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Po Valley Energy Cash Flow Up 87% To A$4.8M On Italian Gas Field Performance

Po Valley Energy (ASX: PVE) has demonstrated the strength of its Italian assets with cash flow for the half year ended 30 June 2012 of €4.1 million (A$4.8 million), up 87% from the previous corresponding period.

EBITDA was also up 17% to €2.6 million though net profit after tax was down 17% to €0.3 million due to the increase in depreciation from the Castello gas field since restarting production in February.

This was achieved on production of 434 million cubic feet of gas for the six months from both the Sillaro and Castello fields.

"We have made solid progress in the first half of the year with our exploration and development programs progressing steadily and have continued to strengthen our asset portfolio through the award of our first offshore licence - AR94PY, the farm-out to Petrorep and the preliminary award of a new onshore oil play - Torre del Moro."

Po Valley held cash of €2 million at the end of the period while borrowings were unchanged at €6 million.

Building up for future performance

While Po Valley expects production in the second half of 2012 to be slightly lower than in the first half due to reduced production and a short shutdown to allow for the installation of a condensate separator at the Sillaro field, this is likely to change from 2013.

The condensate separator at Sillaro will allow Po Valley to ensure maximum production by better managing the condensate production arising from level PL2 C1+C2 at the field.

Plans are also well advanced to bring the Castello field back to full production while the final award of an enlarged Castello production licence to include the nearby Bezzecca area is expected once the Italian Government reviews the related Environmental Impact Assessment.

This will add to the company's existing production as the Bezzecca-1 well had flowed gas at a combined rate of 3.75 million cubic feet per day during testing.

Once the new production licence is awarded, Po Valley will construct 7 kilometres of 2 inch pipeline to connect the two producing sites.

Exploration and appraisal

Po Valley is waiting on approvals for the planned Zini-1, Canolo-1d and Canolo-2d wells in the Cadelbosco di Sopra permit as well as the Fantuzza-1 and Gradizza-1 exploration wells.

The Canolo and Zini wells are covered by the farm-in of French oil and gas company Petrorep, which is earning its stake in the Cadelbosco di Sopra licence by paying a promoted share of future drilling.

Petrorep also holds an option to earn a 15% stake in Po Valley's 100% owned La Prospera licence where the drilling approval process for the Gradizza-1 exploration well is in its final stages.

The Cadelbosco di Sopra and adjacent Grattasasso permits host the former Correggio gas field that had produced about 250 billion cubic feet of gas (Bcf) for former owner Eni.

Cadelbosco di Sopra also includes the Bagnolo in Piano deep (Cretaceous carbonates) oil discovery where Eni had drilled three wells in the 1980s.

La Prospero contains the Gradizza prospect that is believed to host 9 billion cubic feet of gas.

Po Valley is also planning to acquire the existing 3D seismic over the newly awarded AR94PY offshore Exploration Permit and to apply for a production concession licence over it as soon as possible.

Exploration permit AR94PY - previously AR168PY - contains the Carola and Irma gas discoveries that were drilled by former operator Eni and have been independently audited to hold best estimate (2C) Contingent Resources of 24.8 billion cubic feet.

The company plans to drill at least one well at Carola and Irma in 2013.

Development is expected to be rapid due to the shallow water depths and proximity to offshore production facility at Eni's adjacent Pandora gas field.

Analysis

The strong gas prices of about €0.358 per cubic metre realised by Po Valley in the first half can be expected to continue and possibly increase into the latter half of the year as the Eni gas release price increased to €0.4619 per cubic metre in June 2012.

This will allow the company to continue its financial performance and may offset the temporary decline in production.

With cash at bank of €2.0 million, Po Valley has made very solid progress in the first half of the year with its exploration and development programmes.

Approval of the expansion of the Castello production licence to include the nearby Bezzecca area will also be a strong positive for the company, giving it a substantial boost to production.

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