Shell has agreed to acquire an 80% operatorship interest in Northern Petroleum's Cascina Alberto permit, onshore north-west Italy.
Shell has agreed to pay Northern Petroleum's share of costs for seismic exploration up to a maximum of $4m and drilling costs up to $50m.
Northern Petroleum will also receive $850,000 cash up front. Shell will also have an option to acquire the remaining 20% stake in the permit.
The transaction is subject to approval from the Italian regulatory authority and Northern Petroleum said there are no profits or book value attributable to the permit, since it was only granted in July 2014.
Northern Petroleum chief executive officer Keith Bush said: "This farm in demonstrates the value inherent in Northern's Italian asset portfolio.
"Northern will continue to progress its permits and applications with the Italian authorities and partner with companies with larger resources, where appropriate, to maximise their value.
"We look forward to working with Shell as we explore the potential of the Cascina Alberto permit."
The joint venture will now focus on the re-interpretation of existing seismic and subsurface analysis to identify the need for additional seismic acquisition to assist in the location of a potential exploration well.
Northern Petroleum owns both operated and non-operated equity stakes in oil and gas licences globally.