Italy’s Edison SpA has reached a deal with Egyptian General Petroleum Corp to explore and develop the offshore Abu Qir gas field as it seeks to grow its gas portfolio as well as the number of its suppliers.Edison will pay $1.405 billion for the Abu Qir concession, which will be funded through existing credit lines, it said in a statement on Tuesday.

The concession has reserves of about 70 billion cubic meters (bcm) of gas equivalent, of which Edison is entitled to about 40 percent.

Edison, Italy’s second-biggest power producer and gas operator, is keen to increase its gas supplies to fuel its portfolio of gas-fired power plants and service its gas sale clients.

“With this important contract, Edison will reach the medium term target of covering 15 percent of Edison Group’s gas needs through its own production,” Chief Executive Umberto Quadrino said in a statement.

The concession will allow the group to increase by 2013 its annual gas production to 2.6 billion bcm from the current 1.1 billion bcm, he said.

Its shares were up 4.36 percent at 1.08 euros at 1531 GMT. The DJ Stoxx utilities index was 2.22 percent firmer. Edison is jointly controlled by France’s EDF and A2A , an Italian multiservice utility.

The investment needed to increase reserves and production at the field will amount to $1.7 billion, most of which will be financed over a five-to-seven-year period.

The cash flows generated by the concession will cover the investments starting from 2012, Edison said.

The investments made before 2012, estimated at about $750 million, will be funded half through cash flow from the concession and half through dedicated financings.

The concession, which produces around 1.5 billion bcm of gas per year and 1.5 million barrels of oil, has a 20-year duration and can be extended for a further 10 years, Edison said, noting the deal is subject to government approvals.

(Rigzone)