Offshore Technology

Challenger Energy, Chevron sign farm-out agreement for Uruguay offshore block

Chevron will become the operator of the AREA OFF-1 block with a 60% participating interest, while CEG Uruguay will retain a 40% stake.

Challenger Energy and its subsidiary CEG Uruguay have signed a farm-out agreement with Chevron subsidiary Chevron Uruguay Exploration for a 60% interest in the AREA OFF-1 block offshore Uruguay.

Chevron will become the operator of the block with a 60% participating interest, while CEG Uruguay will retain a 40% non-operating stake.

Under the terms of the agreement, Chevron will make a $12.5m payment to Challenger Energy upon completion of the transaction.

The proceeds will support the development of Challenger's business.

Additionally, Chevron will cover 100% of CEG Uruguay's costs for a 3D seismic campaign on AREA OFF-1, up to $15m net to CEG Uruguay.

Following the seismic campaign, if Chevron opts to drill an exploration well, it will carry 50% of CEG Uruguay's share of the costs, capped at $20m net to CEG Uruguay.

The completion of this transaction is subject to regulatory approvals from Uruguayan authorities, which are expected to take several months.

Located around 100km offshore Uruguay and covering approximately 14,557km², AREA OFF-1 was awarded to Challenger in June 2020. The initial four-year exploration term began on 25 August 2022, with the minimum work commitment already fulfilled by Challenger as of 31 December 2023.

Challenger CEO Eytan Uliel said: “We firmly believe that AREA OFF-1 holds enormous potential, and this farm-out is strong validation of the high-quality technical work CEG has done to-date.

“Our stated strategy for AREA OFF-1 was to introduce a larger industry player as operating partner, with a view to rapidly progressing the block via an accelerated 3D seismic campaign followed by, we hope, exploration well drilling.

“The farm-out achieves this aim, and we look forward to continuing on our exciting journey in Uruguay, both on AREA OFF-1, now in partnership with Chevron, and also on our still wholly owned AREA OFF-3 block. We are grateful to ANCAP for the confidence shown in CEG when awarding these blocks, and we thank our stakeholders for their continuing support.”

Gneiss Energy served as the financial advisor to Challenger Energy for this transaction.

Earlier this year, Reuters reported that Chevron was looking to sell its natural gas business in the Duvernay Shale in central Alberta, Canada.