With last block off Uruguay up for grabs, Isle of Man-based player as sole bidder anticipates award in coming weeks

Challenger Energy Group (CEG), the Isle of Man-headquartered oil and gas company focused on the Caribbean and Americas, has bid for and expects to be awarded a shallow water exploration block located off Uruguay. This is the sole remaining available block offshore Uruguay, as all other offshore exploration licences are held by energy majors: Shell and Apache and YPF, the Argentinian national oil company.

As part of the Open Uruguay Round, the first instance of 2023, Challenger Energy submitted a bid for the AREA OFF-3 block offshore Uruguay. On 2 June 2023, the Administración Nacional de Combustibles Alcohol y Pórtland (ANCAP), the Uruguayan national regulatory agency, published on its website that Challenger’s offer for AREA OFF-3 was received, outlined the terms of the firm’s offer and noted that there were no further available offshore blocks in Uruguay.

As no other offers for AREA OFF-3 are referenced in ANCAP’s communication, the Isle of Man-based firm is advised that this represents the precursor step to the formal award of the block, with the process of finalising the award expected to take three to four weeks. The award of AREA OFF-3 is anticipated to expand Challenger’s licence holding in Uruguay to two blocks, in the offshore Punta del Este and Pelotas sedimentary basins: AREA OFF-1 and AREA OFF-3. This will position the firm’s acreage on either side of Shell’s AREA OFF-2 block.

According to Challenger, AREA OFF-3 has many operational and subsurface similarities to the AREA OFF-1 licence, including comparable size acreage in similar water depths, both exhibit multiple, stratigraphic plays and complement each other with play diversity while demonstrating similar exploration upside.

In addition, the commercial terms and work programme for the AREA OFF-3 licence are similar to those for the AREA OFF-1 licence, providing for an initial four-year exploration period, during which Challenger will be required to reprocess approximately 1,000 kilometres of legacy 2D seismic and undertake two new geotechnical studies. As a result, the company expects that the cost of the work programme in the initial four-year exploration period will be around $100,000 per annum.

Aside from the costs of completion of the minimum work programme, there are no annual licence fee payments, no seismic acquisition – 2D or 3D – or drilling is required in the initial four-year period, and extension into a second exploration period is at the firm’s discretion.

Eytan Uliel, Chief Executive Officer of Challenger Energy, commented: “AREA OFF-3 possesses identified prospects of material scale, and our immediate work focus will be a comprehensive technical reassessment of the block, applying modern 2D seismic re-imaging and our subsurface knowledge of the Uruguayan offshore margin, similar to the successful geotechnical de-risking approach we have applied on AREA OFF-1.

“Strategically, the award of this licence will cement CEG’s position as a significant participant in Uruguay, a country that has fast become one of the world’s frontier exploration hotspots. At the same time, our bid for the AREA OFF-3 block demonstrated the same disciplined and opportunistic approach we have taken in the past: acting strategically and nimbly to secure large and promising acreage, yet with low-cost work obligations, discretionary expenditure phasing, and no new seismic acquisition or drilling commitments.”

Challenger Energy explains that the AREA OFF-3 licence covers a total area of 13,252 km² and is situated in water depths from 20 to 1,000 metres, approximately 100 kilometres off the Uruguayan coast while mapped prospects of interest are in relatively modest water depths of about 250 metres. This block was previously held by BP, but was relinquished in 2016.

While there are no prior wells on the block, a considerable prior seismic activity was carried out on the AREA OFF-3 block, comprising approximately 4,000 km of legacy 2D and around 7,000 km 3D, as part of the 2012 proprietary acquisition by BP and seismic vendor, PGS. Two material-sized prospects have previously been identified and mapped on the block.

The first prospect, Amalia, comes with a gross resource estimate: P10/50/90 (ANCAP) of 2,189, 980, and 392, respectively. This prospect straddles the boundary with Shell’s AREA OFF-2, with an estimated 25 per cent of the prospect contained within AREA OFF-3. The second prospect, Morpheus entails a gross resource estimate: P10/50/90 (ANCAP) of 8.96, 2.69, and 0.84, respectively. This prospect is entirely contained with AREA OFF-3.

Challenger claims that its technical focus will be on the re-evaluation of the existing 2D and 3D seismic data on the block during the initial four-year exploration period, given the renewed interest in the types of plays present in Uruguay triggered by the recent conjugate margin discoveries offshore Southwest Africa.

For the company, the data and enhanced technical understanding provided from recent activities in Namibia provide “greater confidence” that the regional petroleum system charging TotalEnergies’ Venus-1 oil discovery and Shell’s Graff-1 oil discovery is likely to be present offshore Uruguay. Therefore, the firm claims that the traps that exhibit effective sealing mechanisms, which may previously have been overlooked or not considered viable, are now potential exploration targets.

Another advantage of AREA OFF-3 is that the majority of the block is covered by 3D that could be reassessed and subjected to the latest reprocessing technology, both in terms of reviewing existing known prospects/plays and identifying potential new ones. As the Amalia prospect straddles the border with AREA OFF-2, it potentially facilitates a joint exploration assessment with Shell.

Additionally, the AREA OFF-3 licence will increase Challenger’s total Uruguay acreage holdings to about 28,000 km², turning the firm into the second-largest offshore acreage holder in Uruguay behind Shell. This block has a current estimated resource potential of up to around 500 million barrels of oil equivalent (mmboe) and up to approximately 9 trillion cubic feet gas (TCF), from multiple exploration plays.

“We anticipate that we can create an opportunity of comparable value and industry interest to what we have thus far identified with AREA OFF-1, to the benefit of both Challenger and ANCAP,”  highlighted Uliel.

After starting a formal adviser-led farm-out process for AREA OFF-1, Challenger Energy has received several unsolicited approaches, and “strong interest” from industry participants. This farm-out process has been structured to meet the firm’s commercial objective to complete a farm-out transaction prior to the end of 2023.