URUGUAY AREA-OFF 1 UPDATE

Challenger Energy Group PLC

26 April 2023

 

26 April 2023

Challenger Energy Group PLC

("Challenger Energy" or the "Company")

URUGUAY AREA-OFF 1 UPDATE

Challenger Energy (AIM: CEG), the Caribbean and Americas focused oil and gas company, with a range of oil production, development, appraisal, and exploration assets, provides the following highlights from its technical assessment of the AREA OFF-1 block, offshore Uruguay.

HIGHLIGHTS

•     An initial prospect inventory of 1 to 2 billion barrels has been defined from CEG's 2D seismic reprocessing work

•     Three sizeable prospects have thus far been identified, derived from a range of play types consistent with those de-risked by recent successful conjugate margin drilling in Namibia by TotalEnergies and Shell

•     Prospects are seismically-derived, and supported / further de-risked by Amplitude Variation with Offset ("AVO") analysis

•     Play robustness is corroborated by geochemical sampling and satellite seep analysis

•     Conjugate margin success, competitive recent licensing rounds in Uruguay, and technical uplift from CEG's 2023 work will drive farm-out process, soon to be initiated

SUMMARY

·    The geotechnical assessment programme of the Company's AREA OFF-1 licence is on-track to be completed by Q3 2023. This accelerated work will satisfy the entire minimum work obligations for the block's initial four-year exploration period (i.e., to August 2026).

·    Reprocessing of 2,100 kms of legacy 2D seismic (completed) and interpretation and mapping (ongoing) has confirmed considerable value uplift for the AREA OFF-1 licence, with at least three high potential prospects identified from two material play types to date.

·    Technical de-risking has resulted from a range of workstreams, including AVO analysis, geochemistry seabed sampling, and satellite seep and slick imagery.

·    Prospect details are:

o "Teru Teru" prospect - a Cretaceous turbidite play; analogous petroleum system and reservoir age to Namibian ultra-deepwater discoveries; 460 km² in areal extent; Class II AVO supported; an estimated ultimate recoverable resource in excess of 700 MMboe; located in approximately 750 metres water depth; and with a reservoir depth of approximately 4,300 metres.

o "Anapero" prospect - a Cretaceous turbidite play; analogous petroleum system and reservoir age to Namibian ultra-deepwater discoveries; 500 km² in areal extent; Class III AVO supported; an estimated ultimate recoverable resource in excess of 500MMboe; located in approximately 750 metres water depth; and with reservoir depth of approximately 3,800 metres.

o "Lenteja" prospect - an Early Cretaceous alluvial fan representing a large stratigraphic trap; analogous to proven legacy shelf discoveries in Namibia and South Africa; 425 km² in areal extent; an estimated ultimate recoverable resource c. 500MMboe; located in approximately 85 meters water depth; and with a reservoir depth of approximately 5,000 metres.

·    Continuing discretionary technical work will seek to define additional leads and prospects, further refine previous mapping of identified prospects, generate volumetrics of identified prospects, and seek to further constrain key technical risks.

·    The Company has compiled a comprehensive data-room, which includes all new work completed, and following unsolicited interest from a number of industry counterparties a farm-out process is to be formally launched. Further announcements will be made as appropriate.

·    The objective is for the Company to accelerate value realisation from the AREA OFF-1 licence in Uruguay by introducing a strategic partner(s) during 2023, to fast-track 3D seismic acquisition, potentially via a multi-client acquisition in early 2024, as a precursor to further value-creating field activity.

An update Uruguay AREA OFF-1 presentation is now also available on the Company's website at www.cegplc.com. Additional details are also set out in the Appendix to this RNS.

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

"In 2020, when no other parties were ready to commit, Challenger Energy was first-mover into offshore Uruguay, securing the AREA OFF-1 block on an uncontested basis and on highly advantageous work terms. Since then, margin-opening discoveries offshore Namibia by TotalEnergies and Shell have made it possible to correlate what are now proven, oil producing source rocks directly across into the conjugate margin basins of Uruguay's waters.

As a result, Uruguay has become a new global exploration hotspot, evidenced by the fact that in the last 12 months all but one of the available offshore blocks have been licenced by oil majors and NOCs, bidding sizeable work programs.

In direct response to the exploration success in adjacent analogue basins and the emerging industry interest it generated, we committed to remaining ahead of the game, and in late 2022 opted to accelerated our AREA OFF-1 work program. The goal was to generate a newly derived, modern dataset supporting prospect definition. The resulting prospect inventory is now informed by reprocessed legacy 2D seismic, supported by AVO attribute analysis (hugely significant as this technique is widely used in the industry as a key indicator of potential hydrocarbons), and corroborated by additional geochemical and seep analysis studies.

The results from this work have been extremely promising, in that we are now able to announce a technically supported prospect inventory of between 1 to 2 billion barrels in this globally attractive exploration hotspot.

Our next-step objective is to farm-out to an industry partner(s), so we can fast-track a 3D seismic acquisition. The high-quality data set we have now compiled, and the intellectual property created, positions us well, and we will shortly be initiating a formal farm-out process.

The world for Challenger Energy is changing rapidly. I look forward to updating shareholders as the year progresses."

For further information, please contact:

Challenger Energy Group PLC Eytan Uliel, Chief Executive Officer	Tel: [phone]
WH Ireland - Nomad and Joint Broker Antonio Bossi / Darshan Patel / Enzo Aliaj	Tel: [phone]
Zeus Capital Limited - Joint Broker Simon Johnson	Tel: [phone]
CAMARCO Billy Clegg / Hugo Liddy / Sam Morris	Tel: [phone]

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 and licences, located onshore in Trinidad and Tobago, and Suriname, and offshore in the waters of Uruguay and The Bahamas. In Trinidad and Tobago, Challenger Energy has a number of producing fields and appraisal / development projects. In Suriname, Challenger Energy has on onshore appraisal / development project. Challenger Energy's exploration licences in Uruguay and The Bahamas offer high-impact value exposure within the overall portfolio value.

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

https://www.cegplc.com 

COMPETENT PERSON STATEMENT

Technical work referred to in this announcement has been undertaken by various independent third-party specialist advisors. This technical work has been overseen by Mr. Randolph Hiscock the Company's New Business Director and Uruguay Managing Director.

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 presentation. 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.

APPENDIX - AREA OFF-1 UPDATE: ADDITIONAL INFORMATION

Background

·    The Company was awarded the AREA OFF-1 block, offshore Uruguay, in June 2020. Following presidential approval, formal signing of the licence took place on 25 May 2022, and the initial four-year exploration term commenced on 25 August 2022.

·    The AREA OFF-1 block is a large, offshore block covering approximately 14,557 km² located approximately 100 kms offshore Uruguay, in water depths ranging from 80 meters to 1,000 meters.

·    The Company has a 100% working interest in the AREA OFF-1 licence.

·    The Company's minimum work commitments in the initial four-year exploration period required licencing 2,000 kms of legacy 2D seismic data from ANCAP (the Uruguayan national oil company and energy regulatory body), reprocessing of same 2D seismic data, and completion of a geological and resource potential study. There is no requirement to acquire 3D seismic or drill a well during the initial four-year exploration period. The Company is, however, permitted to accelerate work from future exploration periods into the current initial exploration period, with any accelerated work credited against subsequent period obligations.

Conjugate context - the significance of Namibian super-discoveries

·    The AREA OFF-1 licence is located in the Punta del Este Basin, along the Uruguay-Argentina continental margin. This basin is a direct conjugate to the Orange Basin offshore southern Namibia and northern South Africa - i.e., these two basins were co-joined prior to continental separation and, are believed to have similar geological characteristics (as demonstrated by correlating regional 2D seismic data across the South Atlantic), particularly in terms of the potential presence of source rocks and petroleum systems.

·    Offshore Namibia, two substantial margin-opening discoveries have been made over the past 15 months, being TotalEnergies' Venus well (February 2022), later confirmed by Shell's Jonker well (March 2023) and a second play by Shell with its Graff & La Rona discoveries (February and April 2022).

·    These discoveries have transformed industry perception not just of Namibia, but also of the potential of the South Atlantic conjugate margin (i.e., those basins across the Uruguay-Argentina continental margin, including the AREA OFF-1 in the Punta del Este Basin). This is because the Early Cretaceous Aptian source interval that charges Venus and Jonker can be seismically correlated to the South Atlantic (Uruguay-Argentina) conjugate basins, including the Punta del Este Basin in which AREA OFF-1 is located. This establishes the potential for a new, prolific petroleum system along the South Atlantic (Uruguay-Argentina) conjugate basins.

Impact on activity in Namibia

·    The recent discoveries in Namibia have resulted in considerable additional industry activity in Namibia now being planned over the next 12 to 18 months. TotalEnergies has commenced a drilling campaign to drill up to four appraisal wells from March 2023, the objective being to define the scale and scope of the Venus discovery, and fast-track an ultra- deepwater development. It has been announced that over 50% of TotalEnergies' global exploration budget for 2023 is earmarked for Namibia.

·    Similarly, Shell has indicated that it intends to drill up to ten Namibian wells in 2023 / 2024 (a mix of exploration and appraisal wells), GALP has advised it will be drilling a well in 2023 on PEL83 in Namibia, and Maurel & Prom have indicated a five well campaign offshore Namibia, commencing 2023.

·    Additionally, the recent discoveries in Namibia have seen an increase in high-value transactional activity relating to Namibian licences. In October 2022, Chevron farmed-in to PEL 90 offshore Namibia, for a reported majority interest and operatorship, and with a carry to the farminee that covers a seismic campaign and initial exploration well drilling - estimated transaction value circa US$80 million. In March 2023, Woodside secured an exclusive option to acquire 56% working interest in PEL 87 offshore Namibia by funding a fully carried 3D seismic survey - estimated value at US$35m - and an optional carry on an initial exploration well.

·    The Company believes a similar activity trajectory is likely over the coming years in Uruguay and northern Argentina.

Impact on activity regionally

·    The recent discoveries in Namibia have also had an impact south of Uruguay, offshore Argentina. There, the country's first ultra-deepwater well (Argerich-1) is planned for spud during Q2 2023 with Equinor (the Norwegian state-owned oil and gas company) as the operator and Shell as partner. The well is to be drilled approximately 300 kms offshore Argentina, in water depths of approximately 1,500 meters, to a projected total depth (TD) of approximately 4,050 meters. The well is targeting Cretaceous basin floor sandstones similar to TotalEnergies' Venus well offshore Namibia.

·    Additionally, Equinor in conjunction with partner YPF has received environmental approvals to acquire 3D seismic across three blocks offshore Argentina, and other operators including Shell and TotalEnergies, along with partners BP and Qatar Energy, are likewise anticipated to acquire 3D seismic during 2023 / 2024.

·    The Company considers that Uruguay will benefit from these activities / operations being conducted in the broader area and which are now being accelerated as a result of the Namibian conjugate margin discoveries.

Uruguay licensing activity

·    The Company considers that the conjugate margin discoveries in Namibia have also validated its early entry strategy in Uruguay.

·    Specifically, the Company was the first operator to enter Uruguay in 2020, pre-dating the conjugate margin discoveries offshore Namibia. Until the start of 2022, the Company was the only offshore acreage holder in Uruguay, having bid for the AREA OFF-1 licence on the basis of a modest, low-cost work programme.

·    However, since the discoveries offshore Namibia, five blocks offshore Uruguay have been awarded, all in 2022, to Shell, APA Corporation (formerly, Apache) and YPF (the Argentinian state-owned oil and gas company), such that now all but one available Uruguay offshore blocks is licenced, and the Company is the only junior present.

·    These new entrants have made substantial work programme commitments for the first four-year exploration periods of their relevant licences, including 3D seismic licensing, acquisition and reprocessing, exploration well drilling and geological and geophysical studies. The estimated aggregate value of the work program bid for these subsequent licences is approximately US$250 million (in aggregate, across the five blocks).

AREA OFF-1 Technical work update

·    Following the conjugate margin drilling successes in Namibia referred to above, and given the interest this has generated in Uruguay, in late 2022 the Company decided to accelerate its initial work program for the AREA OFF-1 block. The objective was to rapidly improve the geotechnical understanding of the block and to assemble a state-of-the-art offshore data set, thereby optimally positioning the Company for securing a farm-out partner.

·    Work commenced in late 2022, and since that time the minimum work program obligation of licencing and reprocessing legacy 2D seismic has been substantially completed. The Company is on-track to fully complete the minimum work program obligation in Q3 2023, through the preparation of required Geological and Geophysical ("G&G") reports. Thereafter, the Company will have no obligatory work program commitments until the second exploration period, which will only commence in August 2026.

·    In addition to work required to satisfy the minimum work program obligation, over the past six months the Company has also executed certain additional technical work items, aimed at further de-risking and high-grading the identified leads and prospects. This includes Amplitude Variation with Offset (AVO) attribute analysis of select 2023 reprocessed 2D seismic lines, seabed geochemistry analysis, and acquiring a satellite seeps and slicks imaging study. Each of these is discussed in brief detail below.

2D Seismic reprocessing and interpretation

·    The Company acquired 4,760 kilometres of legacy 2D seismic data from ANCAP (the Uruguayan energy regulatory body), and licenced a further ~2,100 kilometres of high-graded legacy 2D seismic data from ANCAP for seismic reprocessing. This licenced 2D seismic data has now been fully reprocessed in both time and depth domains, the work having been conducted by Down Under Geophysics, a specialist seismic reprocessing firm in the United Kingdom.

·    This work has resulted in a substantial uplift in seismic imaging and improved data resolution. This in turn, has provided enhanced fault definition, and enabled better identification of seismic facies and refined prospect mapping. The newly reprocessed 2D data has also facilitated an AVO attribute analysis study referred to below.

AVO attribute analysis

•     Amplitude Variation with Offset (AVO) attribute analysis is an advanced processing workflow used in the international hydrocarbon exploration industry because (in general terms) certain AVO anomalies are considered to be indicators of the presence of reservoir zones (sand vs. shale) and potentially, hydrocarbons / fluids in reservoir. 

•     The Company selected six reprocessed high-graded 2D seismic lines for an initial AVO screening. This work was undertaken by LEAN Geosolutions, a specialist firm in advanced seismic attribute evaluation based in Houston. This initial AVO analysis has led to the identification and definition of three primary prospects (described further below) from the reprocessed and reinterpreted 2D seismic data, and corroborated by the other geochemical studies described below.

•     Based on the excellent results from AVO attribute analysis thus far, a further seven lines of reprocessed 2D seismic data have now been selected for similar assessment, with work commenced - this is expected to be completed in approximately two months.

Seabed geochemistry study

•     The Company acquired and integrated a seabed geochemistry study conducted by Applied Geochemical Imaging, Houston, in 2017. In this study, 59 box core seabed samples were acquired across all Uruguay offshore maritime areas, to determine the presence of active petroleum systems and detect micro-petroleum seepage from subsurface reservoirs. 117 geochemical samples from these 59 locations were analyzed for hydrocarbons.

•     This study indicates that the highest hydrocarbon values are to be found within the AREA OFF-1 block. The hydrocarbon compound responses and signatures are consistent with active petroleum micro-seepage along the continental shelf break of AREA OFF-1 that forms an anomalous fairway along the block's southern boundary and directly overlies seep and slick anomalies (described below) - thus increasing geological confidence.

Satellite seep and slicks imagery

·    A second study commissioned by the Company was a review of available satellite seep and slick imagery. Satellite images covering approximately 4,000 km² of AREA OFF-1, analysed over several decades for repeatability, were analysed for seeps and slicks. The study was conducted by SAR Satellite Oil Seeps, a specialist firm in France.

·    This study validated the presence of 31 oil seeps. When overlaid on the Company's seismic data set, good geospatial alignment of those identified seeps to mapped seismic prospects is observed, thus providing additional corroboration of seismically defined prospects at the same locations.

Integration, seismic interpretation, and mapping

·    A final body of required work was to interpret the results of the reprocessed 2D seismic, and then integrate that with the result of the AVO attribute analysis and other workstreams, to identify leads and prospects, and to generate prospect maps. This work (still ongoing) is being conducted by Molyneux Advisors, geotechnical interpretation consultants based in Perth, and has thus far resulted in three primary prospects being identified and mapped, each of which is described briefly below.

Teru Teru prospect

·    The Teru Teru prospect is a Mid Cretaceous onlap turbidite play with the same petroleum system and reservoir type as evident in Venus and Jonker discoveries offshore Namibia. This prospect has been identified based on three reprocessed seismic lines, mapped to be approximately 460 km² in size, corroborated with AVO analysis indicating porous sand and potential hydrocarbon presence, and calibrated with the geochemical seabed survey and satellite seeps studies. On a preliminary basis the Teru Teru prospect is estimated to contain in excess of 700 MMboe Estimated Ultimate Recovery ("EUR") (subject to final volumetric determination). Based on current mapping, this prospect straddles the AREA OFF-1 and AREA OFF-4 boundary. However, and critically, the up-dip termination is believed to lie on AREA OFF-1, including the trapped area above the projected oil-water contact.

Anapero prospect

·    The Anapero prospect is a slightly younger Upper Cretaceous shelf margin turbidite play with the same petroleum system and reservoir type as reported in the Venus and Jonker discoveries, as with the Teru Teru prospect. This prospect has been identified based on several reprocessed seismic lines, mapped to be approximately 500 km² in size, and further corroborated with AVO analysis indicating potential porous sands and again calibrated with the geochemical seabed survey and the satellite seeps studies. On a preliminary basis the Anapero prospect is estimated to contain in excess of 500 MMboe EUR (subject to final volumetric determination). Based on mapping, this prospect also straddles the AREA OFF-1 and AREA OFF-4 boundary however, stratigraphic trap extents are largely contained inside AREA OFF-1.

Lenteja prospect

·    The Lenteja prospect is an Early Cretaceous stratigraphic syn-rift clastic play similar to the Kudu field in Namibia, the AJ-1 and Ilhubhesi discoveries in South Africa. This prospect has been identified based on multiple reprocessed seismic lines, and mapped to be approximately 425 km² in size. Early Cretaceous drift sediments overlie the Lenteja prospect, which is sealed by a major Early Cretaceous syn-rift unconformity. The Lenteja prospect has a highly reflective, isolated seismic facies package within a NW-SE trending horst block that dips south along with significant stratigraphic entrapment. On a preliminary basis the Lenteja prospect is estimated to contain c. 500 MMboe EUR (subject to final volumetric determination).

Remaining technical work for 2023

·    As noted, completion of the minimum work program obligation for AREA OFF-1's initial four-year exploration period requires the Company to generate two specified G&G reports. This work is imminent after the geophysical mapping is complete, and the Company anticipates to finalize these studies and report out to ANCAP in Q3 2023.

·    In parallel, further discretionary work is also ongoing, to complete prospect mapping and integrating the 2023 reprocessed 2D with the historic 2D seismic data, to conduct AVO analysis of a further seven reprocessed 2D seismic lines, and to finalise volumetric assessment and risked ranking of all identified leads and prospects.

Farm-out process

·    The Company's commercial objective through the remainder of 2023 is to introduce an industry partner(s) to AREA OFF-1, with the objective of providing the Company certain liquidity and at the same time to fast-track a discretionary 3D seismic acquisition programme in early 2024 (either independently or, more optimally, by participating in a multi-client 3D seismic acquisition programme).

·    Various seismic vendors have already proposed a multi-client 3D seismic acquisition programme offshore Uruguay, commencing early 2024, which would potentially cover up to 5,000 km² of AREA OFF-1, encompassing all the identified leads and prospects on AREA OFF-1. The Company understands that these seismic vendors have already made application for requisite environmental permits from the Uruguayan Ministry of Environment and ANCAP.

·    A virtual data room has been assembled, and the Company will shortly be launching a formal farm-out process. The Company will make further announcements as appropriate in due course.

ENDS

 

END