Challenger Energy Group plc (LON:CEG) Chief Executive Officer Eytan Uliel caught up with DirectorsTalk for an exclusive interview to discuss the completion of the technical assessment, future plans for the licence, other key players in the area, comparisons between Uruguay and Namibia, and the progress of other assets in their portfolio.
Q1: First off, it’s great to see Challenger Energy progressing in Uruguay with the recent completion of the technical assessment of the AREA OFF-1 block. Can you take us through the highlights of the assessment?
A1: Over the last 6 months, we’ve been doing technical work on the AREA OFF-1 block and this is the first time we’re able to speak publicly about the outcomes of that work, we’re very excited about the outcomes.
What we’ve identified is a prospect inventory thus far from two plays, three very sizeable material prospects that in aggregate represents a prospect inventory between 1-2 billion barrels of potential oil recovery. So, that’s a very material, global scale project in the making.
The technical work we’ve done had multiple strands. We reprocessed existing 2D seismic, we subjected that reprocessed data to AVO, Amplitude Variation Offset, we corroborated it with a seabed geochemistry study and with a satellite seep study. So, all of these things are what has enabled us to advise of the prospect inventory I mentioned.
We’ve got work ongoing, we’re still looking at some other leads, some other prospects, but we think this really positions us very well for the next phase of the licence.
Q2: What can you tell us about the future plans of the license?
A2: Apart from the ongoing technical work that will finish up over the next few months, we were looking at volumetric assessment and really defining the play and the prospect mapping, the next important technical step will be a 3D seismic acquisition.
We would like for that to happen in early 2024 and ahead of that, we need to bring in a big industry partner, one of the super majors who will partner with us in that 3D seismic programme.
So, the balance of 2023 is finish the technical work we’re doing but the real value driver for the company in the next 6 months now is going to be bringing on board an industry partner to help us move this forward into 3D seismic early next year.
Q3: What was it that drew you to the Uruguay and offshore and are there other key industry players in the area?
A3: We first entered this licence in early 2020 when the world was in the grips of the rarely stage pandemic and lockdown. At that time, we were the only participant in Uruguay, we were the first, you might say, early mover entrant into the Uruguay offshore space.
What we saw back then was great geological potential, we knew that Uruguay was a great place to do business, it routinely ranks as the number one country in South America on all sorts of metrics, social stability, control of corruption etc.
The licence terms being offered were very good and because we were the only people entering at that stage, we were able to secure the licence with a very modest initial work programme.
So, that’s what attracted us to it in the first place.
To answer the second part of your question, in the last 12 months every other available licence in Uruguay, bar one, has been taken out but by much much larger companies so by Shell, by APA (previously known as Apache) and by YPF, the Argentinian national oil company. Equally telling is the list of companies that applied for licences but were not successful in getting them, the ‘who’s who’ of the international oil industry.
So, from being the only player in Uruguay about 12 months ago, we are now the only junior player surrounded as it were by much larger companies who are all very attracted to Uruguay. Compared to the modest work programme we acquired our licence on, they’ve made enormous work commitments, in aggregate about $250 million over the next few years.
Q4: Why are comparisons being drawn with discoveries offshore Namibia?
A4: Well, that’s what has drawn in all these other participants. So, Namibia, which is on the west coast of southern Africa, in early 2022, there were two very similar discoveries made there, one by Total, the Venus discovery, and one by Shell, the Graff discovery.
These are some of the largest deep water discoveries in history and what that did is it proved that Aptian source rock in the waters of Namibia was producing oil. The geological mirror of Namibia is Uruguay and northern Argentina so back when the world was one big land mass, when it separated out, what is today Namibia, what is today Uruguay and North Argentina were right adjacent to each other, So, it’s the same source rock evident in both.
That is why people are drawing the comparison to what’s happening in Namibia and that is why there’s been a stampede, as it were, of companies now taking out licences in Uruguay. They see it as the next frontier province.
Q5: Finally, can you just update shareholders on any other assets in the Challenger Energy portfolio?
A5: Uruguay obviously is the principal focus of all activity and interest at the moment but we do have a broader business.
In Trinidad, we have a number of producing oil fields, the strategy there is very simple, to maximise production, to drive profitability from those fields and to monetise non-core assets. On each of those metrics, we’re doing quite well at the moment, production is up, we’re seeing tight cost control management so that business is operating self-sufficiently. Earlier this year, we were able to advise that we managed to sell a couple of core-core assets, one is done, one is in process, and a few more to come.
In Suriname, we have an onshore appraisal project so that licence requires a test well to be drilled. We’re busy doing some of the propriety work around that with discussion with the regulators about exactly when and how that will happen. Current estimates is that will be sometime in the next 12months, and that will be a test really to see if the Suriname project can become an economically viable production project.
As people who follow the company will know, we have legacy offshore licences in the Bahamas where we drilled an exploration well a couple of years ago. We’ve applied for those licences to be renewed, that’s a long drawn out negotiation with the government in Bahamas. In parallel, we’re looking at some alternative means of achieving value from those licences.
So, there’s lots of activity going on in the rest of our portfolio but just to stress again, we really are focussed at the moment on maximising our Uruguay opportunity. That’s really where we see in 6 months, the ability to make a big difference and to drive some real shareholder value creation.