Challenger Energy Group (LSE:CEG)- Chevron-Backed Explorer Preps Second Uruguay Farm-Out in Mid 2025

Dec 18, 2024

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Interview with Eytan Uliel, CEO of Challenger Energy Group PLC

Our previous interview: https://www.cruxinvestor.com/posts/challenger-energy-group-lonceg-high-risk-high-reward-oil-play-with-chevron-5146

Recording date: 16th December 2024

Challenger Energy Group, an AIM-listed oil exploration company, is making significant strides in offshore Uruguay's emerging oil province. The company holds two key offshore blocks - Area OFF-1 and Area OFF-3 - in the Pelotas Basin, which is geologically similar to Namibia's Orange Basin where major oil discoveries were made by TotalEnergies and Shell.

In March 2024, Challenger achieved a major milestone by signing a farm-out agreement with Chevron for Area OFF-1. Under the deal, Chevron acquired a 60% operating stake in exchange for $12.5 million cash upfront and committed to carrying Challenger through a substantial 3D seismic program. Challenger retained a strategic 40% interest, providing flexibility for potential future partnerships.

The company's Area OFF-3 block is following a similar development path, with 3D seismic reprocessing currently underway. Management plans to launch a farm-out process by mid-2025, targeting a deal by year-end. CEO Eytan Uliel describes Area OFF-3 as "as exciting, if not more so, than Area OFF-1."

Following Chevron's cash payment, Challenger is fully funded for its 2025 work program, with drilling targeted on both blocks for 2027. The company maintains a lean overhead structure and benefits from Chevron's seismic carry, putting it in its strongest financial position in five years.

The geological potential of the region has attracted major industry players. Following Challenger's early entry, companies including Shell, APA, and YPF have licensed the remaining offshore areas in Uruguay. This surge in interest follows significant discoveries in Namibia's Orange Basin, which shares geological characteristics with Uruguay's offshore basins.

Despite these positive developments, Challenger's market capitalization remains modest at £13.5 million, with shares trading at around 5.35p. According to CEO Uliel, this represents a significant discount to the value of Chevron's cash and carry payments alone, suggesting a potential four to five-fold upside based on current market value.

Key upcoming catalysts include Area OFF-1 3D seismic acquisition and processing, Area OFF-3 seismic reprocessing results, Area OFF-3 farm-out, and drill planning for both blocks. The company benefits from strategic backing, including investment from experienced energy fund Charleston Energy Partners.

As Uliel notes, "Uruguay is where Namibia was three or four years ago," suggesting significant growth potential as the region develops. With a tightly held shareholder register and multiple near-term catalysts, Challenger offers investors exposure to a potentially transformational exploration program at an early stage.

View CEG's company profile: https://www.cruxinvestor.com/companies/ceg-plc