Focus: Energy giants place tentative bets on oil finds in 'wildcat' Uruguay

Challenger Energy

19/09/2023 09:00

By Lucinda Elliott
       MONTEVIDEO, Sept 19 (Reuters) - Uruguay state-run energy
firm Ancap is set to agree to final terms for a record number of
seven offshore exploration licenses next month, a senior
executive told Reuters, as the frontier market lures bets from
global players like Shell  SHEL.L .
    To date no oil or gas has been found in Uruguayan waters,
but the licenses have nonetheless drawn tentative interest from
energy majors as recent discoveries in Namibia, on the direct
opposite side of the Atlantic, have stoked hopes of similar
finds off South America.
    "Geologists believe 120 million years ago Namibia was linked
to Uruguay, before the breakup between Africa and South
America," said Santiago Ferro, who oversees energy transition at
Ancap, which is involved in the licensing process.
    "So they share the same geological history, like a mirror
image."
        Uruguay remains "frontier, wildcat exploration," Ferro
conceded, but he said the potential could be significant.
    "If a couple of discoveries are made, it would not be a
surprise if the recoverable resources are billions of BOE
(barrels of oil equivalent)," he said, adding it was likely any
energy finds would be more weighted towards gas than in Namibia.
    Ferro said that for the first time all seven offshore blocks
- which lie some 100-300 kilometers (62-186 miles) from
Uruguay's coast - will have international firms carrying out
exploration work. He said the contracts are set to be finalised
with Ancap by mid-October, a timeline that has not previously
been disclosed.
    Shell, Argentina's YPF  YPFD.BA  and Houston-based APA Corp
 APA.O  are among the companies awarded licenses.
    Ancap estimates the potential oil and gas in place is around
20 billion barrels. 
    "If there is a discovery, Uruguay can start to estimate
production targets," Ferro said. Ancap expects the first
exploratory offshore well from this licensing round to be
drilled before the end of 2027.
    
    IT'S HIGH RISK, BUT THAT'S WHAT COMPANIES ARE CHASING
    For decades Uruguay has tried to find oil. Its previous
auctions have attracted industry leaders like BP  BP.L  and
TotalEnergies  TTEF.PA , but only dry wells have been found. The
South American country imports all the oil and gas it needs
through spot market purchases, and has no proven reserves.
    While the pool of firms awarded licenses this time round is
new, the level of planned investment in exploration remains
small, with $127 million so far committed. Ancap expects to
attract a further $200 million over the next six years.
    Analysts point to a disparity between the level of
excitement over Latin America's offshore oil potential and
actual discoveries. Only Brazil, Guyana and Suriname have had
solid commercial success in recent decades.
    "Uruguay has never yielded a commercial discovery," said
Andres Armijos, head of Latin America research at energy
consultancy Welligence. "From an oil and gas point of view, it
is high risk, but that's what companies are chasing."
    Britain-based Challenger Energy was awarded two of the seven
licenses in Uruguay, following unsuccessful exploration projects
in the Bahamas and Trinidad and Tobago.  
    Challenger CEO Eytan Uliel told Reuters from London that
Uruguay's government was "extremely committed and supportive,"
though cautioned things were "in the early stages." The Namibia
finds, though, had raised the chances that oil could be found,
he said.
    The next step is to evaluate the areas by reviewing the
seismic data so far collected to establish well locations.
Drilling could begin as soon as 2026, Challenger has said.
    "We have kilometers of seismic data, dating back to the
1970s. Using modern technology, we can create a different
picture of what is there," Uliel added.  

 (Reporting by Lucinda Elliott; Editing by Marianna Parraga and
Rosalba O'Brien)
 ((Lucinda.Elliott@thomsonreuters.com; +59892841642; Reuters
Messaging: Lucinda.elliott@thomsonreuters.com))