GeneralKey commercial aspects
Describe, in general terms, the key commercial aspects of the oil sector in your country.
Italy has always been highly dependent on conventional energy sources and imports to cover its energy needs, which is why, despite being a relatively small producer of crude oil, it has always regarded its domestic oil production as very important for the security of oil supply and for the purpose of reducing dependence on foreign sources.
In 2020, oil production was 5.381Mmt, with an increase of about 27 per cent compared with the previous year, when oil production reached 4.268Mmt. This was mainly owing to the full operation of the Tempa Rossa and Val d'Agri fields in Basilicata. No new facilities were opened owing to the suspension of new applications for production concessions until the Ministry of Economic Development and the Ministry of Environment enact a Decree containing a plan (named PiTESAI) identifying suitable areas for carrying out prospecting, exploration and production activities on national territory. According to Law No. 21 of 26 February 2021, the PiTESAI will be adopted by the Ministries by 30 September 2021 at the latest.
Regarding consumption, a Ministry of Economic Development survey revealed that, in August 2020, Italian oil consumption amounted to just over 4Mmt, with a decrease of 11.2 per cent compared with August 2019. Therefore, because of the pandemic, the increase in oil production has not been followed by an increase in oil consumption.
According to data released by the General Office for Energy and Mineral Resources of the Ministry of Economic Development, Italy has 1,565 producing wells.
With a view to increasing domestic production, the Italian government has made considerable efforts to simplify the administrative procedures for the installation of oil production units and has played an important role in liaising with developers and local authorities (the regions in particular) involved in the granting of permits and authorisations. In accordance with Law No. 239/2004, the administrative instruments, named ‘single procedure’ and ‘conference of administrations’, have been introduced in the licensing process to simplify and speed up such processes. Other encouraging developments promoting oil extraction are:
- incentives for developing secondary fields;
- incentives for geophysical studies; and
- draft regulation on decommissioning offshore facilities.
These government initiatives have led to a small but important increase in exploration and production activities in Italy.
As already mentioned, two important oilfields supporting the oil-extracting industry are the Val d’Agri and Tempa Rossa concessions, which are both located in the same area. Val d’Agri is operated by ENI and co-owner Shell, and it is one of the key oilfields for the Italian oil industry with a production capacity of 100,000bbl/d, which covers 6 per cent of Italy’s demand. After production interruption in 2016 following a preliminary investigation by the Italian Public Prosecutor, the oilfield boosted its production. In fact, in line with the general increase, 2020 oil production at Val d'Agri was higher than in 2019. Val d'Agri and Tempa Rossa oilfields provide a high-quality product, superior to Brent Crude benchmark standards. Approximately 87 per cent of domestic oil is extracted onshore, mostly from the Basilicata (69 per cent) and Sicilian (16 per cent) fields, in contrast to the rapidly depleting fields in Piedmont.Energy mix
What percentage of your country’s energy needs is covered, directly or indirectly, by oil or gas as opposed to nuclear or non-conventional sources? What percentage of the petroleum product needs of your country is supplied with domestic production?
In 2020, approximately 72 per cent of Italy’s energy needs have been covered by fossil fuels (down 2 per cent compared with 2019). Most of this is covered by imports (approximately 90 per cent). Regarding domestic production, crude oil represents 30 per cent of national energy consumption, while domestic gas production contributes to 37 per cent of Italy’s demand. As a result of covid-19 pandemic, the energy demand of oil has decreased, whereas renewable energy sources are playing an important role covering more than the 23 per cent of the country’s energy needs (although the incentives provided by the government in recent years to foster the Italian photovoltaic sector are decreasing). As regards nuclear sources, following the 2011 nuclear accident in Fukushima, Japan, the Italian government put a one-year moratorium on plans to revive nuclear power. In June 2011, Italian voters passed a referendum to cancel plans for new nuclear reactors.
Does your country have an overarching policy regarding oil-related activities or a general energy policy?
Italy is very attractive to new investors for its high prices resulting from high-demand growth, its dependence on energy imports (about 75 per cent of the overall domestic energy demand) and, in general, the low efficiency of existing generating capacity and high fuel costs. Consequently, the government has strengthened its undertaking to attract new energy utilities, to encourage investment and to promote competitive supply by providing a clear and stable institutional framework for the energy sector. The uncertain legal framework, together with the authorisation approval process, has been the main constraint on project finances. As a result, the Italian parliament has adopted a number of measures to reorganise the regulatory environment by adopting a more comprehensive reform of the entire energy sector, providing for a stricter timetable by which public authorities shall deal with applications to implement oil development projects (Law No. 239 of 23 August 2004).Registering a licence
Is there an official, publicly available register for licences and licensees? Is there a register setting out oilfield ownership or operatorship, etc?
The General Directorate for Mineral Resources and Energy of the Ministry of Economic Development (UNMIG) provides for constantly updated data on licences and licensees through its website https://unmig.mise.gov.it/index.php/it/, its monthly Official Bulletin of Hydrocarbons and an annual report published in Italian and English. All those sources provide for an overview on activities carried out by oil and gas operators in Italy and contain a list of all licences and licensees. The Official Bulletin is freely accessible online. Therefore, there is no specific register setting out oilfield ownership or operatorship since this information is frequently published in the Official Bulletin of Hydrocarbons and updated on the UNMIG website.Legal system
Describe the general legal system in your country.
The Italian legal system is a civil law jurisdiction. The sources of Italian law are mainly laws, including codes (which incorporate all main provisions in a given subject matter) and regulations. Apart from the Italian Constitution and constitutional laws, the sources of primary legislation are:
- ordinary laws of the state issued by the Italian parliament;
- legislative decrees issued by the government following prior delegation by parliament;
- law-decrees issued in special cases by the government and that must be submitted to parliament for conversion into laws; and
- regional laws issued by Italian regions that have a limited scope in terms of subject matter and applicable territory.
In relation to secondary legislation, some regulations may carry legal weight (eg, regulations usually adopted by administrative authorities, setting out, for instance, mandatory prices, incentives and tariffs for goods and services), while other regulations may not (eg, regulations that are designed to give specific implementation to the principles laid down by laws).
Under Italian law, case law does not create legal rules, although it may be important in creating specific trends and interpretations of laws and regulations that the Italian legislator may consider when developing new legislation.
Regarding the enforcement of contractual and property rights, under Italian law, there are primarily three types of enforcement proceedings:
- enforcement of an obligation to pay a sum of money;
- specific enforcement of an obligation to deliver movable or immovable property; and
- enforcement of an obligation to perform (or not to perform) a specific act.
The most relevant of the three ordinary types of enforcement is definitely the enforcement of an obligation to pay a sum of money, which is carried out through the distraint of specific debtor assets and subsequent forced liquidation and sale of those assets.
Bankruptcy (which is regulated in Royal Decree No. 267 of 16 March 1942, as subsequently amended and supplemented) and other insolvency proceedings against insolvent business persons and business enterprises concern the enforcement of obligations through special procedures with the involvement of an appointed receiver who manages the liquidation of the debtor’s assets along with the creditors’ committee and the bankruptcy judge. Such procedures are not dealt with in this chapter.
As regards domestic and foreign judgments and arbitral awards, Italy is a signatory state to, and has duly ratified into domestic legislation, both the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965. Arbitral awards are enforced through specific proceedings before the competent Italian court of appeal.
Finally, another point of interest to a foreign investor in the oil sector is that regarding the liability of legal entities under Legislative Decree No. 231/2001, as subsequently amended and supplemented. This decree provides for an administrative and criminal liability of companies arising whenever the directors and senior managers or employees of the said companies, in the best interests or to the sole benefit of the latter, commit certain offences listed in the decree (eg, crimes against the public administration, corporate crimes, bribery and corruption and money-laundering crimes).
Indeed, sanctions that could be imposed may be particularly burdensome for the defaulting companies and may include, inter alia, financial penalties and disqualifying sanctions (such as suspension or revocation of permits and authorisations).
The liability pursuant to Decree No. 231/2001 may be excluded if the relevant company has adopted and implemented specific measures, ahead of the commission of the relevant crime (ie, adoption of an ad hoc organisation and management system (a model) and setting up of a specific supervisory board).
As regards anti-corruption measures, Law No. 190/2012, introduced heavier sanctions and new categories of corruption-related offences aiming at improving transparency in the country’s public sector. It provides for the establishment of a new National Anti-Corruption Authority with investigative and sanctioning powers. The new types of offences, which are especially relevant to the private sector, are as follows:
- induced bribery – this covers the offence by a public officer or a person charged with a public service who, abusing of his or her powers or office, induces a private party to give or promise money in exchange for a specific advantage; in this case, the private party who is unlawfully induced to give or promise such money to the public officer also commits an offence;
- traffic of illicit influence – this new crime is provided by new article 346-bis of the criminal code, which provides that a person who, by taking advantage of his or her relationship with a public officer, receives money or another kind of economic advantage in exchange for his or her unlawful mediation, commits a crime and is subject to detention; any person who gives or promises money or other advantage in exchange for unlawful mediation also commits the same crime; and
- private bribery – any manager, general executive, director, auditor, or liquidator of a company who acts in breach of the duties relating to their office, to the detriment of the company, in exchange for the payment or the promise of money commits this crime; any person who gives or promises money or other advantage to these individuals also commits the same crime.
Regulation overviewLegal framework for oil regulation
Describe the key laws and regulations that make up the principal legal framework regulating oil and gas activities.
Oil and gas activities are considered to be part of the mineral-extracting industry whose operation and title is regulated by statute. Over the past two decades, the statutory rules in these sectors have been significantly affected by EU legislation.
The central part of the statutory rules dealing with upstream industry is the regulation on the standards and requirements regarding the prospecting, exploration and production of hydrocarbons in Italy. Such regulations were introduced in Italy in 1927 but have been substantially modified by Law No. 6/1957 and then constantly updated and supplemented by recent legislation. Further, since the circumstances under which offshore and onshore activities may differ from one another, specific rules were adopted in 1967 for offshore operations. These statutory rules were updated in the context of a new domestic energy plan and a more competitive market by means of Law No. 9/1991.
In 1996, Italy opened up all such activities by implementing the European Hydrocarbons Licensing Directive 94/22/EC, banning the monopoly of the state-owned incumbent, ENI. Owing to constitutional reform in 2001 (which has been further developed by Law No. 239/2004, also called the Marzano Law), both the regulatory power and the involvement of the regions in the administrative proceedings for the granting of permits and concessions have been consistently increased in the oil-extracting sector.
Depending on the size and the location of an oil-extracting project, its development will require either a specific environmental assessment or a preliminary screening by the interested public authorities. The environmental assessment is a procedure introduced by EU regulations in 1985 for projects that have a significant impact on the environment. The environmental assessment procedures, as well as the identification of onshore areas, are mainly administered by the local authorities (regions, provinces and municipalities).
The construction, extension works and operation of an oil production unit and transmission facilities are subject to several permits and authorisations (eg, modification of zoning plans, industrial emission authorisation and environmental, landscape and archaeological restrictions), which are dealt with in special regulations.
In relation to all mineral-extracting businesses, Italy has had its own health and safety regulations since 1959. These regulations were amended after the implementation of minimum health and safety requirements for workers in the mineral-extracting industries (both on the surface and underground), as well as the particular requirements for drilling activities that are laid down in several EU directives.
Further, the oil-extracting business is included in the list of utility sectors in which works, supply and service contracts exceeding a certain amount are subject to a specific procurement procedure (Directive 2004/17/EC), coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors. According to Directive 2014/25/EC, as last amended by EU Regulation No. 1828/19, which repeals and replaces Directive 2004/17/EC and article 35 of the Italian Code of Tenders, the present value thresholds, excluding VAT, are work contracts exceeding €5.35 million and service and supply contracts exceeding €428,000.Expropriation of licensee interest
Are there any legislative provisions that allow for expropriation of a licensee’s interest and, if so, under what conditions?
According to Law No. 6 of 1957, the Ministry of Economic Development may revoke a mining title if, inter alia, the licensee does not perform the exploitation of the field within the time frame envisaged in the licence, does not comply with the instructions of the Ministry or does not pay the annual royalties, taxes and any other amount due in compliance with the law.
Moreover, according to Law No. 9/1991, any research, exploration or production licence may be revoked when the activities carried out by the licensee may put in danger state assets of particular environmental value or archaeological sites.Revocation or amendment of licences
May the government revoke or amend a licensee’s interest?
Pursuant to article 5 of the Ministerial Decree of 7 December 2016, the Ministry of Economic Development may revoke the mining title if the holder of the mining title:
- does not act in compliance with the obligations provided for in the relevant administrative decree granting such mining title (for instance the titleholder is not in compliance with the work programme submitted and approved by the Ministry);
- is not in compliance with the provisions of the above-mentioned Ministerial Decree of 7 December 2016 or with the instructions of the Ministry or of the relevant section of the General Directorate for Mineral Resources and Energy of the Ministry of Economic Development (UNMIG);
- fails to request any mandatory authorisations to the Ministry; or
- does not pay any applicable fee, taxes and other expenditures as set forth in the administrative decree granting the mining title.
In the event of offshore activities, the Ministry, on the basis of the information collected from the Safe Sea Committee, evaluates the opportunity to revoke the concession if the public safety relating to the activities carried out is no longer guaranteed.
The decision to revoke the mining title is taken by decree of the Ministry, after consulting the Commission for Hydrocarbons and Mineral Resources and after consultations with the holder of the mining title.
If there is a revocation, the Ministry may either grant the mining title to another operator, after due implementation of a public tender or, in case the production of hydrocarbons is no longer considered economically advantageous, it may finally revoke the relevant mining title. In the latter case, the former holder of the title is appointed as custodian, free of charge, of the oilfield until this has been fully decommissioned.Regulators
Identify and describe the government regulatory and oversight bodies principally responsible for regulating oil exploration and production activities in your country. What sanctions for breach may be imposed by the regulatory and oversight bodies?
The regulatory body for the oil industry is the Ministry of Economic Development, which also issues concessions and authorisations for the exploration and development of oilfields. Other than the electricity and gas sector, there is no independent authority.
Within the Ministry, two internal agencies and a technical commission deal with the oil-extracting industry. The General Office for Energy and Mineral Resources (DGERM) issues the national energy and mineral policy guidelines and liaises with the European Union and other international organisations. Further, the DGERM sees to the implementation of the statutory rules of the oil-extracting sector.
Within the DGERM, administrative tasks are carried out by UNMIG, which is responsible for:
- technical oversight of the projects;
- granting the prospecting and exploration permits, and the production concessions;
- the upstream management survey;
- the royalties survey;
- planning and statistics;
- safety studies and laying down of the secondary health and safety regulation;
- the on-site health and safety inspection;
- map-making of the titles and the oil transportation system; and
- the following-up of expropriation procedures.
Finally, the Ministry must require the opinion of the Technical Commission for Hydrocarbons in relation to:
- the feasibility technical programmes of the permit and concession holders;
- the health and safety survey;
- the location and size of the exploration and production area; and
- all technical issues related to the oil-extracting business.
In the case of a breach, the Ministry may revoke the mining title.Government statistics
What government body maintains oil production, export and import statistics?
All operators in the oil upstream industries have a statutory duty to provide Italy’s National Statistical Institute with a full report on volumes and prices.
The statistics of the oil industry are mainly held within the different agencies of the Ministry.
The statistics on exploration activities, oil production and reserves are collected by UNMIG and are available on the website of the Ministry.
Information on the import, export and the position of the upstream production in respect of the overall energy business is processed and published by the DGERM.
Law stated dateCorrect on
Give the date on which the information above is accurate.
14 April 2020