Challenger Energy Group PLC AREA-OFF 3 - URUGUAY (5725B)

TIDMCEG

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 2 8,000 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

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   CEG 100%.                               ANCAP has the right to participate 
  Interest:       ANCAP has the right to                  (up to 20%) in each commercial 
                  back-in for up to a 20%                 field that is developed. 
                  Participating Interest.                 To exercise that right ANCAP 
                                                          must fund its relevant percentage 
                                                          share of costs (including 
                                                          back costs). 
 
                                                          No limitation on CEG being 
                                                          able to farm-down its working 
                                                          interest. 
                --------------------------------------  ----------------------------------- 
 Exploration     Three exploration phases,               No drilling obligation in 
  Periods and     either:                                 initial 4-year exploration 
  Minimum Work     *    Option 1: 4+3+3 or                period. 
  Obligations 
  ("MWO"):                                                CEG can elect, but is not 
                   *    Option 2: 4+2+3                   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    None specified.                         CEG estimates the Minimum 
  of MWO:                                                 Work Obligation in Phase 
                                                          1 will be approximately 
                                                          US$100,000 per annum. 
                --------------------------------------  ----------------------------------- 
 Contract        30 years, with right to                 Development period can be 
  Term:           extend to 40 years.                     declared at such time as 
                                                          operator wishes - thus allowing 
                                                          for development period of 
                                                          +25 years. 
                --------------------------------------  ----------------------------------- 
 Fiscal Terms:   No royalties, signature                 An attractive, internationally 
                  bonus, or annual rentals.               comparable fiscal regime 
                  Licence regime is based                 in a stable, well-regulated 
                  on CEG as operator undertaking          environment. 
                  work and recovering costs 
                  based on a Cost Oil 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             No annual licence fees. 
                  contributions to various 
                  education and social funds 
                  and initiatives, of approximately 
                  US$50,000 per annum. 
                --------------------------------------  ----------------------------------- 
 

For further information, please contact:

 
 Challenger Energy Group PLC              Tel: [phone] 
  Eytan Uliel, Chief Executive Officer     882 
 WH Ireland - Nomad and Joint Broker      Tel: [phone] 
  Antonio Bossi / Darshan Patel / Enzo     1666 
  Aliaj 
 Zeus - Joint Broker                      Tel: [phone] 
  Simon Johnson                            5000 
 Gneiss Energy Limited - Financial        Tel: [phone] 
  Adviser                                  9263 
  Jon Fitzpatrick / Paul Weidman / Doug 
  Rycroft 
 CAMARCO                                  Tel: [phone] 
  Billy Clegg / James Crothers / Hugo      4980 
  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

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

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June 05, 2023 02:00 ET (06:00 GMT)