Oil majors chase high-risk exploration in Uruguay

Uruguay state-run energy firm Ancap is set to agree to final terms for a record seven offshore exploration licences in October, a senior executive said, as the frontier market lures bets from global players such as Shell.

To date no oil or gas has been found in Uruguayan waters, but the licences have nonetheless drawn tentative interest from energy majors as recent discoveries in Namibia, on the direct opposite side of the Atlantic, have stoked hopes of similar finds off South America.

“Geologists believe Namibia was linked to Uruguay 120-million years ago, before the break-up between Africa and South America,” said Santiago Ferro, who oversees energy transition at Ancap, which is involved in the licensing process. “So they share the same geological history, like a mirror image.”

Uruguay remains “frontier, wildcat exploration”, Ferro conceded, but he said the potential could be significant. “If a couple of discoveries are made it would not be a surprise if the recoverable resources are billions of BOE (barrels of oil equivalent),” he said Any energy discoveries were likely to be more weighted towards gas than in Namibia.

Ferro said that for the first time, all seven offshore blocks — which lie 100km-300km off Uruguay’s coast — will have international firms carrying out exploration work. He said the contracts were set to be finalised with Ancap by mid-October, a timeline that had not previously been disclosed.

Shell, Argentina’s YPF and Houston-based APA Corp are among the companies awarded licences.

Ancap estimates the potential oil and gas in place is about 20-billion barrels.

“If there is a discovery, Uruguay can start to estimate production targets,” Ferro said. Ancap expects the first exploratory offshore well from this licensing round to be drilled before the end of 2027.

High risk

For decades Uruguay has explored for oil. Its previous auctions have attracted industry leaders such as BP and TotalEnergies, but only dry wells have been found. The South American country imports all the oil and gas it needs through spot-market purchases, and has no proven reserves.

While the pool of firms awarded licences this time round is new, the level of planned investment in exploration remains small, with $127m committed. Ancap expects to attract a further $200m over the next six years.

Analysts point to a disparity between the level of excitement over Latin America’s offshore oil potential and actual discoveries. Only Brazil, Guyana and Suriname have had solid commercial success in recent decades.

“Uruguay has never yielded a commercial discovery,” said Andres Armijos, head of Latin America research at energy consultancy Welligence. “From an oil and gas point of view, it is high risk, but that’s what companies are chasing.”

Britain-based Challenger Energy was awarded two of the seven licences in Uruguay, following unsuccessful exploration projects in the Bahamas and Trinidad and Tobago.

Challenger CEO Eytan Uliel said Uruguay’s government was “extremely committed and supportive,” though he cautioned things were “in the early stages”. The Namibia discoveries, though, had raised the chances that oil could be found, he said.

The next step is to evaluate the areas by reviewing the seismic data collected to date to establish well locations. Drilling could begin as soon as 2026, Challenger has said.

“We have kilometres of seismic data, dating back to the 1970s. Using modern technology, we can create a different picture of what is there,” Uliel added. 

Reuters