Challenger upbeat on read-across from Uruguay licensing round

Caribbean and Americas-focussed oil and gas company Challenger Energy updated the market on recent regional developments on Tuesday, noting that Uruguay's national energy company Ancap announced on 27 December that a further two offshore blocks had been awarded following competitive bids in its second 2022 open round.

The AIM-traded firm said the ‘AREA OFF-4’ deep-water offshore block, immediately adjacent to its ‘AREA OFF-1’ shallow water exploration block, was awarded to a consortium of Shell and APA, formerly known as Apache.

AREA OFF-4 was the subject of competitive bids received from the winning consortium and from the Argentinian national oil company, YPF.

Ancap reported that the consortium committed to undertake extensive work on the block in the initial four-year exploration period, including 3D seismic acquisition.

Additionally, the ‘AREA OFF-5’ deep-water offshore block was awarded to YPF.

Challenger said Ancap reported that YPF committed to undertake an “extensive” technical work programme on the block in the initial four-year exploration period.

The award of the two blocks was in addition to the award to Challenger of the AREA OFF-1 block in May 2020, and the awards in May 2022 of the AREA OFF-2 and AREA OFF-7 blocks to Shell, and the AREA OFF-6 block to APA.

Challenger said that as a result of the recent awards, all but one of the available offshore exploration blocks in Uruguay had now been licenced, and, with the exception of Challenger Energy, were to global oil and gas majors.

The board noted that the aggregate value of work now committed across blocks AREA OFF-2, AREA OFF-4, AREA OFF-5, AREA OFF-6 and AREA OFF-7 by Shell, APA Corporation and YPF during the next four years was estimated by Ancap to be in excess of $230m.

“It is noted that in addition to work that will now be undertaken by Shell, APA and YPF on their Uruguayan blocks, various public statements and news releases indicate that relevant additional work and drilling activities are currently underway or being planned by multiple parties for 2023, including additional exploration and appraisal wells being drilled in Namibia, and 3D seismic acquisition in the adjacent Northern Argentina Basin,” the board said in its statement.

“These activities are expected to further the regional technical understanding and thereby enhance the technical understanding of AREA OFF-1.”

In particular, the company noted recent reports that YPF had received environmental approval to acquire 3D seismic on its CAN 102 block in offshore Argentina, beginning in 2023.

That block is immediately proximate to AREA OFF-1 in Uruguay.

Challenger Energy said it considered that the rapid entry through 2022 into Uruguay of “well-regarded international companies”, and their commitments to undertake “sizeable and meaningful” work programmes in the near-term, validated both its decision to enter Uruguay in 2020, and underscored the solid technical foundation and excellent value proposition represented by the AREA OFF-1 block.

Additionally, the company's technical view was that its AREA OFF-1 licence area, and the broader offshore Uruguay play system, is analogous to offshore Namibia, where there had been recent prolific, conjugate margin discoveries made by TotalEnergies at the Venus well and Shell at the Graff well, and where reported multi-billion-barrel cretaceous turbidite reservoirs had been encountered.

“In 2020, Challenger Energy successfully bid for the AREA OFF-1 block in Uruguay, and in so doing strategically gained first mover status offshore Uruguay,” said chief executive officer Eytan Uliel.

“We were able to secure the block with a modest initial work commitment, which we are already well advanced to completing, considerably ahead of schedule.

“Subsequently, in May 2022, three more blocks were awarded in a contested open round, to Shell - two blocks - and Apache - one block.”

Now, Uliel noted that a further two blocks had been awarded in Uruguay in another contested open round, to each of a Shell-APA consortium and YPF, and YPF with partner Equinor also poised to begin 3D seismic acquisition in a neighbouring block in Argentina.

“Overall, this means that almost all available offshore acreage in Uruguay has now been taken up, and apart from Challenger Energy, all by majors and national oil companies who have committed to very sizable work programmes.

“This dramatic increase in interest in Uruguay and the neighbouring region is directly related to the very sizeable discoveries made in the conjugate margin Orange Basin in early 2022, and through the course of 2023 we hope to move forward with a farm-in, so as to capitalise on that increased interest and allow for accelerated work on our block.

“Further updates will be provided in due course.”

At the close on Tuesday, shares in Challenger Energy Group were up 13.64% at 0.1p.

Reporting by Josh White for Sharecast.com.