Uruguay-focused independent upbeat on farm-in deal

Challenger began the formal farm-out process for its OFF-1 licence in June, CEO Eytan Uliel told Petroleum Economist. The process is “going well” and has attracted a large number of interested parties, he continued, noting that the independent is keen to reach a farm-in deal by year-end and is “reasonably optimistic” of achieving that goal. Challenger is seeking to become minority partner, with the larger, farm-in partner acting as operator. There is “lots of enthusiasm… the momentum is feeding itself”, Uliel said.

Uliel attributed much of the interest in the licence to ongoing exploration success offshore Namibia, where the geology is the direct conjugate of that off the coast of Uruguay. Additionally, there is “a body of technical work” that “adds quite a bit of value” to the licence, he continued. Challenger accelerated its work programme earlier this year, which included the reprocessing of existing 2D seismic data and AVO analysis, with the result that “we have identified three very sizeable prospects on the licence… two of which are supported by AVO”. Preliminary estimates suggest there is “around 2bn bl of resource potential across those three prospects”, continued the CEO. “We wanted to establish that these prospects are globally relevant… [the resource potential is] of interest not just to us, but to all of the major companies out there,” said Uliel.

The next step for OFF-1 is 3D seismic surveying, and Challenger is keen for that to begin in 2024, while any prospective partner will have to agree to fund that work.

In addition to OFF-1, Challenger now also holds the shallow-water OFF-3 licence. Seven offshore blocks have now been licensed in Uruguay, with no more licences currently available. Apart from Challenger, all blocks in Uruguay are held by majors and NOCs, with Shell operating the OFF-2 licence between Challenger’s two blocks. Uliel explained that Challenger was prequalified to bid for the OFF-3 block and, as a result of being awarded the block, is now the second-largest holder of Uruguayan acreage.

Caribbean challenges

Challenger already has an established production base in Trinidad and Tobago, with four onshore fields. “We have got the operations into shape and they are doing OK financially now,” said Uliel. “The key thing in Trinidad and Tobago is to try and access more acreage,” he continued. And following a successful bid, the AIM-listed firm is negotiating with the Ministry of Energy and Energy Industries for a licensing agreement at Guayaguayare, a large onshore block in southeastern Trinidad. Some of the other blocks on offer “were quite heavily contested and we just were not going to get a look in”, Uliel said, but the company had advantages in its bid for Guayaguayare. The remote, virgin acreage is in a jungle area with little infrastructure but “essentially surrounds” Goudron, “which is our primary producing field”, Uliel explained, adding the company enjoyed “a bit of a competitive edge because we are already operating down there” and can manage Guayaguayare from its existing operations.

But Trinidad and Tobago “is still a tough place to make a dollar and a tough place to grow production”, without securing additional access to scarce acreage, Uliel noted. “You have mature oil fields that continue to produce but are difficult to revitalise.”

Challenger has relinquished its Weg Naar Zee production-sharing contract in Suriname, following an agreement with the country’s regulator, Staatsolie Hydrocarbon Institute (SHI). The company has stated it will instead “focus on core assets” and that its “newly secured opportunities in both Uruguay and Trinidad are of much higher potential”. Uliel explained the company tried “to make the economics stack up”, but that Weg Naar Zee is small and requires test wells. “I would much rather spend [the required money] doing more technical work in Uruguay”, he said, adding the agreement with SHI to quit the country was amicable.

Challenger also holds four linked offshore exploration licences in the Bahamas, but development there remains stalled. “The situation is exactly the same as nine months ago”, said Uliel, confirming the company is still waiting on the Bahamian government to decide what course of action to take. One possible outcome is that “the government can renew our licences for another three years, during which time we will have to do a bit more work and find a partner to drill another exploration well in the Bahamas.” But he noted the Bahamian government’s current position is that they “would rather be looking at carbon credits and trading”. And so, Challenger has approached the authorities with an alternative proposal that it could “pursue other energy-related opportunities” in the Bahamas, in exchange for dropping its oil development plans. But the government’s decision-making process is “going very slowly”, he noted.

Challenger Energy Group at the World Energy Capital Assembly 2023

At the 2023 World Energy Capital Assembly in London, Challenger Energy Group will be joining us and speaking on our International Market Opportunities Panel, looking at the global existing and emerging upstream opportunities that the idustry should be taking note of, and examining the up-coming licensing rounds in the E&P hotspots of tomorrow.