Northern Petroleum: City analysts eye significant opportunities regardless of Italy’s near-shore ban

Northern Petroleum (LON:NOP) has got more than enough opportunities to deliver significant value over the next few years regardless of the Italian near-shore drilling ban, according to  Matrix Capital’s oil analyst Vugar Aliyev.

Last July the Italian Minister of Environment Stafania Prestigiacomo proposed a decree to ban drilling for oil within five miles from Italy’s coastline, in reaction to the environmental disaster that was unfolding in the Gulf of Mexico.

This morning, more than a year on, Northern Petroleum released an in-depth update on its operations and gave investors a run-down on the impact, if any, the decree has had on its Italian assets.

Northern effectively repeated its previously stated view that the ban has only had a limited effect on the company’s operations.

“It is disappointing that a year after the decree was first posted, there is still no clarity on the exact impact on various offshore licences in Italy,” the Matrix analyst said in a note to clients.

“However, from Northern’s point of view, the decree doesn’t have a material impact on the company’s core licences in Southern Adriatic and West Sicily, and the company is still planning to commence seismic surveys in the second half of 2011.”

“Overall, the impact on Northern’s core Italian licences is limited,” Aliyev added. “As regards Southern Adriatic, the decree has no impact on the two discovered fields Giove and Rovesti. Slight modifications to the outstanding applications were required, but Northern does not believe there will be any problems with them. 

“There is a minor impact on Northern’s licences in the West of Sicily and the Sicily Channel.” 

He added: “The new decree has the greatest impact on Northern’s licences and applications in the Ionian Sea, however, the company disagrees with the Ministry of Economic Development’s interpretation of certain aspects of the decree and has appealed against one particular decision.”

Matrix repeated a ‘buy’ recommendation for Northern’s shares and it is targeting 110p a share. However Aliyev said that as the market is currently giving very little value for Northern’s exploration licences, he doesn’t expect today’s announcement to have a material impact on the group’s share price.

Elsewhere Northland Capital analyst Andrew McGreary also acknowledged that it has been a turbulent year for Northern.

In a note to clients he pointed out that it share price has been weighed down by the downgrade of its Dutch reserves, announced back in May. He also pointed out that Northern recently had more positive news, that Shell (LON:RDSB) plans to advance the exploration assets in the Sicily Thrust Belt. 

Looking forward to potential catalysts, which could boost the stock, McGeary said: “One positive catalyst could arrive from the permitting for the six Adriatic licence applications (the company has three preliminary awards as well as two full awards covering the discoveries). 

He added: “It seems likely that the development for the existing discoveries would be tied in to exploration of the rest of the portfolio given the depth and complexity of producing there, so this would be a key event. 

“However, the company has been awaiting a decision for some time now and the timing remains difficult to predict.”

In this morning’s statement Northern’s managing director Derek Musgrove said: "I believe that, Northern has not been badly affected save in the Ionian Sea, which is not one of our most significant core areas. 

We have always conducted our offshore operations with due consideration to marine parks, sensitive coastal areas and the environment in general, and this will remain a priority.

"One 2D and two 3D seismic surveys are in planning forthe second half of 2011 on our Southern Adriatic permits. 

“This will allow not only for the progression of the Rovesti and Giove oil discoveries, which holda combined 53.2 million barrels of probable reserves, but also enable the de-risking of the significant exploration potential within thesetwo permits.

"I am hopeful that further permit awards in the Southern Adriatic may soon be forthcoming. Should this be the case then Northern would expect to start planning additional seismic activity shortly thereafter."