Uruguay

Challenger Energy holds two offshore licences in Uruguay, totally 19,000km² (gross area), making it the 3^rd largest of acreage holder offshore Uruguay. The entire Uruguay offshore is now fully licenced, with Challenger Energy being the only junior with a position in this exciting new exploration province. Challenger Energy’s Uruguay blocks are AREA OFF-1 and AREA OFF-3.

 In AREA OFF-1, Challenger Energy has a 40% non-operating interest, following a successful farm-out of a 60% interest to Chevron.

In AREA OFF-3, Challenger has a 100% interest and is the operator.

Uruguay is widely recognised as the premier Latin-American County for business, with an excellent-social and political system, well-functioning democracy, reliable legal system and educated and skilled workforce. Uruguay is also a leader in providing reliable, sustainable and affordable energy and thus promotes the responsible development of the nation’s energy mix.

Recent conjugate margin discoveries offshore Southwest Africa have led to enormous global interest in the types of plays present in Uruguay. In particular, the data and enhanced technical understanding provided from recent discoveries offshore Namibia provides greater confidence that there might be potential for a new, prolific petroleum system in the Uruguay offshore, including CEG’s blocks. This has accelerated licencing, seismic acquisition and drilling across the region.

AREA OFF-1

The AREA OFF-1 block is a large offshore block covering approximately 14,557 km², located approximately 100 kms offshore Uruguay in water depths ranging from 80 meters to 1,000 meters. In May 2020, Challenger Energy bid for the block, the first bid submitted by any company in the new Uruguay Open Round. In June 2020, Challenger Energy was awarded the block, the licence was signed post covid on 25 May 2022, and the licence’s initial four-year exploration commenced on 25^th August 2022.

The minimum work commitment for AREA OFF-1’s initial four-year period minimum work obligations has already been completed, along with discretionary additional work. Challenger Energy’s technical work identified three prospects, with significant multi-billion barrel resource potential. These prospects have been named Teru Teru, Anapero and Lenteja.

On the 6^th of March 2024, Challenger Energy announced that it has entered into a farm-out agreement with Chevron, related to the AREA OFF-1 block. The farm-out was completed on 28 October 2024. The terms of the agreement are:

• Chevron will acquire a 60% participating interest in AREA OFF-1 and will take on operatorship of the block.
• CEG will retain a 40% non-operating interest in the block.
• Challenger will receive US$12.5 million from Chevron on completion, and these funds will be used to support the further development of the business.
• Chevron will carry 100% of Challenger’s share of the costs associated with the 3D seismic campaign on AREA OFF-1 block, up to a maximum of US$15 million net.
• Following the 3D seismic campaign, should Chevron decide to drill an initial exploration well on the block, Chevron will carry 50% of CEG’s share of costs associated with that well, up to a maximum of US$20 million net.

AREA OFF-3

The AREA OFF-3 licence covers an area of 13,252 km² located in a relatively shallow water depths (from 20 to 1,000 meters) approximately 100kms off the Uruguayan coast. In May 2023, Challenger bid for AREA OFF-3, the last remaining offshore block in Uruguay. In June 2023, CEG was awarded the block, and the licence was signed on the 7^th of March 2024. The first four-year exploration period to commence on the 7^th of June 2024.

AREA OFF-3 block has substantial existing 2D and 3D seismic coverage and extensive prior data. During the initial exploration period, Challenger Energy’s minimum work obligations are modest, comprising licencing and reprocessing of 1,000 kms of legacy 2D seismic data, and undertaking two geotechnical studies. There is no drilling obligation.

AREA OFF-3 was previously held by BP and two primary prospects were identified and mapped, Amalia and Morpheus. The Amalia prospect straddling both the AREA OFF-2 (held by Shell) and AREA OF-3 blocks. The geological prospectivity and petroleum system understanding has changed dramatically since 2022 Namibian discoveries, specifically regarding the new Cretaceous petroleum system and seismic recognition.