Challenger Energy Group Plc's (AIM:CEG, OTC:BSHPF) new exploration partnership with US supermajor Chevron is “unambiguously positive and transformative” for the small-cap firm, that’s the view of stockbroker WH Ireland.
In London, on Wednesday, Challenger shares soared as much as 115% in early deals after it announced the farm-out deal which is expected to deliver $12.5 million of upfront cash along with ‘carries’ on project funding worth up to $35 million.
Chevron becomes the project operator in the project, located offshore Uruguay in an emerging exploration ‘hotspot’.
“Validating our high-conviction assessment that the company would secure a farmout given the high-quality prospectivity within AREA OFF-1 and the heightened interest in Uruguay, following the extraordinarily large-scale successful discoveries in the Orange Basin of Namibia – the geological mirror of Uruguay,” WH Ireland analyst Brendan Long said in a note.
“We believe the terms of the farmout suggest that i) there was competitive bidding pressure and ii) industry recognised the quality of the technical work undertaken by Challenger Energy”.
Deal details
Chevron will acquire a 60% interest in the project. It has agreed to cover all the costs of a planned 3D seismic data acquisition programme, up to $15 million, and, up to $20 million of Challenger’s share of well costs (should the project proceed to drilling).
Challenger, meanwhile, retains 40% of the exploration project.
The transaction remains conditional on regulator approval in Uruguay, which the company said could take several months.
Enormous potential
"We are absolutely delighted to announce the farm-out of our AREA OFF-1 block in Uruguay to Chevron, a globally recognised industry leader,” Challenger chief executive Eytan Uliel said in a statement.
“We firmly believe that AREA OFF-1 holds enormous potential, and this farm-out is a strong validation of the high-quality technical work CEG has done to date."
Uliel added: “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."