* Decree passed this month imposes 12-mile ban around coasts
* New measure halves area open to exploration
* Small players say they lack resources for deep water areas
By Stephen Jewkes and Oleg Vukmanovic
MILAN/LONDON, Sept 24 (Reuters) - Italian environmentalregulations will halve the area available for offshore oil andgas exploration and push it out into deep waters whereindependent producers lack the cash to operate, leaving biggerplayers to call the shots.
Italy has sought to lure small foreign oil and gas producersto drill offshore, to help stimulate stagnating output that hascontributed to higher energy bills and dependence on imports.
But the changes introduced by decree early this month - toimpose a 12-mile ban around coasts, shut down the Tyrrhenian seaeast of Sardinia and focus on areas with high potential and lowenvironmental impact - left smaller players cold.
"It's no attraction for us," said Giuseppe Rigo, chairman ofCalgary-based CYGAM Energy, referring to a new area thegovernment is offering to the west of Sardinia.
"It's deepwater, and research there is expensive, and wedon't have the means. It's a new area for the big guys."
This month's decree means a cut in offshore acreage to139,000 square km from 255,000. New areas have been opened up,notably near the Balearic Islands west of Sardinia.
"The Balearic area is around 2,500 metres deep. Too deep forsmall developers who will have to go there in joint ventureswith bigger peers," said Pietro Cavanna, managing director ofItalian oil industry association Assomineraria.
Oil major Eni and Edison, controlled by Frenchutility EDF, are offshore leaders. Anglo-Dutch majorRoyal Dutch Shell and France's Total are alsoactive in the region.
Italy's Industry Ministry has said the new areas have drawn alot of interest - especially the acreage off Sardinia straddlingwaters already developed by France and Spain.
"A series of U.S. companies have been in contact with theministry expressing great interest and asking when the decreewas coming out," a senior source at the ministry said.
Opinions differ on just how much oil and gas Italy issitting on but excitement over a gas bonanza in the EasternMediterranean and the billions of dollars in revenues Cyprus andIsrael could generate has kindled interest in Italian waters.
Italy has total oil and gas reserves of around 700 MTEP(million-ton equivalent of petroleum), compared to currentannual production of just 12 MTEP, and is looking to doubledomestic oil and gas output by 2020.
Former Industry Minister Corrado Passera estimated thatdoubling production could generate investments of 15 billioneuros ($20 billion) and cut the energy bill by about 6 billioneuros.
Imports account for around 90 percent of Italian energydemand and with nuclear power banned, shale gas off the agendaand renewable energy incentives limited, the country isuncomfortably dependent on gas supplies from Algeria, Russia andLibya - all of which have suffered disruptions in recent years.
RED TAPE
While the new decree has cleared up a confusing tangle ofprevious regulations, some investors said it has failed totackle Italy's chronic red tape that has caused them years of frustration.
"I think offshore Italy is a very difficult place to dobusiness. The laws keep changing and there's a lot of localopposition. I think it would be a pretty confident move now tobe buying into offshore with all the risks on permitting andrules," said James Parsons, CEO of UK-based Sound Oil.
Italy's complicated and, at times, arbitrary regulatoryenvironment means several different permits may be required fromboth central and regional governments before clearance is given.
A separate decree issued last week, aimed at attractingforeign investors, acknowledged the impasse and said thegovernment would seek to streamline the permitting process.
But operators remain skeptical. "They've been talking aboutthis for years but nothing happens," said a manager at oneBritish oil and gas independent with concessions in Italy.
"It's not the 12-mile ban, it's the lack of clarity. Italyhas some of the biggest oil and gas reserves in Europe, but on areserves-to-production basis it's bottom of the class."
