Oil explorer Petroceltic is to sell an 18.4 per cent stake in an Algerian production sharing contract to Enel SpA, the company confirmed today.

Enel has agreed to pay a "contingent cash consideration" of as much as $75 million, determined by the level of recoverable hydrocarbon reserves, Petroceltic said in a statement today. The Italian utility has also committed to funding 49 per cent of the costs of the first six appraisal wells of the Isarene project, which includes the Ain Tsila gas condensate discovery.

"Enel has a finger on the choke points of European gas demand," chief executive Officer Brian O'Cathain said. "They're Sonatrach's second largest customer and a great partner."

When the sale is completed, Enel will control about 18 per cent of the Isarene contract, Algerian National oil company Sonatrach will control 25 per cent and the remainder will be held by Petroceltic.

The partnership means Petroceltic will be able to complete six versus four appraisal wells. Ultimate recovery factors range from 30 pe rcent to 70 per cent, according to a company presentation. Petroceltic plans to submit a drilling plan by early next year, Mr O'Cathain said.

Davy analyst Caren Crowley said Enel was "an ideal partner" to develop integrated gas projects. "As Europe's second-largest utility, Enel's participation should align production with demand and improve the bankability of the Isarene wet gas project. This should also help Algeria to meet its strategic aims for its natural resources."

Additional reporting: Bloomberg