Isle of Man-based oil & gas firm passes the operator baton to Chevron for offshore block in Uruguay

CEG Uruguay, a subsidiary of the Isle of Man-headquartered oil and gas company Challenger Energy Group (CEG), has wrapped up the divestment of a majority stake in a shallow water exploration block off the coast of Uruguay. As a result, Chevron Uruguay Exploration, a wholly-owned subsidiary of the U.S.-based energy giant Chevron, is the block’s new operator.

Following the award of the AREA OFF-1 block in May 2020, which was done by Uruguay’s state-owned oil and gas company ANCAP, Challenger confirmed a farm-out process for the block three years later. The farm-out agreement with Chevron has enabled the Isle of Man-headquartered company to sell a 60% interest in the AREA OFF-1 block and retain a 40% non-operating interest.

Eytan Uliel, Chief Executive Officer of Challenger, commented: “Completion of the AREA OFF-1 farmout is a game-changer for Challenger Energy. We’ve achieved an outcome that introduces Chevron, a recognised industry leader, as operator of the block, who will now commence with executing a considerable value-creating work program.

“The cash received and farmout terms will ensure that our company is fully funded for the foreseeable future. And, just as important, this farmout validates our capabilities in terms of securing early-access to promising exploration blocks, and progressing them rapidly via high-quality technical work.”

Following a cash payment of $12.5 million, Chevron has assumed operatorship of the block and going forward will carry 100% of Challenger’s share of the costs associated with a 3D seismic campaign on AREA OFF-1, estimated at up to a maximum of $15 million net to the Isle of Man-based player.

If the operator decides to drill an initial exploration well on the AREA-OFF 1 block, it will also carry 50% of the other player’s share of costs associated with that well up to a maximum of $20 million net to Challenger Energy.

Currently, the two firms are working closely with ANCAP, the Uruguayan regulator, to ensure a smooth transition of operatorship, as well as participating in the detailed planning for an upcoming 3D seismic campaign, targeted to begin in the next available shoot window, expected in H1 2025. Covering approximately 14,557 km², the AREA OFF-1 block is a large block located about 100 km offshore Uruguay in water depths ranging from 80 to 1,000 meters.

“In the coming months we expect to communicate plans for 3D seismic acquisition on AREA OFF-1, and at the same time we will be fully engaged in a technical work program for our second Uruguay licence, AREA OFF-3, applying the learnings from work on AREA OFF-1 – our objective is to be in a position to kick off a farm-out process for that block in mid-2025. The next year will thus be an exciting and busy time for Challenger Energy,” highlighted Uliel.

After Challenger Energy submitted a bid for the AREA OFF-3 block offshore Uruguay as part of the Open Uruguay Round, the first instance of 2023, the Administración Nacional de Combustibles Alcohol y Pórtland (ANCAP), the Uruguayan national regulatory agency, awarded the license for the block to the company in July 2023.

The AREA OFF-1 block and the broader offshore Uruguay play system are said to be analogous to offshore Namibia, where recent prolific, conjugate margin discoveries were made by TotalEnergies (Venus-1 oil discovery) and Shell (Graff-1 oil discovery), and where reported multi-billion-barrel Cretaceous turbidite reservoirs have been encountered.