WTI (July) $71.74 +$1.64, Brent (Aug)* $76.13 +$1.85, Diff -$4.39 +21c
USNG (July) $2.17 +2c, UKNG (July) 56.46p +1.84p, TTF (July) €25.005 +€1.60
*July expiry

Oil price

Opec was actually nearly as expected, the KSA have decided to become the owner of the marginal barrel and will cut to whatever it takes to defend what looks like being around $80. For the time being things might stay quiet enough but when the market turns well as they say in all the best movies, when you’ve got them by the short and curlies their hearts and minds will follow. You have been warned, Neom City needs to be paid for.

Challenger Energy Group

Challenger 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 km2, and will increase CEG’s total Uruguay acreage holdings to ~28,000 km2, 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.”

Challenger has certainly been getting a move on in Uruguay and also keeping its cards close to the chest, indeed it appears to have added to what is already a significant portfolio not just by stealth but by using the similar, successful geotechnical de-risking approach that they applied on AREA OFF-1.

I like the idea that ‘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.

There is no doubt that as a much smaller company CEG has a different route, indeed a totally different strategy to that of other, larger players but historically E&P companies have led the way in frontier exploration and there is no reason why this shouldn’t be the same here.

When I spoke to CEO Eytan Uliel last week he was understandably delighted, not so much that they had found the acreage way back in the pandemic but that the farm-out process has seemingly found many very grown-up names in the data room as well as those neighbours who don’t need the first few chapters of the book being explained to them.

They may not have so much moulah in the bank right now but they have latched on to a package of acreage that somehow everybody seems to want, to me that is where 10 baggers come from…

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 km2 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”. 

SDX Energy

SDX has announced that it has, together with the Office National des Hydrocarbures et des Mines (“ONHYM“), renegotiated a gas sales agreement with one of its key customers in Morocco aligned with the regional development strategy and consequently will receive a higher gas price for production with effect from 1 May 2023.

This price increase will enable the Company to expand its exploration and production in Morocco, and permitting for the summer drilling campaign has already commenced.

Morocco remains a core focus for SDX and the Company is well placed to seize the opportunities presented by a very demanding energy market.

Jay Bhattacherjee, Interim Executive Chairman, said:
“We are delighted that we have been able to renegotiate the gas sales agreement with one of our key customers and would like to thank ONHYM for its continued support. Morocco remains a core area for us and we endeavour to expand our energy provider footprint in the country.”

Good news for SDX, not going to set the world alight but then we don’t know much about the actual numbers yet and if you do business with SDX you will be aware that they are on the move, Jay’s on the move….

Hunting

Hunting has announced that it has entered into a 10-year Strategic Partnership with Zhejiang Jiuli Hi-Tech Metals Co., Ltd  for the supply of corrosion resistant alloys for Oil Country Tubular Goods, carbon capture, utilisation and storage and geothermal applications.

CCUS and geothermal are two end-markets that Hunting is pursuing as part of its strategy to become a key supplier to these sectors by providing project developers with critical supply channels and the premium connections required for these increasingly challenging technical projects, which operate in demanding sub-surface environments. All these end-markets are believed to show robust demand and growth in the medium to long term.

The partnership brings together Hunting’s Seal-Locktm premium connection technology with Jiuli’s CRA, such as duplex/super duplex and high nickel-based alloys, for downhole casing and production tubing applications, which meet some of the harshest well conditions in the traditional oil and gas industry as well as the emerging CCUS and geothermal markets. The partnership also adds to Hunting’s existing OCTG product portfolio and enables the supply of the widest range of premium OCTG for its client base, within the international energy and transition markets, as projects accelerate in the key areas of North America, Middle East and Africa and Asia Pacific.

Zhejiang Jiuli Hi-Tech Metals Co., Ltd., is listed in Shenzhen, China, and was established in 1987. Jiuli specialises in the research and development and production of industrial stainless steel and special alloy pipes, bars and other pipeline products. As a leading CRA supplier in China, its products export to more than 70 countries for oil and gas, photovoltaic energy, solar energy and wind energy applications.

Commenting on trading, Jim Johnson, Chief Executive, said:
“Our relationship with Jiuli has been strengthening over the past three years and this partnership provides both partners a strategic framework to move up the value chain in offering world class quality premium CRA tubing and casing with Hunting’s Seal-LockTM premium connection to the oil and gas, CCUS and geothermal industries”

“Hunting continues to make strong progress in its energy transition strategy, which will be a key area of growth in the coming years.”

This is a very handy relationship and in the world of premium tubing, where Hunting has for many years had leading market position this deal does what it says on the tin. It will be a world class JV at a time when Hunting’s order book is in very good nick indeed. 

KeyFacts Energy Industry Directory: Malcy's Blog