Challenger Energy (LON:CEG), a company specializing in oil and gas exploration, has announced that it has been chosen by the Government of Trinidad and Tobago to enter negotiations with the Ministry of Energy and Energy Industries. The purpose of these negotiations is to obtain an Exploration and Production License for the Guayaguayare Block.
The Guayaguayare Block is of significant interest to Challenger Energy as it completely surrounds the company’s existing Goudron license area. This block is considered highly prospective, as it is one of the least explored and underdeveloped onshore areas in Trinidad. Furthermore, the block benefits from the knowledge gained from 65 legacy wells within its boundaries, many of which are currently not in operation. Reactivating and servicing these wells presents an opportunity for near-term production gains with minimal costs. In terms of size, the onshore Guayaguayare Block is one of the largest in the country, covering a surface area of 306 square kilometers.
The specific terms and conditions of the license, including the minimum work program, will be advised by Challenger Energy upon the completion of negotiations with the Ministry of Energy and Energy Industries.
It is important to note that Challenger Energy has strategically focused its operations in the South East of Trinidad, where most of its existing operations and production are concentrated. In line with this strategic approach, the company submitted a bid for the Guayaguayare block in the 2022 onshore/near-shore licensing round in Trinidad and Tobago.
WHIreland, a financial services company, believes that Challenger Energy is well-positioned to appreciate the geological potential of the Guayaguayare Block. They also note that workovers of existing wells offer favorable economics in the oil and gas sector due to their cost-effectiveness.
In a broader context, Challenger Energy’s assets in Uruguay (AREA OFF-1 and AREA OFF-3) are highly sought after and considered to have significant exploration potential on a global scale. Recent successful discoveries in Namibia have positively impacted the exploration prospects in Uruguay, which shares geological similarities with Namibia. The company’s investment focus has shifted to Uruguay, where there is potential for substantial value creation. However, success in Trinidad, including incremental low-risk production and cash flow gains, can strengthen the company’s financial position and make its holdings more marketable.
Zeus Capital, an investment banking firm, highlights several potential benefits for Challenger Energy from the expected award of the Guayaguayare license. Firstly, the proximity of the new license to the company’s existing core assets in Trinidad enables operational synergies and cost efficiency. Secondly, Challenger Energy believes that the Guayaguayare block holds exploration potential, and the company can leverage its regional subsurface knowledge to maximize the opportunity. Additionally, there are numerous non-producing wells on the block that could be reactivated, further enhancing the potential upside.
Challenger Energy’s current production business in Trinidad is self-sustaining, covering in-country costs. This allows the company to maintain a presence in Trinidad while capitalizing on specific opportunities such as the Guayaguayare block. While the primary focus remains on the company’s Uruguay position and the farm-out process there, Guayaguayare represents a promising source of future upside within an area familiar to Challenger Energy.
In addition to its operations in Trinidad, Challenger Energy holds producing assets in Uruguay and has an exploration portfolio encompassing Suriname and The Bahamas. The company’s Trinidad portfolio currently generates around 350 barrels per day of net production, providing cash flow to cover local expenses. The Uruguay position has gained prominence, partly due to drilling activities in Namibia and South Africa, as well as larger companies securing acreage in the country. Challenger Energy has identified three multi-hundred million barrels prospects in its OFF-1 license in Uruguay and intends to seek a farm-out agreement to fund additional 3D seismic. The company also has potential opportunities in onshore Suriname and its offshore Bahamas license. At the end of 2022, Challenger Energy held unrestricted cash amounting to US$2.2 million, which is expected to increase with recent asset sales.
