Challenger Energy Group plc (LON:CEG) Chief Executive Officer Eytan Uliel caught up with DirectorsTalk for an exclusive interview to discuss the transformational deal with Chevron, appointing Stifle as a broker, and the progress of the Area OFF-1 & Area OFF-3 licences.
Q1: First off, congratulations on the progress being made on the transformational deal with Chevron, could you just talk us through what the next couple of months look like for Challenger Energy Group?
A1: The agreement we have with Chevron, a farming agreement whereby Chevron will become a partner and the operator of our flagship license in Uruguay is progressing towards completion. We made an announcement a few weeks ago that the regulatory authority in Uruguay, ANCAP, has approved the farm out so there’s a few administrative steps that need to happen and we expect that to complete in the next 2-6 weeks. Really, it’s just administrative now to reach the end.
As soon as that happens, Chevron will be getting on with their work programme. The work programme is to see 3D seismic acquisition occur in the next available shoot window, which is the first few months of next year. So, we expect that we’re going to see some really accelerated activity on Area OFF-1 and that’s what actually ultimately proves up the value of this license.
In parallel, we have a second license in Uruguay, Area OFF-3. We’ve commenced our technical work programme on that, that is really going to start to accelerate as soon as we’ve finalised the Chevron farm out for Area OFF-1. We’re looking towards having new technical data from that license again during the first half of next year, with a view to kicking off a partnering process, looking for a farm out partner for that license starting middle of next year.
The next 7/8 months is a busy time for us and really the culmination of everything we’ve been working at for the last couple of years. So, we’re pretty pumped and excited at that challenge at the moment.
Q2: Now, arguably, one of the most exciting parts of the portfolio is the Area OFF-1 license farm out. Can you just remind us of the key contributions that Chevron will add to the asset?
A2: So, the fundamental thing we wanted in finding a partner was someone with capability, global capacity, reputation, etc. who could take the asset forward at pace.
So, the most important thing is, as I said, they’re going to be doing a 3D seismic acquisition and Chevron as the operator will manage that programme. They will pick up all of the costs of that, carrying us for $15 million worth of our share of costs and they will get 60% stake and we’ll have a 40% stake. Thereafter, if Chevron decides they want to progress with drilling of a well, again, they will carry 50% of our costs up to a cap of $20 million net to us. As an entry fee to all of this, as soon as we complete the deal, so in the next several weeks, we get a check of $12.5 million cash, which we can then apply to whatever we want.
So, in a financial sense, it’s a fantastic outcome. We get cash, we get the work programme carried for the seismic and partially for the first well and in an operating sense, we have one of the best companies in the world committing their full resource and technical capability towards the asset.
Q3: It’s also exciting to see that you’ve appointed Stifle as broker. Are you excited about the growth that they could add to the stock?
A3: Yes, so Stifle have a great reputation. They’re one of the leading brokers in our market and in our sector and I think it’s a reflection of the fact that Challenger Energy today is a very different company to what it was two or three years ago. The focus has changed, the strategy has changed.
Once the deal with Chevron completes, we’re cashed up, we’re fully funded and we have a great runway of news and activity and value creating things happening, as I described earlier.
As part of that, we are reshaping our ecosystem. We have a fantastic relationship with Zeus Capital, who are our nomad and broker but to broaden the coverage, the research, the access to the investor base, etc., and in particular, Stifle have a fantastic franchise in North America. We have very limited access to that investor community so we were delighted with the fact that they wanted to take us on, as I say, a reflection probably of where we’ve come to in the growth profile ahead.
Q4: It’s also exciting that in a new frontier such as Uruguay, you’ve got two blocks. Can you offer any updates for investors on the Area OFF-3 license?
A4: Yes, as I mentioned earlier, Area OFF-3 is different to Area OFF-1, in that it already has historic 3D seismic data so there’s no requirement to go and reshoot that. The requirement is to get hold of that data, which we’ve done, and to begin a process of reprocessing it and applying latest technology and understandings to that reprocessed data.
So, that work is presently underway. We’re expecting that we’ll start to see the first outputs of that work early next year, with the completed body of work during the first half of next year. I can’t predict what it’s going to say, but we’re hopeful that it will validate everything we think about the block in terms of the prospectivity, the structures that have been identified.
The part of that work is you do a formal volumetric assessment to identify what you think the capacity and prospect of the block is, and once we’ve got all of that data, we’re in a position to open a data room, run a formal process, go out to all the big companies of the world and say, hey, have we got a deal for you?
So, as I’ve said, we’re hoping to be able to commence that round about the middle of next year. That’s almost like a play and repeat for what we did on Area OFF-1 and as it turned out, what we did very successfully for Area OFF-1, pick up the block, do high quality technical work and migrate that into a farm out process. So, we’re at the beginning of that process now with Area OFF-3 as well.
