REG - Challenger Energy - AREA-OFF 3 - URUGUAY

Challenger EnergyAnnouncement

05/06/2023 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230605:nRSE5725Ba&default-theme=true

RNS Number : 5725B  Challenger Energy Group PLC  05 June 2023

5 June 2023

Challenger Energy Group PLC

("Challenger Energy" or the "Company")

 

AREA-OFF 3 - URUGUAY

Challenger Energy (AIM: CEG), the Caribbean and Americas focused oil and gas
company, with a range of oil production, development, appraisal, and
exploration assets, is pleased to advise that it has bid for, and now
anticipates being awarded, the AREA OFF-3 licence, offshore Uruguay.

 

HIGHLIGHTS

 

·    CEG has bid for and expects to be awarded the AREA OFF-3 licence,
offshore Uruguay.

·    AREA OFF-3 is the sole remaining available block offshore Uruguay;
all other offshore exploration licences are held by energy majors Shell and
Apache and YPF, the Argentinian national oil company.

·    The AREA OFF-3 licence is 13,252 km(2), and will increase CEG's total
Uruguay acreage holdings to ~28,000 km(2), making CEG the second largest
offshore acreage holder in Uruguay behind Shell.

·    AREA OFF-3 is located in relatively shallow water, with existing 2D
and 3D seismic coverage. The block has a current estimated resource potential
of up to ~500 million barrels of oil equivalent ("mmboe") and up to ~9
trillion cubic feet gas ("TCF"), from multiple exploration plays.

·    CEG's AREA OFF-3 bid consisted of an initial 4-year exploration
period, with a work program limited to reprocessing and reinterpretation of
1,000 kms of 2D seismic data.

·    Award of the AREA OFF-3 licence to CEG will represent a successful
expansion of the Company's high quality, frontier play opportunity in Uruguay
- a fast emerging global exploration "hotspot" - and is consistent with a
strategy of targeting high impact Atlantic margin opportunities.

 

Eytan Uliel, Chief Executive Officer of Challenger Energy, said:

"We are delighted to advise that on 2 June 2023, ANCAP publicly announced the
details of Challenger Energy's offer for the AREA OFF-3 licence, which is the
precursor step for the formal award of the licence to CEG, and which we
understand should occur in the next 3-4 weeks.

 

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.

 

We are especially appreciative of the confidence shown in CEG by the Uruguayan
regulatory authority, ANCAP. Over the next four years we intend to further
grow that confidence by applying our basin expertise and fully evaluating the
licence's potential. 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."

 

Overview

As part of the Open Uruguay Round, First Instance of 2023, CEG submitted a bid
for the AREA OFF-3 block, offshore Uruguay. The Company is pleased to advise
that on 2 June 2023, Administración Nacional de Combustibles Alcohol y
Pórtland ("ANCAP"), the Uruguayan national regulatory agency, published on
its website that CEG 's offer for AREA OFF-3 was received, outlined the terms
of CEG's offer, and noted that there are now no further available offshore
blocks in Uruguay. No other offers for AREA OFF-3 are referenced in ANCAP's
communication.

The Company is advised that this thus represents the precursor step to formal
award of the block to CEG, with the process of finalising the award expected
to take 3-4 weeks. Refer to
https://exploracionyproduccion.ancap.com.uy/innovaportal/file/18158/1/2023-05-rua-first-instance-2023-v3.pdf
(https://exploracionyproduccion.ancap.com.uy/innovaportal/file/18158/1/2023-05-rua-first-instance-2023-v3.pdf)

The award of AREA OFF-3 will expand the Company'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), and will position the Company's acreage on either
side of Shell's AREA OFF-2 block.

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

The commercial terms and work program bid by CEG for the AREA OFF-3 licence
are similar to those for the AREA OFF-1 licence, providing for an initial
4-year exploration period, during which CEG will be required to reprocess
approximately 1,000 kilometres of legacy 2D seismic and undertake two new
geotechnical studies. The Company expects that the cost of the work program in
the initial 4-year exploration period will be approx. US$100,000 per annum.

Apart from the costs of completion of the minimum work program there are no
annual licence fee payments, no seismic acquisition (2D or 3D) or drilling is
required in the initial 4-year period, and extension into a second exploration
period is at CEG's discretion.

About AREA OFF-3

The AREA OFF-3 licence has a total area of 13,252 km(2) and is situated in
water depths from 20 to 1,000 meters, approximately 100 kilometres off the
Uruguayan coast (refer to the map link in Appendix A). Mapped prospects of
interest are in relatively modest water depths of ~250 metres.

There has been considerable prior seismic activity and interest on the AREA
OFF-3 block, comprising ~4,000 kms of legacy 2D (various vintages) and ~7,000
kms legacy 3D (2012 proprietary acquisition by BP and leading seismic vendor
PGS). The block was previously held by BP, but was relinquished in 2016. There
are no prior wells on the block.

Two material-sized prospects have previously been identified and mapped on
AREA OFF-3 (BP & ANCAP), as follows:

·    Amalia: resource estimate (EUR mmboe, gross): P10/50/90 (ANCAP) 2,189
/ 980 / 392 - the Amalia prospect straddles the boundary with Shell's AREA
OFF-2, with an estimated 25% of the Amalia prospect contained within AREA
OFF-3, and

·    Morpheus: resource Estimate (EUR TCF, gross): P10/50/90 (ANCAP) -
8.96 / 2.69 / 0.84 - the Morpheus prospect is entirely contained with AREA
OFF-3.

During the initial 4-year exploration period, CEG's technical focus will be on
the re-evaluation of the existing 2D and 3D seismic data on the block, given
the renewed interest in the types of plays present in Uruguay triggered by the
recent conjugate margin discoveries offshore Southwest Africa. In particular,
the data and enhanced technical understanding provided from recent activities
in Namibia provides greater confidence that the regional petroleum system
charging Venus and Graff (offshore Namibia) is likely to be present offshore
Uruguay. As a result, traps that exhibit effective sealing mechanisms, and
which may previously have been overlooked or not considered viable, are now
potential exploration targets.

Moreover, AREA OFF-3 has the advantage of the majority of the block being
covered by 3D (2012 vintage, proprietary acquisition by BP and PGS) that could
be reassessed and subjected to the latest reprocessing technology - both in
terms of reviewing existing known prospects / plays and 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 (since May 2022 the AREA OFF-2 licence holder).

As noted by ANCAP, "with this new offer [to CEG], there are no more areas
available under the Open Uruguay Round". An updated map indicating the current
and proposed licence position in Uruguay, as published by ANCAP on 2 June
2023, is included in Appendix A.

AREA OFF-3 Licence Terms

The following Table 1 presents a summary of the key AREA OFF-3 licence terms,
as bid by CEG. As noted, these are similar to the terms applicable for AREA
OFF-1, apart from the minimum work commitment obligation and associated cost
for the 2D seismic reprocessing commitment: i.e., 1000 kms for AREA OFF-3 vs
2,000 kms for AREA OFF-1.

 Item                                                       Licence Provision                                                               Comment

 Operator:                                                  CEG

 Participating Interest:                                    CEG 100%.                                                                       ANCAP has the right to participate (up to 20%) in each commercial field that

                                                                               is developed. To exercise that right ANCAP must fund its relevant percentage
                                                            ANCAP has the right to back-in for up to a 20% Participating Interest.          share of costs (including back costs).

                                                                                                                                            No limitation on CEG being able to farm-down its working interest.

 Exploration Periods and Minimum Work Obligations ("MWO"):  Three exploration phases, either:                                               No drilling obligation in initial 4-year exploration period.

                                                            ·    Option 1: 4+3+3 or

                                                            ·    Option 2: 4+2+3                                                            CEG can elect, but is not required, to enter into Phase 2 or Phase 3

                                                                               exploration period.
                                                            Both Option 1 and 2 have an initial 4-year exploration period. Minimum work
                                                            obligation in this period is G&G studies and reprocessing of 1,000 kms of
                                                            legacy 2D seismic.

                                                            In Option 1 if the operator elects to move into the 2(nd) exploration period
                                                            for 3 years, a single exploration well is required, but there is no
                                                            relinquishment obligation. Option 2 allows for a shorter 2(nd) exploration
                                                            period of 2 years with a 50% relinquishment obligation and a requirement to
                                                            undertake technical work to an agreed level, but no drilling obligation.

                                                            Both Option 1 and Option 2 thereafter require drilling of two wells if the
                                                            operator elects to move into the final 3-year exploration period, with a 30%
                                                            relinquishment obligation.

 Minimum cost of MWO:                                       None specified.                                                                 CEG estimates the Minimum Work Obligation in Phase 1 will be approximately
                                                                                                                                            US$100,000 per annum.

 Contract Term:                                             30 years, with right to extend to 40 years.                                     Development period can be declared at such time as operator wishes - thus

                                                                                                                                          allowing for development period of +25 years.

 Fiscal Terms:                                              No royalties, signature bonus, or annual rentals. Licence regime is based on    An attractive, internationally comparable fiscal regime in a stable,
                                                            CEG as operator undertaking work and recovering costs based on a Cost Oil       well-regulated environment.
                                                            model, and thereafter a sharing of income between CEG and ANCAP based on a

                                                            standard industry "R factor" model (a revenue/cost ratio model). CEG net
                                                            profit is then taxed at normal Uruguay corporate income tax rate (25%).

 Other Costs:                                               The licence mandates annual contributions to various education and social       No annual licence fees.
                                                            funds and initiatives, of approximately US$50,000 per annum.

 

For further information, please contact:

 

 Challenger Energy Group PLC                     Tel: +44 (0) 1624 647 882

 Eytan Uliel, Chief Executive Officer
 WH Ireland - Nomad and Joint Broker             Tel: +44 (0) 20 7220 1666

 Antonio Bossi / Darshan Patel / Enzo Aliaj
 Zeus - Joint Broker                             Tel: +44 (0) 20 3829 5000

 Simon Johnson
 Gneiss Energy Limited - Financial Adviser       Tel: +44 (0) 20 3983 9263

 Jon Fitzpatrick / Paul Weidman / Doug Rycroft
 CAMARCO                                           Tel: +44 (0) 20 3757 4980

 Billy Clegg / James Crothers / Hugo Liddy

Notes to Editors

 

Challenger Energy is a Caribbean and Americas focused oil and gas company,
with a range of oil production, development, appraisal, and exploration assets
in the region. The Company's primary assets are located in Uruguay, where the
Company holds high impact offshore exploration licences, and in Trinidad and
Tobago, where the Company has a number of producing fields and earlier-stage
exploration / appraisal projects.

 

Challenger Energy is quoted on the AIM market of the London Stock Exchange.

 

https://www.cegplc.com (https://www.cegplc.com/)

 

COMPETENT PERSON STATEMENT

In accordance with the AIM Note for Mining and Oil & Gas
Companies, CEG discloses that Mr. Randolph Hiscock is the qualified
person who has reviewed the technical information contained in this
announcement. He has a Masters in Science (Geology) and is a member of the
AAPG & PESGB, and has over 35 years' experience in the oil and gas
industry.  Randolph Hiscock consents to the inclusion of the information in
the form and context in which it appears.

ENDS

 

ANNEXURE: UPDATED URUGUAY OFFSHORE LICENCE HOLDINGS

 

Source: ANCAP

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  MSCFZGGVVDRGFZM