UPDATE: Mediterranean Oil & Gas, Petroceltic Face Drill Ban

(Adds detail on Petroceltic and Northern Petroleum, analyst comment.) By Jason Douglas Of DOW JONES NEWSWIRES LONDON (Dow Jones)--U.K. oil and gas company Mediterranean Oil & Gas PLC (MOG.LN) and Irish peer Petroceltic International PLC (EG5.DB) were Friday considering where to drill new wells after Italy's government proposed banning oil exploration within five miles of the country's coastline. The proposed ban, which isn't yet law, follows BP PLC's (BP.LN) spill in the Gulf of Mexico and could mean extra work and higher costs for the two firms, analysts said. A third company operating offshore Italy, Northern Petroleum PLC (NOP.LN), said most of its projects were outside the exclusion zone and it wouldn't be seriously affected. Italian Minister of Environment Stafania Prestigiacomo proposed Wednesday that drilling be prohibited within five miles of Italy's shore and within 12 miles of protected areas of coast or sea. Mediterranean Oil & Gas said its Ombrina Mare discovery, which has proven and probable reserves of 40 million barrels of oil, is located within the five-mile boundary. The company said it is now considering whether it can drill wells outside the exclusion zone that will allow it to access Ombrina Mare. Dublin-based Petroceltic said late Thursday the Elsa oil field, where it planned to drill a second well later this year, also straddles the five-mile limit. Elsa is estimated to contain roughly 100 million barrels of recoverable oil. The company said it will continue seeking a permit for the drilling while it works out the full implications of the proposed restrictions and whether they can be challenged. Petroceltic said it is considering whether it can access the Elsa field using a new well outside the proposed five-mile boundary. Werner Riding, an oil and gas analyst at Ambrian, said Mediterranean Oil & Gas and Petroceltic could face higher costs and delays if they have to come up with new drilling plans and drill horizontally from outside the exclusion zone to access their fields. However, he added that the proposed ban isn't yet law. "We'd like to see how the dust settles before making any judgments," he said. At 0852 GMT, shares in Mediterranean Oil & Gas were down 6 pence, or 21%, at 22.5 pence. Shares in Petroceltic were up 0.17 pence, or 2%, at 8.85 pence, although the stock fell heavily Thursday and is down 28% since the start of the year. Shares in Northern Petroleum were up 4 pence, or 4.5%, at 93 pence. Northern said it won't be seriously affected by the proposed drilling ban as the majority of its permits are further offshore than the five-mile limit. -By Jason Douglas, Dow Jones Newswires; 44-20-7842-9272; jason.douglas@dowjones.com (END) Dow Jones Newswires July 02, 2010 05:07 ET (09:07 GMT)