WTI (Apr) $78.15 -59c, Brent (May) $82.04 -76c, Diff -3.77 +11c
USNG (Apr) $1.96 +4c, UKNG (Apr) 68.25p +0.36p, TTF (Apr) €26.955 -€0.595

Oil price-Goodbye Super Tuesday…

Super Tuesday ended with no surprises, even the withdrawal of Nikki Haley didn’t change the overall results, merely a result of them. Jerome Powell is on the prowl again, in Washington to explain monetary policy ie rate cuts and their timing.

Oil is up strongly today after the Saudis surprised the market with an unexpected price increase to its buyers in Asia of its main grade crude.  Also after the close the API stats came out, crude built by 423/- barrels but was expected to be 2.6m and with a modest 500/- build at Cushing. In products though gasoline drew 2.8m b’s and distillates drew 1.8m. 

Challenger Energy Group

Challenger has announced that it and its wholly-owned Uruguayan subsidiary, CEG Uruguay SA have entered into a farm-out agreement with Chevron Uruguay Exploration Limited, a wholly-owned subsidiary of Chevron Corporation, related to a 60% interest in the AREA OFF-1 block, offshore Uruguay.

The primary terms of the Transaction are:

• Chevron will acquire a 60% participating interest in the AREA OFF-1 block, and will assume operatorship of the block.
• CEG Uruguay will retain a 40% non-operating interest in the block.
• Chevron will pay to CEG US$12.5 million cash on completion of the Transaction, these funds will be used to support the further development of the Company’s business.
• Chevron will carry 100% of CEG Uruguay’s share of the costs associated with a 3D seismic campaign on AREA OFF-1, up to a maximum of US$15 million net to CEG Uruguay.
• Following the 3D seismic campaign, should Chevron decide to drill an initial exploration well on the AREA-OFF 1 block, Chevron will carry 50% of CEG Uruguay’s share of costs associated with that well, up to a maximum of US$20 million net to CEG Uruguay.
• Completion and financial close of the Transaction will be subject to the satisfaction of conditions precedent and customary third-party approvals from the Uruguayan regulatory authorities, which are anticipated to take several months to finalise – the parties have commenced engagement with the regulators. 

Eytan Uliel, Chief Executive Officer of Challenger said:
“We are absolutely delighted to announce the farm-out of our AREA OFF-1 block in Uruguay to Chevron, a globally recognised industry leader. 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.”

I am delighted that my faith in Eytan Uliel and his team has been justified by this excellent deal with Chevron in Uruguay, where CEG started their journey in country during the mists of the pandemic. At the time there was a significant and urgent need to find assets more reliable than the Bahamas and more profitable than in Trinidad. 

And since then, after working carefully with  ANCAP, who initially awarded the AEA OFF-1 block to CEG, the company has done a great deal technical work which has led up to this farm-out. I’m sure that this deal ticks a number of important boxes for CEG, it is structured pretty much as they would have liked, keeping between 30-40% was important and giving up the operatorship was a necessity for example. 

They are carried for a 3D seismic acquisition to 100%, another tick, and an upfront cheque for $12.5m also sweetens the deal, and they get a half carry on the well should the results of the 3D seismic justify drilling it. All being well the 3D seismic would happen in early 2025 as progress is made OFF-1, with well drilling to follow depending on the success of the seismic.

Finally the company still has a 100% stake in AREA OFF-3 where the company has seen equally significant interest even if it is a little behind OFF-1 but to be honest it remains exciting for shareholders that so much newsflow will be generated in such an interesting frontier region. The shares have risen sharply, up by a factor of 5 in recent months but still don’t by a long chalk represent the value that might be involved here but it is step in the right direction with a long way up to go still. 

Eco (Atlantic) Oil & Gas

Eco (Atlantic) has announced it has signed a Farmout Agreement  pursuant to which Azinam Limited, its wholly owned subsidiary, will farm out a 13.75% Participating Interest in Block 3B/4B, offshore the Republic of South Africa as part of an aggregate 57% farm down transaction along with its  Joint Venture Partners Africa Oil SA Corp. and Ricocure (Proprietary) Limited to TotalEnergies EP South Africa B.V., who will become Operator and QatarEnergy International E&P LLC.

Upon completion of the Transaction, Eco will retain a 6.25% interest in Block 3B/4B.

Transactions Highlights:

Maximum transaction value, including carry, of up to US$32.1m to Eco, which includes payments due to Eco from Africa Oil and Ricocure under previously announced agreements as detailed below:

• As a result of the 6.25% farm out transaction with Africa Oil, announced on 11 July 2023, Eco will receive up to US$5.5m in two payments, US$4m on Completion of the Transaction, as defined below, and a further US$1.5m on spudding of the first exploration well, and US$1.2m due from Ricocure pursuant to the original Azinam – Ricocure 2019 farm out agreement due on Completion.
• TotalEnergies and QatarEnergy transaction will deliver, subject to achieving certain milestones, staged cash payments, comprising a total cash payment of US$11.92m of which US$1.92m is payable at Completion and the remaining balance in two equal successive payments, conditional upon receipt of customary regulatory approvals and the balance on spudding of a first exploration well.
• Eco will also receive a full carry of its 6.25% retained share of all JV costs, up to a cap, repayable to TotalEnergies and QatarEnergy from production, which is expected to be adequate to fund the Company’s share of drilling for up to two wells on the licence.

Gil Holzman, Co-founder and Chief Executive Officer of Eco Atlantic, commented:
“We are delighted to have signed this agreement with TotalEnergies and QatarEnergy. Block 3B/4B sits in one of the most prolific and exciting areas in the world for offshore oil and gas exploration and development. The decision by two of the largest energy companies globally to farm into this licence is strengthened by their significant understanding of the Orange basin, having made the Venus large light oil discovery just recently north of the basin in Namibia.

“I would like to thank our partners at Africa Oil and Ricocure for their cooperation and jointly negotiating this farm out agreement. We now look forward to working closely with the government of South Africa and our new partners on the exploration licence to prepare first drilling.”

This too is a very good deal, a strategic fit if ever there was one which leaves Eco in a very strong position in South Africa with Total and Qatar as partners. Indeed as partners Total fit the bill down to a T, they have immense knowledge of the petroleum system, are involved in blocks 5,6 and 7 as well as deep water blocks and now have two rigs of its own in the area one of which is earmarked for the Orange Basin. 

This is the biggest deal Eco has done, a great deal of money brought in in a number of payments including the spud of an exploration well and more importantly a full carry of all its JV costs repayable from production. But this is a smart deal in more than one way than one, with its 6.25% Eco will be in a very strong position in one of the best post codes in international oil exploration. 

The 4 billion barrels in the CPR mean that even 6.25% of that really ‘moves the needle’ in any valuation of Eco, they are kushti in that after any discovery and payback they have the put and the call. My guess is that Qatar would buy more of the block so would be a natural buyer at a premium or Eco could just hunker down and watch the value rise. 

Once this has been done Eco have the small matter of their acreage in Namibia to farm-out and with the interest locally interest may be substantial. Finally the company are doing a formal farm-out process with regard to their Orinduik block in Guyana where current interest is also very keen. 

Eco shares are up very modestly today, it will take a while for the market to work out quite how valuable they are after this deal and I’m sure that will come with time, they stay in the bucket list out next week.

KeyFacts Energy Industry Directory: Malcy's Blog