Oil Fields Under Olive Groves Offer Italy Economic Boost

May 30 (Bloomberg) -- Ruggero Gheller, head of southern Italy at Eni SpA, talks about the potential output from Europe's biggest onshore crude oil fields in the Basilicata province. He spoke May 17 at the Val d'Agri oil field with Bloomberg's Alessandra Migliaccio. (Source: Bloomberg)

Underneath the groves that make southern Italy the world’s second-largest olive oil producer, geologists have found a more lucrative liquid: Europe’s biggest onshore crude oil fields.

Basilicata, a mountainous, sparsely populated province that sits in the arch of Italy’s boot, holds more than 1 billion barrels, offering the country a weapon to fight a two-year recession. Rome-based Eni SpA (ENI) and France’s Total SA (FP) plan to double production raising Italy’s output to almost 200,000 barrels a day, making the country Europe’s third-largest oil producer behind the U.K. and Norway.

Since the fields started production in the 1990s, their development has been held back by environmental campaigns and bureaucratic delays. Those impediments are falling away, analyst Carlo Stagnaro said, because the priority for Italy’s government is kickstarting an economy that’s shrunk for six straight quarters and where more than 35 percent of young people are unemployed.

“This is a giant field, so there’s huge potential here,” Claudio Descalzi, Eni’s head of exploration and production and president of Italy’s Oil and Mining Industry Association said in an interview. Italy spends as much as 60 billion euros ($78 billion) on oil and boosting production can save about 5 billion euros and create around 20,000 jobs, he said.

Photographer: Alessandra Migliaccio/Bloomberg

An oil rig, operated by Eni SpA, stands in the Val d'Agri valley in Basilicata, Italy, on May 16, 2013. Close

An oil rig, operated by Eni SpA, stands in the Val d'Agri valley in Basilicata, Italy, on May 16, 2013.

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Photographer: Alessandra Migliaccio/Bloomberg

An oil rig, operated by Eni SpA, stands in the Val d'Agri valley in Basilicata, Italy, on May 16, 2013.

The Italian government’s 2012 national energy strategy sets increased oil and gas production as one of its goals. Former Prime Minister Mario Monti gave Total the green light for its new Tempa Rossa field in Basilicata last year, and Eni and local authorities are in talks to increase production in the region’s Val d’Agri.

Longest Recession

Italy, which is combating its longest recession in more than two decades, hasn’t been an oil rich country. It produces about 101,000 barrels a day, about 7 percent of total consumption, mostly from Basilicata with the addition of some onshore and offshore wells in Sicily and parts of central and northern Italy, according to 2012 statistics from the U.S. Energy Information Administration.

“Talk of freedom from energy dependence is an overstatement, but increasing production can certainly be an opportunity for Italy,” said Stagnaro, head of research at Instituto Bruno Leoni, which studies the Italian economy. “The real point for Eni is whether, after respecting all the laws and health and environmental requirements, the gain is worth the costs, if so then they need to forge ahead.”

Photographer: Alessandra Migliaccio/Bloomberg

An exploratory oil rig, operated by ENI SpA, stands in the Val d'Agri valley in Basilicata. Close

An exploratory oil rig, operated by ENI SpA, stands in the Val d'Agri valley in Basilicata.

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Photographer: Alessandra Migliaccio/Bloomberg

An exploratory oil rig, operated by ENI SpA, stands in the Val d'Agri valley in Basilicata.

Drilling Moratoriums

Environmentalists and citizens’ associations have periodically pushed local authorities to declare moratoriums on further drilling and lobbying contributed to the creation of a national park in the Val d’Agri in 2007 which further hampered drilling. There are 13 wells within the park’s territory, all sunk before 2007, according to Eni.

“We don’t want charity, we want investments in new energy sources and sustainable development,” said Marco De Biasi, head of the local branch of environmental protection agency Legambiente, referring to the 10 percent in royalties that Eni pays to the national and local governments. He said his group will oppose any increase in output past what has already been agreed.

Eni and partner Royal Dutch Shell (RDSA) Plc produce 85,000 barrels of oil per day in Basilicata and have permission to raise that to 104,000 barrels a day in the Val d’Agri, Eni’s head of southern Italy Ruggero Gheller said in an interview. Shell also owns the nearby Tempa Rossa field along with France’s Total SA and Japan’s Mitsui & Co. which the companies say will pump 50,000 barrels a day by 2016.

Eni shares dropped 1.4 percent to close at 17.84 euros in Rome today.

Photographer: Alessandra Migliaccio/Bloomberg

Eni’s head of southern Italy Ruggero Gheller said in an interview Eni and partner Royal Dutch Shell produce 85,000 barrels of oil per day in Basilicata and have permission to raise that to 104,000 barrels a day in the Val d’Agri. Close

Eni’s head of southern Italy Ruggero Gheller said in an interview Eni and partner Royal... Read More

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Photographer: Alessandra Migliaccio/Bloomberg

Eni’s head of southern Italy Ruggero Gheller said in an interview Eni and partner Royal Dutch Shell produce 85,000 barrels of oil per day in Basilicata and have permission to raise that to 104,000 barrels a day in the Val d’Agri.

Total Production

Once all that oil starts flowing, Italy’s total production will be boosted to about 170,000 barrels a day, a 68 percent increase compared with 2012.

Eni is in talks with local authorities to increase output by another 25,000 barrels a day, and Descalzi says production could be boosted by a further 20,000 in the future. That would more than double current output making Italy Europe’s third-biggest producer, surpassing Denmark which pumped 202,000 barrels a day in 2012, according to the EIA. While Denmark’s production had been declining since 2004, Italy’s has been on the rise since 2009, according to the EIA.

In some respects, Basilicata has been oil country since the Middle Ages.

Small amounts of shiny oil emerge from a natural spring near Viggiano along with bubbles of natural gas emitting a stench more akin to a gas station than the miles of green woods that surround it. Legends also point to oil.

Medieval Statue

The town that houses Eni’s oil processing plant, whose bright red flame can be seen for miles at night, is also home to the Madonna of Viggiano. It’s a medieval statue that according to legend was found by a group of shepherds after seeing mysterious fires in the night.

“Let’s say that in God’s mind, it was all already written,” says Viggiano’s priest Don Paolo who considers the oil underneath the valley “an opportunity for development” of the historically poor area.

While exploration started in the 1940s, the valley’s full potential only became clear in the early 1990s when Eni started to drill and develop the wells. Opposition from locals and complex bureaucracy slowed down extraction until a deal was reached with the region in 1998 setting the 104,000 barrel a day limit that Eni plans to reach in the next few years, and setting up a system of royalties for local populations.

Royalty Payments

Eni pays 10 percent royalties, most of which go to local administrations. The company said in its latest report on Basilicata that it has given 585 million euros to the region and towns involved in production between 1998 and 2012. Viggiano alone, which has 3,300 inhabitants, received about 15 million euros in 2012, according to mayor Giuseppe Alberti.

The town is willing to consider an increase in production as long as jobs are created and improvements in technology guarantee no increase in emissions from the plant, Alberti said in an interview from his office perched atop the medieval town overlooking the valley and oil facility.

While many favor further development, some residents grumble as they uneasily look at the oil plant’s flame, which has become for them a symbol of the valley’s exploitation.

“We’re simple people and the cohabitation isn’t always easy, health is a concern, the environment is a concern and we intend to protect both,” mayor Alberti said.

Both Eni and an independent regional authority regularly monitor the air, water and soil. The company has tried to mitigate the visual impact of its work, putting a cover around the less attractive parts of its rig and painting equipment in soft green colors that blend with the landscape. An operation that Eni manager Gheller says is “unique in its kind.”

“We don’t need green skirts on wells, we need to stop,” said environmentalist De Biasi. “They’ll push for more but we’ll give battle too.”

To contact the reporter on this story: Alessandra Migliaccio in Rome at amigliaccio@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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