Ongoing data reprocessing program at block off Uruguay to back farmout process targeted for mid-2025

Isle of Man-headquartered oil and gas player Challenger Energy Group (CEG) is carrying out a data reprocessing program at a shallow water exploration block off the coast of Uruguay, expected to back a formal farm-out process anticipated to commence in mid-2025.

A program of reprocessing work is underway at the AREA OFF-3 block to secure access to necessary historic 3D seismic data, with preliminary outputs expected by the end of the year and work to be fully completed in the second quarter of 2025.

According to CEG, 3D seismic reprocessing work will be supplemented with a range of other seismic workflows including Amplitude Variation with Offset, also used on AREA OFF-1.

The aim is to faster mature the available data set for AREA OFF-3, said to be enough to allow a robust prospect inventory to be mapped and potential drill locations to be identified, in support of a formal farmout process that CEG is targeting to commence in mid-2025.

An uplifting licensing model has been agreed under which agreed license fees will become payable only if/when a farmout is concluded. The total of other costs associated with the work program in 2024 and 2025, including reprocessing, interpretation, mapping and complementary technical work, is expected to be in the range of $1 million and $1.5 million.

“Over the last few months, while focussing on finalizing the farmout for our AREA OFF-1 licence in Uruguay, we also have been preparing the initial AREA OFF-3 work program, centred on reprocessing of existing 3D seismic in support of defining the block’s prospect and lead inventory and possible well locations, which we believe will be the key inputs into the farmout process we are aiming to begin in mid-2025,” said Eytan Uliel, CEG’s Chief Executive Officer.

“Following the close of the AREA OFF-1 farmout, we have now moved to immediately accelerate work on AREA OFF-3, given our view that the block has significant exploration upside and scope and, like AREA OFF-1, presents an exciting near-term value-creation opportunity.”

The AREA OFF-3 license covers 13,252 km2 and is situated in water depths from 20 to 1,000 meters, some 150 kilometers off the Uruguayan coast. To the west, the block is adjacent to the AREA OFF-2 block held by Shell, with the Amalia prospect straddling both the AREA OFF-2 and AREA OFF-3 blocks.

To the east, it is adjacent to the Brazilian maritime border, an area that was subject to considerable licensing in December 2023, with 13 nearby Brazilian blocks licensed to Chevron, Shell, CNOOC and Petrobras. To the south, the block is adjacent to two deepwater Uruguayan blocks, AREA OFF-6, held by APA Corporation, and AREA OFF-7, held by Shell.

In May 2023, CEG bid for AREA OFF-3, the last remaining offshore block in Uruguay, and in June of the same year Uruguay’s national regulatory agency Administración Nacional de Combustibles Alcohol y Pórtland (ANCAP) awarded the block to the company. Following final regulatory approvals, the license was signed on March 7, 2024, and thus the first four-year exploration period commenced on June 7, 2024.

Previous seismic activity on the block comprises ~4,000 kilometers of legacy 2D (various vintages) and ~7,000 km2 of legacy 3D (2012 & 2016), based on which AREA OFF-3 is believed to be prospective.

There are no wells on the block. CEG’s minimum work obligation during the first four-year exploration period consists of licensing, reprocessing and reinterpretation of legacy seismic data (primarily 3D), and undertaking two geotechnical studies, expected immediately after the completion of the 3D seismic processing, with no obligation to acquire new seismic data or drill an exploratory well.

The company noted that AREA OFF-3 has the advantage of the majority of the block being covered by 3D acquired by BP and PGS in 2012, which will accelerate a drilling decision sooner without the need to acquire further seismic data, in terms of identifying potential new prospects/plays. In addition, with the Amalia prospect straddling the border with AREA OFF-2, it potentially facilitates a joint exploration assessment with Shell.