the existing strong relationship with Total through this project.