Today’s Oil and Gas Update: Challenger Energy Group, and more…

Market Update: 26 April 2023

Challenger Energy Group PLC – Farm-out process to launch imminently

Harbour Energy PLC – Kan oil discovery in Mexico

Energy News
Brent Oil US$80.8/bbl vs US82.8/bbl yesterday

Crude Oil WTI Futures US$77.4/bbl vs US$79.0/bbl yesterday

Henry Hub Gas US$2.25/mmBtu vs US$2.23/mmBtu yesterday

UK NBP Futures 93p/therm vs 95p/therm yesterday

Dutch TTF Natural Gas Futures €39/MWh vs €40/MWh yesterday

Crude oil prices edged lower with the broader market even as the API reported a 6.1mb draw in US crude oil and fuel stocks (vs 1.7mb draw expected).
The Morning Energiser will now be taking two weeks break to re-energise with some Namibia-based hiking, resuming daily commentary on Monday 15th May.
Company News
Challenger Energy Group PLC 0.11p, Market Cap £11m: Farm-out process to launch imminently

Challenger (LON:CEG) announced that a geotechnical assessment programme of the offshore Uruguay AREA OFF-1 licence (100% WI) is on track for completion in 3Q23, which would satisfy the initial work programme to 3Q26.
An initial prospect inventory of 1-2bnb has been defined from the Company’s 2D seismic reprocessing work that has identified three sizeable prospects, all in excess of 500mboe and supported by AVO analysis.
Following unsolicited interest from a number of industry counterparties, Challenger plans to shortly launch a farm-out process that will introduce a strategic partner to fund 3D seismic acquisition possibly as early as 2024.
In 2020, when no other parties were ready to commit, Challenger was a first mover into offshore Uruguay, securing its exploration block on an uncontested basis and on highly advantageous work terms. Since then, margin-opening discoveries offshore Namibia by Shell (LON:RDSa) (Graff) and TotalEnergies (LON:TTEF) (Venus) have made it possible to correlate what are now proven, oil producing source rocks directly across into the conjugate margin basins of Uruguay’s waters and led to the award of adjacent licences to high quality explorers including Shell, APA and YPF (NYSE:YPF). We also expect potential operational catalysts from Challenger’s onshore Trinidad work programme on the existing well stock (recompletions, reactivations, and swabbing) and on upgrading field infrastructure to boost production volumes, as it looks to benefit from unhedged crude oil production and targets free cash generation from its Trinidadian operations.

Harbour Energy PLC 247p, Market Cap £2.04bn: Kan oil discovery in Mexico

Harbour (LON:HBR) noted the announcement from the operator, Wintershall Dea (private), of an oil discovery on the Kan-1 exploration well on Block 30 (30% WI) in the Sureste Basin, offshore Mexico.
The shallow offshore Kan-1 discovery, located in 50m of water, found more than 170m of Upper Miocene net pay sands with good petrophysical properties and high-quality oil.
The operator estimated Preliminary estimated the discovery holds between 200-300mboe in place, which is broadly in line with the 78.5mboe pre-drill recoverable resource potential.
The rig will now move to spud a second well on the Ix-1 prospect in Block 30, located about 20km north-east of Kan-1.
After the recent submission of the Unit Development Plan for the Zama field on Block 7, the discovery in Block 30 is the next important milestone for Harbour in the Sureste Basin in Mexico, adding to a string of Miocene discoveries. Harbour has announced plans to redirect capital away from the high tax UK fiscal regime following the introduction of the EPL, and its burgeoning non-operated position in Mexico may provide an effective outlet in the absence of new development projects. However, as with Capricorn’s discovery last month in the Sureste Basin, we do wonder if a non-operated equity position is of sufficient interest to management who might be tempted if a competitive bid was forthcoming from a regional consolidator. Harbour previously commented that the M&A environment has improved y/y as commodity prices stabilised and it had sufficient firepower to make a ~50kboe/d scale acquisition, which would likewise provide the Company with an additional outlet to diversify its expenditures away from the UK.

Research

David Mirzai – [email protected] – 0203 470 0473

Sales

Richard Parlons – [email protected] – 0203 470 0472

Grant Barker – [email protected] – 0203 470 0471

Rob Rees – [email protected] – 0203 470 0535

Abigail Wayne – [email protected] – 0203 470 0534

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Sources of commodity prices

Oil Brent – ICE (NYSE:ICE)

Natural Gas – NYMEX

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