Italy’s new law blocking the award of new prospecting and exploratory permits for 18 months will have a significant effect on the future of Italy’s hydrocarbons industry. The decision mirrors similar acts taken or proposed by other countries in recent years.

In the case of Italy, while not affecting production, the law places the exploration plans of some major exploration and production companies on hold and could have a negative effect on the wider sector.

Oil and gas concessions suspended

The approval of Legislative Decree No. 135 of December 14, 2018, Decreto Semplificazioni, has suspended the award of new oil and gas concessions in Italy for 18 months while the government assesses the suitability of areas for sustainable operations.

The assessment will be based on the adoption of the plan for the sustainable energy transition of suitable areas. However, the new law will not affect the extensions for existing production concessions, the renunciation of oil and gas titles, the temporary suspension of producing concessions, or the relinquishment of areas, the variation of work programmes and the shareholders’ configuration.

Moreover, the legislation is not applicable to oil and gas concessions that are in the awarding phase at the time of the conversion into law of Legislative Decree No. 135. The regulation also has established that from 1 June 2019, the oil and gas annual fees envisaged by Legislative Decree No. 625 of 25 November 1996, for the prospection, exploration, production and storage will be consistently increased.

Number of pending exploration applications by company (as of 31 December 2018)

Source: GlobalData Oil and Gas

The policy changes introduced by Legislative Decree No. 135 go against the investor-friendly attitudes of the previous government, which were following the European Union (EU) Council recommendations to improve the overall fiscal stability in the country.

Legal challenge and protection of investor rights

These new policies could halt future development of the sector, which may also harm the wider supporting industry if domestic industry activity declines. It is likely that those companies affected by the measure may look to launch legal action.

However, as the affected companies are primarily European, the recent Achmea case suggests that EU law will protect Italy against investor-state arbitration clauses contained in bilateral investment treaties between EU member states.